Alder Biopharmaceuticals
ALDER BIOPHARMACEUTICALS INC (Form: 10-Q, Received: 08/08/2017 16:03:18)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-36431

 

Alder BioPharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

90-0134860

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

11804 North Creek Parkway South

Bothell, WA 98011

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (425) 205-2900

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer (do not check if a smaller reporting company)

 

 

 

 

 

 

 

 

 

 

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

As of August 4, 2017 the registrant had   67,713,633 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Alder BioPharmaceuticals, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2017

INDEX

 

 

Page

 

PART I. FINANCIAL INFORMATION (Unaudited)

 

 

Item 1.

 

 

Condensed Consolidated Financial Statements

3

 

 

 

Condensed Consolidated Balance Sheets

3

 

 

 

Condensed Consolidated Statements of Operations

4

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

5

 

 

 

Condensed Consolidated Statements of Cash Flows

6

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

Item 2.

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

23

 

Item 4.

 

 

Controls and Procedures

24

 

PART II. OTHER INFORMATION

 

 

Item 1.

 

 

Legal Proceedings

25

 

Item 1A.

 

 

Risk Factors

25

 

Item 6.

 

 

Exhibits

50

 

SIGNATURES

51

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Alder,” and “the Company” refer to Alder BioPharmaceuticals, Inc. and, where appropriate, its consolidated subsidiaries. “Alder,” “Alder BioPharmaceuticals” and the Alder logo are the property of Alder BioPharmaceuticals, Inc. This report contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

 

 

2


 

P ART I. – FINANCIAL INFORMATION

 

I tem 1.

Condensed Consolidated Financial Statements

Alder BioPharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

2017

 

 

2016

 

 

(in thousands, except share and per share data)

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

127,789

 

 

$

116,216

 

Short-term investments

 

96,692

 

 

 

235,651

 

Prepaid expenses and other assets

 

21,221

 

 

 

40,380

 

Inventory

 

936

 

 

 

936

 

Total current assets

 

246,638

 

 

 

393,183

 

Property and equipment, net

 

6,714

 

 

 

7,076

 

Investment in unconsolidated entity

 

586

 

 

 

865

 

Other assets

 

30

 

 

 

8,030

 

Total assets

$

253,968

 

 

$

409,154

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

19,796

 

 

$

10,361

 

Accrued liabilities

 

14,236

 

 

 

15,437

 

Deferred rent

 

92

 

 

 

92

 

Total current liabilities

 

34,124

 

 

 

25,890

 

Long-term deferred rent

 

423

 

 

 

481

 

Total liabilities

 

34,547

 

 

 

26,371

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock; $0.0001 par value; 200,000,000 shares authorized; 50,461,985 and 50,368,206 shares issued and outstanding, respectively

 

5

 

 

 

5

 

Additional paid-in capital

 

773,071

 

 

 

761,456

 

Accumulated deficit

 

(553,587

)

 

 

(378,630

)

Accumulated other comprehensive loss

 

(68

)

 

 

(48

)

Total stockholders’ equity

 

219,421

 

 

 

382,783

 

Total liabilities and stockholders’ equity

$

253,968

 

 

$

409,154

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

3


 

Alder BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

(in thousands, except share and per share data)

 

 

(in thousands, except share and per share data)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration and license agreements

$

683

 

 

$

113

 

 

$

683

 

 

$

113

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

683

 

 

 

113

 

 

 

683

 

 

 

113

 

Research and development

 

65,276

 

 

 

33,833

 

 

 

155,965

 

 

 

61,480

 

General and administrative

 

9,548

 

 

 

6,466

 

 

 

19,529

 

 

 

12,511

 

Total operating expenses

 

75,507

 

 

 

40,412

 

 

 

176,177

 

 

 

74,104

 

Gain on license of clazakizumab

 

 

 

 

1,050

 

 

 

 

 

 

1,050

 

Loss from operations

 

(74,824

)

 

 

(39,249

)

 

 

(175,494

)

 

 

(72,941

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

438

 

 

 

529

 

 

 

923

 

 

 

944

 

Foreign currency loss

 

(113

)

 

 

(146

)

 

 

(107

)

 

 

(232

)

Total other income, net

 

325

 

 

 

383

 

 

 

816

 

 

 

712

 

Net loss before equity in net loss of unconsolidated entity

 

(74,499

)

 

 

(38,866

)

 

 

(174,678

)

 

 

(72,229

)

Equity in net loss of unconsolidated entity

 

(130

)

 

 

 

 

 

(279

)

 

 

 

Net loss

$

(74,629

)

 

$

(38,866

)

 

$

(174,957

)

 

$

(72,229

)

Net loss per share - basic and diluted

$

(1.48

)

 

$

(0.79

)

 

$

(3.47

)

 

$

(1.55

)

Weighted average number of common shares used in net loss per share - basic and diluted

 

50,427,865

 

 

 

49,284,573

 

 

 

50,411,837

 

 

 

46,519,045

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

4


 

Alder BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

(in thousands)

 

 

(in thousands)

 

Net loss

$

(74,629

)

 

$

(38,866

)

 

$

(174,957

)

 

$

(72,229

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities available-for-sale, net of tax

 

(73

)

 

 

146

 

 

 

(20

)

 

 

560

 

Foreign currency translation income, net of tax

 

 

 

 

 

 

 

 

 

 

21

 

Total other comprehensive income (loss)

 

(73

)

 

 

146

 

 

 

(20

)

 

 

581

 

Comprehensive loss

$

(74,702

)

 

$

(38,720

)

 

$

(174,977

)

 

$

(71,648

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

5


 

Alder BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

Six Months Ended

 

 

June 30,

 

 

2017

 

 

2016

 

 

(in thousands)

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(174,957

)

 

$

(72,229

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

Non-cash gain on license of clazakizumab in exchange for investment in unconsolidated entity

 

 

 

 

(1,050

)

Equity in net loss of unconsolidated entity

 

279

 

 

 

 

Depreciation and amortization

 

1,486

 

 

 

505

 

Stock-based compensation

 

10,901

 

 

 

6,348

 

Other non-cash charges, net

 

300

 

 

 

65

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

27,159

 

 

 

291

 

Inventory

 

 

 

 

(936

)

Accounts payable

 

9,837

 

 

 

2,851

 

Accrued liabilities

 

(1,201

)

 

 

111

 

Deferred rent

 

(58

)

 

 

28

 

Net cash used in operating activities

 

(126,254

)

 

 

(64,016

)

Investing activities

 

 

 

 

 

 

 

Purchases of investments

 

(28,334

)

 

 

(55,613

)

Proceeds from maturities of investments

 

166,973

 

 

 

10,250

 

Purchases of property and equipment

 

(1,526

)

 

 

(2,953

)

Proceeds from sale of property and equipment

 

 

 

 

5

 

Net cash provided by (used in) investing activities

 

137,113

 

 

 

(48,311

)

Financing activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of offering costs

 

 

 

 

134,871

 

Proceeds from exercise of stock options and employee stock purchase plan

 

714

 

 

 

979

 

Net cash provided by financing activities

 

714

 

 

 

135,850

 

Effect of exchange rate changes on cash

 

 

 

 

21

 

Net increase in cash and cash equivalents

 

11,573

 

 

 

23,544

 

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of period

 

116,216

 

 

 

206,492

 

End of period

$

127,789

 

 

$

230,036

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and accrued liabilities

$

101

 

 

$

1,156

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

6


 

Alder BioPharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

 

1.

Nature of Business

 

Alder BioPharmaceuticals, Inc. (the “Company”) is a clinical-stage biopharmaceutical company that discovers, develops and seeks to commercialize therapeutic antibodies with the potential to meaningfully transform current treatment paradigms. The Company has developed a proprietary antibody platform designed to select and manufacture antibodies that have the potential to maximize efficacy as well as speed of onset and durability of therapeutic response. The Company was incorporated in Delaware on May 20, 2002 and is located in Bothell, Washington.

Public Offerings             

In April 2016, the Company completed an underwritten public offering of 6,182,795 shares of common stock, which included 806,451 shares the Company issued pursuant to the underwriters’ exercise of their option to purchase additional shares.  The Company received $134.9 million in net proceeds, after deducting underwriting discounts and commissions of $8.6 million and offering expenses of $0.3 million.

On July 18, 2017, the Company completed an underwritten public offering of 17,250,000 shares of common stock, which included 2,250,000 shares the Company issued pursuant to the underwriters’ exercise of their option to purchase additional shares. The Company received approximately $161.5 million in net proceeds, after deducting underwriting discounts and commissions of $10.4 million and estimated offering expenses of $0.7 million.

 

 

2.

Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements reflect the accounts of Alder BioPharmaceuticals, Inc. and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation. The condensed consolidated balance sheet data as of December 31, 2016 were derived from audited financial statements. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and generally accepted accounting principles in the United States of America (“GAAP”) for unaudited condensed consolidated financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the Company’s financial position and results of its operations, as of and for the periods presented. The Company manages its business as one operating segment; however, the Company operates in three   geographic regions: United States (Bothell, WA), Australia, and Ireland. Substantially all of the Company’s assets are located in the United States.

The Company has a relationship with a variable interest entity (“VIE”).  The Company evaluates VIEs to determine whether the Company is the primary beneficiary by performing a qualitative and quantitative analysis of each VIE that includes a review of, among other factors, the VIE’s capital structure, contractual terms, related party relationships, the Company’s fee arrangements and the design of the VIE.  This analysis includes determining whether the Company (1) has the power to direct matters that most significantly impact the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

In circumstances where the Company is not the primary beneficiary, but the Company has the ability to exercise significant influence over the operating and financial policies of a company in which it has an investment, the Company utilizes the equity method of accounting for recording investment activity. In assessing whether the Company exercises significant influence, it considers the nature and magnitude of the investment, the voting and protective rights held, any participation in the governance of the other company, and other relevant factors such as the presence of a collaboration or other business relationship. Under the equity method of accounting, the Company records in its results of operations its share of income or loss of the other company. If the Company’s share of losses exceeds the carrying value of its investment, it will suspend recognizing additional losses and will continue to do so unless the Company commits to providing additional funding. The Company monitors its investment to evaluate whether any decline in value has occurred that would be other-than-temporary, based on the implied value of recent company financings, public market prices of comparable companies, and general market conditions. The carrying value of the investment is included in the Company’s condensed consolidated balance sheet as investment in unconsolidated entity.

7


 

These un audited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 201 6 .

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of the Company’s operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year or for any other period.

Concentrations of Credit Risk

The Company is exposed to credit risk from its deposits of cash, cash equivalents and short-term investments in excess of amounts insured by the Federal Deposit Insurance Corporation.

Other Non-Current Assets

As of December 31, 2016, other non-current assets included an $8.0 million fee paid to a third party to secure additional production capacity. Upon execution of a binding agreement in March 2017, this payment was characterized as a non-refundable payment and recognized as research and development expense during the first quarter ended March 31, 2017.

Liquidity and Going Concern

As disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 (the “Q1 2017 Form 10-Q”), in accordance with the requirements of ASC 205-40, management concluded that it was required to disclose that substantial doubt existed about the Company’s ability to continue as a going concern for one year from the date the financial statements included in the Q1 2017 Form 10-Q were issued. On July 18, 2017, the Company received approximately $161.5 million in net proceeds from an underwritten public offering of common stock. The Company also decreased its forecasted cash requirements for operating activities over the next year. The Company estimates the available cash, cash equivalents and investments as of June 30, 2017, together with the proceeds received from the July 2017 offering, will be sufficient to meet its projected operating requirements for at least the next twelve months from the filing date of these financial statements. As a result of these conditions and events, substantial doubt of the Company’s ability to continue as a going concern no longer exists. The Company will need to obtain substantial additional funding to develop and commercialize eptinezumab and other clinical programs as currently contemplated. The Company expects to finance future cash needs through equity financings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements, but there are no assurances that the Company will be able to raise sufficient amounts of funding in the future on acceptable terms, or at all.  

The condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

8


 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. This ASU stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This ASU clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing. This ASU clarifies two aspects of ASU 2014-09, Revenue from Contracts with Customers (Topic 606): Identifying performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients. This ASU addresses certain issues in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) regarding assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This ASU amends narrow aspects of ASU 2014-09, Revenue from Contracts with Customers.

The new revenue standards are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after the original effective date of December 15, 2016. The standards permit the use of either the full retrospective or modified retrospective method.  The Company does not believe adopting this guidance will have a material impact on its financial statements as the Company is not currently generating material revenues.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall. This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU will become effective for annual periods beginning after December 15, 2017. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU requires the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. This ASU will become effective for annual periods beginning after December 15, 2018. The Company expects adopting this ASU will result in an increase in the assets and liabilities on its consolidated balance sheets and will have no impact on its consolidated statements of operations and statement of cash flows.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU will become effective for annual periods beginning after December 15, 2017. The Company does not believe adopting this ASU will have a material impact as it relates to the treatment of equity distributions which are currently not material to the Company.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) – Scope of Modification Accounting. This ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This ASU will become effective for annual periods beginning after December 15, 2017. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

The Company has reviewed other recent accounting pronouncements and concluded that they are either not applicable to the business, or that no material effect is expected on the consolidated financial statements as a result of future adoption.

 

 

9


 

3.

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted average common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted average common shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method.

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss (in thousands)

$

(74,629

)

 

$

(38,866

)

 

$

(174,957

)

 

$

(72,229

)

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

50,427,865

 

 

 

49,284,573

 

 

 

50,411,837

 

 

 

46,519,045

 

Net loss per share - basic and diluted

$

(1.48

)

 

$

(0.79

)

 

$

(3.47

)

 

$

(1.55

)

 

 

The following weighted average numbers of outstanding stock options and employee stock purchase plan awards were excluded from the calculation of diluted net loss per share for the three and six months ended June 30, 2017 and 2016 because including them would have had an anti-dilutive effect.  Therefore, basic and diluted net loss per share were the same for all periods presented.

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Stock options

 

6,795,748

 

 

 

4,270,080

 

 

 

6,381,733

 

 

 

4,009,156

 

Employee stock purchase plan

 

61,354

 

 

 

22,814

 

 

 

116,887

 

 

 

43,511

 

 

 

6,857,102

 

 

 

4,292,894

 

 

 

6,498,620

 

 

 

4,052,667

 

 

10


 

4.

Short-term Investments

 

Short-term investments consisted of available-for-sale securities as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

Cost

 

 

Gross unrealized

gains

 

 

Gross unrealized

losses

 

 

Fair

Value

 

 

 

(in thousands)

 

Type of security as of June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit maturing in

   one year or less

 

$

5,000

 

 

$

 

 

$

(1

)

 

$

4,999

 

U.S. government agency obligations maturing in

   one year or less

 

 

91,758

 

 

 

 

 

 

(65

)

 

 

91,693

 

Total available-for-sale securities

 

$

96,758

 

 

$

 

 

$

(66

)

 

$

96,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Type of security as of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit maturing in

   one year or less

 

$

11,000

 

 

$

1

 

 

$

(4

)

 

$

10,997

 

U.S. government agency obligations maturing in

   one year or less

 

 

224,697

 

 

 

27

 

 

 

(70

)

 

 

224,654

 

Total available-for-sale securities

 

$

235,697

 

 

$

28

 

 

$

(74

)

 

$

235,651

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized gains and losses are determined based on the specific identification method and are reported in other income in the condensed consolidated statement of operations.  There were no realized gains or losses on sales of available-for-sale securities in the three and six months ended June 30, 2017 and 2016.

 

 

5 .

Fair Value Disclosures

The Company holds financial instruments that are measured at fair value which is determined according to a fair value hierarchy that prioritizes the inputs and assumptions used, and the valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described as follows:

 

Level   1

Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level   2

Inputs are quoted prices for similar assets and liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

 

Level   3

Inputs are unobservable inputs based on the Company’s own assumptions and valuation techniques used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

The Company established the fair value of its assets and liabilities using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and established a fair value hierarchy based on the inputs used to measure fair value.

 


11


 

 

The following table presents the Company’s financial instruments by level within the fair value hierarchy:

 

 

 

Fair Value Measurement Using

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

As of June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

95,063

 

 

$

 

 

$

 

 

$

95,063

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit

 

 

 

 

 

4,999

 

 

 

 

 

 

4,999

 

U.S. government agency obligations

 

 

 

 

 

91,693

 

 

 

 

 

 

91,693

 

 

 

$

95,063

 

 

$

96,692

 

 

$

 

 

$

191,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

111,149

 

 

$

 

 

$

 

 

$

111,149

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit

 

 

 

 

 

10,997

 

 

 

 

 

 

10,997

 

U.S. government agency obligations

 

 

 

 

 

224,654

 

 

 

 

 

 

224,654

 

 

 

$

111,149

 

 

$

235,651

 

 

$

 

 

$

346,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company’s negotiable certificates of deposit and U.S. government agency obligations are valued using fair value measurements that are considered to be Level 2.  The investment custodian provides the Company with valuations of its securities portfolio. The primary source for the security valuation is Interactive Data Corporation (“IDC”), which evaluates securities based on market data.  IDC utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information.  Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. The custodian utilizes proprietary valuation matrices for valuing all negotiable certificates of deposit.

 

Accounts payable and accrued liabilities are carried at cost, which approximates fair value due to the short-term nature of these financial instruments.

     

6.

Gain on License of Clazakizumab and Investment in Unconsolidated Entity

In May 2016, the Company licensed the exclusive worldwide rights to its product candidate clazakizumab to Vitaeris, Inc. (“Vitaeris”), based in Vancouver, British Columbia, that is pursuing innovative therapeutic indications in chronic inflammatory diseases. In exchange for the rights to clazakizumab, the Company received an equity stake in Vitaeris and is eligible to receive royalties and certain other payments. In addition, Randall C. Schatzman, Ph.D., the Company’s president and chief executive officer, joined Vitaeris’ board of directors. Since clazakizumab was developed internally by the Company, all previous expenditures to develop the compound were recognized as expense in the period incurred and there was no carrying value on the Company’s condensed consolidated balance sheet. The Company recognized an initial gain on the license agreement of $1.1 million, which was determined as the initial fair value of the Company’s equity stake in Vitaeris.  

As of June 30, 2017, the Company held $0.9 million in inventory of finished goods related to clazakizumab on its condensed consolidated balance sheet. Clazakizumab has not received regulatory approval for commercial sale and the related inventory is currently held only for resale associated with the Vitaeris agreement. The Company values inventory at the lower of cost or market value which is determined using the specific identification basis. Inventory is reduced to net realizable value for excess, obsolete or unsalable inventory.

Vitaeris is a VIE for which the Company is not the primary beneficiary as the Company does not have the power to direct the activities that most significantly influence the economic performance of the entity.  In addition to the Company’s exchange of license rights for clazakizumab, Vitaeris was capitalized through cash investments by other parties. The investment in Vitaeris is accounted for under the equity method of accounting because the Company holds common stock of Vitaeris and has significant influence over the operating and financial policies of Vitaeris through its ownership, license arrangement and representation on the board of directors. Therefore, the Company records its share of any loss or income generated by Vitaeris, which is recorded on a three-month lag, within the condensed consolidated statement of operations. The investment is reflected as an investment in unconsolidated entity on the Company’s condensed consolidated balance sheet which represents the investment in Vitaeris, net of the Company’s portion of any

12


 

generated loss or income. The Company recorded $ 0.1 million and $0.3 million in net loss with respect to Vitaeris for the three and six months ended June 30, 2017 , respectively . T he carrying value of the Company’s investment in Vitaeris is $ 0.6 million as of June 30, 2017 , which is classified as a non-current asset . The Company has no implied or unfunded commitments related to Vitaeris and its maximum exposure to loss is limited to the current carrying value of the investment.

      

7.

Accrued Liabilities

Accrued liabilities consisted of the following for the dates indicated:

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

$

4,244

 

 

$

4,833

 

Contracted research and development

 

 

8,574

 

 

 

9,837

 

Professional services and other

 

 

1,418

 

 

 

767

 

 

 

$

14,236

 

 

$

15,437

 

 

 

8.

Subsequent Event

On July 18, 2017, the Company completed an underwritten public offering of 17,250,000 shares of common stock, which included 2,250,000 shares the Company issued pursuant to the underwriters’ exercise of their option to purchase additional shares.  The Company received approximately $161.5 million in net proceeds, after deducting underwriting discounts and commissions of $10.4 million and estimated offering expenses of $0.7 million.

 

 

 

 

13


 

 

 

Item 2.

  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

 

  

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this report and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2016 included in our Annual Report on Form 10-K, or 2016 Form 10-K.

Forward-Looking Statements

This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A — “Risk Factors,” and elsewhere in this report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments.

 

Overview

We are a clinical-stage biopharmaceutical company that discovers, develops and seeks to commercialize therapeutic antibodies with the potential to meaningfully transform current treatment paradigms. All of our product candidates were discovered and developed by Alder scientists using our proprietary antibody technology platform coupled with a deliberate approach to design and select candidates with properties that we believe optimize the therapeutic potential for patients and commercial competitiveness.

We are focusing our resources and development efforts principally on eptinezumab (ALD403), our most advanced solely-owned product candidate, in order to maximize its therapeutic and commercial potential. Our infusion formulation of eptinezumab is being evaluated in a pivotal trial program for the prevention of migraine, with a Biologics License Application (BLA) submission to the U.S. Food and Drug Administration (FDA) planned for the second half of 2018. Migraine is a serious neurological disease affecting about 36 million people in the United States. Of that number, approximately 13 million people in the United States are candidates for a migraine prevention therapeutic. Of these candidates for migraine prevention, approximately three million people live with chronic migraine, and another two million live with severe frequent episodic migraine. This segment of five million people living with migraine are the most highly-impacted patients, and they typically experience eight or more migraines per month. Current preventative migraine treatment options available in the market today are challenged by safety, efficacy and tolerability limitations. More than 40 percent of migraineurs have not used a preventative therapeutic, and only about one in 10 currently utilize a preventative therapeutic. As a result, we believe there is a significant, unmet need for new treatment and prevention options. We plan to focus our initial commercialization efforts for eptinezumab, if approved, on this five million patient migraine segment. We estimate the market opportunity for eptinezumab infusion therapy is approximately $1.5 to $2.0 billion.

Eptinezumab is a genetically engineered monoclonal antibody inhibiting calcitonin gene-related peptide (CGRP), a small protein and a validated target that is understood to drive migraine initiation, maintenance and chronification. Designed to deliver a competitively differentiated approach to migraine prevention, we believe eptinezumab holds the potential to be a transformative therapeutic and meet a profound medical need, changing the migraine prevention treatment paradigm for physicians and patients living with migraine.

Our deliberate approach to engineering and developing eptinezumab is designed to provide a unique clinical profile that, after a single administration via an in-office infusion procedure, provides rapid and persistent migraine prevention. Eptinezumab is the only anti-CGRP monoclonal antibody in development for the prevention of migraine administered via infusion. We believe that this clinical profile, as supported by data from our clinical trials, will present a potentially compelling value proposition for patients, physicians, payors and our stakeholders.

In Phase 2 clinical trials for the prevention of migraine, after a single administration via infusion, eptinezumab has demonstrated:

 

1.

Rapid speed to clinical benefit: Chronic migraine patients experienced a clinically meaningful reduction in the number of migraine days in as little as 24 to 48 hours. This means their migraine prevention benefit started as soon as 1-2 days

14


 

 

following treatment. In these trials, chronic and frequent episodic migraine patients experienced maximum e fficacy in 1-4 weeks after a single dose of eptinezumab.

 

2.

Efficacy: Approximately one-third of the patients in these trials experienced a 75 percent reduction in their number of migraine days each month starting 1-4 weeks after treatment.

 

3.

Persistence of Response: Following a single administration of eptinezumab, the efficacy response that was attained within 1-4 weeks of the first dose was sustained for 3 months. This supports our proposed quarterly dosing regimen and our expectation that less frequent dosing will be needed with eptinezumab as compared to prevention therapies that may require monthly dosing.

 

4.

Safety: Safety and tolerability similar to placebo.

We also believe that administration as a 30-minute, in-office infusion procedure may promote greater patient adherence and physician oversight relative to self-administered therapies.

The pivotal trial program for our infusion formulation of eptinezumab in support of a BLA submission consists of two Phase 3 pivotal trials and a single open-label Phase 3 clinical trial. Our first pivotal trial, PR evention O f M igraine via I ntravenous ALD403 S afety and E fficacy 1 (PROMISE 1), commenced in October 2015 and is evaluating the safety and efficacy of eptinezumab administered via infusion once every 3 months for one year in 888 patients with frequent episodic migraine, defined as four to 14 migraine days per month. Our second pivotal trial, PR evention O f M igraine via I ntravenous ALD403 S afety and E fficacy 2 (PROMISE 2), commenced in November 2016 and is evaluating the safety and efficacy of eptinezumab administered via infusion once every 3 months for six months in approximately 1,050 patients with chronic migraine, defined as 15 or more headache days per month, with features of migraine on at least eight days per month. The open-label trial commenced in December 2016 and is evaluating the long-term safety and tolerability of eptinezumab administered via infusion once every 3 months for one year in approximately 120 patients with chronic migraine. As described under “—Recent Developments”, on June 27, 2017 we announced top-line results from PROMISE 1, showing that eptinezumab met the primary and key secondary endpoints. We expect top-line data from the PROMISE 2 open-label trial to be available in the first half of 2018. In May 2017, we obtained input from the FDA regarding data requirements necessary to support comparability between eptinezumab used in our clinical trials and our proposed commercial manufacturing of the drug. We currently anticipate that our data package will include, among other things, a study showing pharmacokinetic comparability between eptinezumab used in clinical trials and our commercial supply. Our objective is to submit a BLA to the FDA based on the results of our two Phase 3 pivotal trials and our open-label Phase 3 trial in the second half of 2018.

While we are focused on completing our current clinical program in support of a BLA submission for our infusion formulation of eptinezumab for chronic and frequent episodic migraine patients, we will consider other studies to continue building on the differentiating characteristics of eptinezumab aimed at achieving label enhancements. We are also committed to developing a subcutaneous mode for administering eptinezumab as part of our life cycle planning in order to maximize the value of eptinezumab.

Assuming eptinezumab is approved by the FDA, we plan to focus our initial commercialization efforts on high-prescribing neurologists and headache centers in the United States employing a specialty sales force of 75 to 125 people. We believe that these neurologists and headache centers treat the highest proportion of the five million chronic and severe frequent episodic migraine patients described above. This group consists of an estimated 3,000 migraine specialists, which we refer to as interventionalists, of whom we estimate 77 percent have previously prescribed infusion therapies for migraine and 63 percent have in-house infusion capabilities. We believe a significant number of these interventionalists are interested in growing their migraine procedure base and have infrastructure in place to handle patient flow, product supply and reimbursement support. To maximize the potential commercial opportunity of eptinezumab while we focus on the U.S. specialty market, we may explore strategic arrangements that provide additional capabilities and infrastructure, while improving access for physicians and patients. We also intend to seek approval for eptinezumab in the European Union and other jurisdictions outside the United States.

Our product candidate pipeline also includes ALD1910, a preclinical monoclonal antibody that targets pituitary adenylate cyclase-activating polypeptide-38 (PACAP-38). ALD1910 is undergoing investigational new drug (IND)-enabling studies for the prevention of migraine. PACAP-38 is a protein that is active in mediating the initiation of migraine, and we believe that ALD1910 holds potential as a treatment for migraineurs who have an inadequate response to therapeutics directed at CGRP or its receptor. Our third pipeline candidate is clazakizumab, designed to block the pro-inflammatory cytokine IL-6. In May 2016, we licensed the exclusive worldwide rights to clazakizumab to Vitaeris, Inc., or Vitaeris, based in Vancouver, British Columbia, that will pursue innovative therapeutic indications in chronic inflammatory diseases. Prior to the license to Vitaeris, clazakizumab completed two positive Phase 2b clinical trials establishing proof-of-concept in patients with rheumatoid arthritis.

Recent Developments

On June 27, 2017, we announced that eptinezumab met the primary and key secondary endpoints in PROMISE 1. This Phase 3 pivotal clinical trial is evaluating the safety and efficacy of eptinezumab administered at three dose levels (300mg, 100mg and 30mg) and placebo via infusion once every 3 months for one year in 888 patients with frequent episodic migraine. We believe these positive

15


 

results, consistent with previously reported eptinezumab st udies, support the unique clinical profile of eptinezumab as a potential first-of-its-kind infusion therapy to prevent migraines.

The primary endpoint, demonstrating statistically significant reductions in monthly migraine days from baseline (average of 8.6 days) over months 1 through 3 (1 month = 28 days), was 4.3 monthly migraine days for 300mg (p=0.0001) and 3.9 days for 100mg (p=0.0179) compared to an average 3.2 days for placebo. The 30mg dose level was not formally tested as per the pre-specified statistical analysis plan.

Secondary endpoints evaluating time points through the first quarterly dose include:

 

≥75% reduction in monthly migraine days achieved over weeks 1 through 4 of 31.5% for 300mg (p=0.0066), and 30.8% for 100mg (p=0.0112) compared to 20.3% for placebo.

 

≥75% reduction in monthly migraine days achieved over months 1 through 3 of 29.7% for 300mg (p=0.0007), and 22.2% for 100mg (not statistically significant) compared to 16.2% for placebo.

 

≥50% reduction in monthly migraine days achieved by 56.3% of patients over months 1 through 3 for 300mg (p=0.0001), and 49.8% for 100mg (p=0.0085, unadjusted) compared to 37.4% for placebo.

 

53.6% reduction in the proportion of patients experiencing migraine on the day following administration at 300mg (p=0.0087, unadjusted), and 51.3% at 100mg (p=0.0167, unadjusted), compared to 20.7% for placebo. Though not a secondary endpoint, a post hoc analysis demonstrated that over weeks 1 through 4, the proportion of patients experiencing migraine was lowest on the day following administration (14.3% at 300mg and 15.1% at 100mg, respectively) and was sustained through week 4 (15.9% at 300mg and 17.2% at 100mg, respectively). This outcome was consistent with a post hoc analysis of data from our Phase 2b clinical trial in patients with chronic migraine demonstrating that the proportion of patients experiencing migraine on the day following administration was reduced by 54% at 300 mg, and 51% at 100 mg, compared to 17% for placebo. As with the PROMISE 1 data, over weeks 1 through 4, the proportion of patients experiencing migraine in the Phase 2b study was lowest on the day following administration (26.5% at 300mg and 29.3% at 100mg) and was sustained through week 4 (30.0% at 300mg and 100mg, respectively).

Secondary endpoints demonstrated responses that were improved through the second quarterly dose period, and include:

 

≥75% reduction in monthly migraine days achieved over months 4 through 6 of 40.1% for 300mg (p=0.0006, unadjusted), and 33.5% for 100mg (p=0.0434, unadjusted) compared to 24.8% for placebo.

 

Average of one in five patients receiving 300mg (20.6%) had 100% responses with no migraines in any given month (months 1 through 6).

The observed safety profile in this study to date was similar to placebo. Both the safety profile and the placebo rates were consistent with previously reported eptinezumab studies. Full safety data will be available at the end of the study.

The statistical significance of the PROMISE 1 results for each dose level across endpoints was assessed in a hierarchy set forth in a pre-specified statistical analysis plan (generally assessing the 300mg dose level for a group of endpoints, 100mg dose level for a group of endpoints and 30mg dose level for a group of endpoints in sequence). Since the result for the 100mg dose level for the ≥75% reduction in monthly migraine days over months 1 through 3 endpoint was not statistically significant, the 30mg dose level was not formally tested per the statistical analysis plan.

Additional results, including future analysis of additional secondary endpoints, from the trial are expected to be presented at future medical meetings and published in peer-reviewed medical journals.

Corporate and Other Financial Information

We were incorporated in 2002 and have not generated any product revenue. Through June 30, 2017, our operations have been primarily funded by $621.8 million of net proceeds in public offerings, $111.4 million in private placements of our capital stock, and $135.0 million in upfront payments, milestones and research and development payments from our former collaborators and government grants.

As disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017, or the Q1 2017 Form 10-Q, in accordance with the requirements of ASC 205-40, management concluded that it was required to disclose that substantial doubt existed about the Company’s ability to continue as a going concern for one year from the date the financial statements included in the Q1 2017 Form 10-Q were issued (i.e., the date the Q1 2017 Form 10-Q was filed with the SEC). On July 18, 2017, we received approximately $161.5 million in net proceeds from an underwritten public offering of common stock. We also decreased our forecasted cash requirements for operating activities over the next year. We believe that our available cash, cash equivalents and investments as of June 30, 2017, together with the proceeds received from the July 2017 offering, will be sufficient to meet our projected operating requirements for at least the next twelve months from the filing date of this report. As a result of these conditions and events, substantial doubt of our ability to continue as a going concern no longer exists.

16


 

   We will not generate revenues from product sales unless and until we or our future collaborators successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and is sub ject to significant uncertainty. If we obtain regulatory approval for eptinezumab, ALD1910 or any future product candidate, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution to the extent that such costs are not paid by future collaborators. We will need to obtain substantial additional sources of funding to complete the clinical development of any of our product candidates and will require additional funding in order to complete the develo pment activities required for regulatory approval of eptinezumab, ALD1910 or any future product candidates that we develop independently. In addition, our clinical trials for eptinezumab may encounter manufacturing, enrollment or other issues that could ca use our development costs to increase more than we expect. If such additional funding is not available on favorable terms or at all, we may need to delay or reduce the scope of our development programs or grant rights in the United States, as well as outsi de the United States, to our product candidates to one or more partners.

 

Financial Operations Overview

Revenues and Cost of Sales

We recognized $0.7 million and $0.1 million in revenue and $0.7 million and $0.1 million in cost of sales in the three and six months ended June 30, 2017 and 2016, respectively, relating to the sale of drug supply inventory to Vitaeris at cost. We have not generated any revenues from the sale of products. In the future, we may generate revenues from product sales and from collaboration agreements in the form of license fees, milestone payments, reimbursements for clinical supply and development costs and royalties on product sales. We expect that any revenues we generate will fluctuate from quarter to quarter as a result of the uncertain timing and amount of such payments and sales.

Research and Development Expenses

Research and development expenses represent costs incurred by us for the discovery and development of our product candidates. The following items are included in research and development expenses:

 

external costs under agreements with clinical research organizations, or CROs, contract manufacturing organizations, or CMOs, and other significant third-party vendors or consultants used to perform preclinical, clinical and manufacturing activities;

 

internal costs including employee-related costs such as salaries, benefits, stock-based compensation expense, travel, laboratory consumables and services for our research and development personnel; and

 

allocated facilities, depreciation, and other expenses, which include rent and maintenance of facilities, information technology services and other infrastructure expenses.

17


 

We use our employee and infrastructure resources across multiple research and development programs directed toward evaluating our monoclonal antibodies for selecting product candidates. We manage certain activities such as preclinical toxicology studies, c linical trial operations and manufacture of product candidates through third-party CROs, CMOs or other third-party vendors. We track our significant external costs by each product candidate. We also track our human resource efforts on certain programs for purposes of billing our collaborators for time incurred at agreed upon rates. We do not, however, assign or allocate to individual product candidates or development programs our internal costs and we group these internal research and development activities into three categories:

 

Category

  

Description

 

Preclinical discovery and development

  

 

Research and development expenses incurred in activities substantially in support of discovery of new targets through the selection of a single product candidate. These activities encompass the discovery and translational medicine functions, including pharmacokinetic and drug metabolism preclinical studies, toxicology and early strain and assay development activities.

 

Pharmaceutical operations

  

 

Research and development expenses incurred related to manufacturing preclinical study and clinical trial materials, including scale-up process development and quality control activities.

 

Clinical development

  

 

Research and development expenses incurred related to Phase 1, Phase 2 and Phase 3 clinical trials, including regulatory affairs activities.

 

We plan to increase our research and development expenses for the foreseeable future as we continue the development of eptinezumab and advance ALD1910 and our future product candidates into clinical development. The timing and amount of research and development expenses incurred will depend largely upon the outcomes of current and future clinical trials for our product candidates as well as the related regulatory requirements, manufacturing costs and any costs associated with the advancement of our preclinical programs. We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:  

 

the scope, rate of progress, and expense of our ongoing, as well as any additional, clinical trials and other research and development activities;

 

future clinical trial results;

 

potential changes in government regulation; and

 

the timing and receipt of any regulatory approvals.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate.

 

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, business development, intellectual property, finance, human resources, marketing and support functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses and professional fees for marketing, auditing, tax and legal services, including intellectual property related legal services. We also incur expenses of being a public company, including expenses related to compliance with the rules and regulations of the SEC, and those of the NASDAQ Stock Market LLC, or NASDAQ, additional insurance expenses, investor relations activities and other administrative and professional services.   

 

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2017 and 2016

Revenue and Cost of Sales

We recognized $0.7 million and $0.1 million in revenue and $0.7 million and $0.1 million in cost of sales in the three and six months ended June 30, 2017 and 2016, respectively, related to the sale of drug supply inventory to Vitaeris at cost.

18


 

Research and Development Expenses

Research and development expenses incurred in the three and six months ended June 30, 2017 and 2016 were as follows:

 

 

Three Months Ended

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

2017

 

 

2016

 

 

% change

 

 

2017

 

 

2016

 

 

% change

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

External costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eptinezumab

$

48,561

 

 

$

21,484

 

 

 

126

%

 

$

123,264

 

 

$

35,774

 

 

 

245

%

ALD1613

 

 

 

 

2,008

 

 

 

(100

%)

 

 

 

 

 

5,813

 

 

 

(100

%)

ALD1910

 

937

 

 

 

 

 

 

 

 

 

1,596

 

 

 

 

 

 

 

Unallocated internal costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preclinical discovery and development

 

5,230

 

 

 

4,396

 

 

 

19

%

 

 

10,387

 

 

 

8,824

 

 

 

18

%

Pharmaceutical operations

 

5,761

 

 

 

4,358

 

 

 

32

%

 

 

11,551

 

 

 

8,335

 

 

 

39

%

Clinical development

 

4,787

 

 

 

1,587

 

 

 

202

%

 

 

9,167

 

 

 

2,734

 

 

 

235

%

Total research and development expenses

$

65,276

 

 

$

33,833

 

 

 

93

%

 

$

155,965

 

 

$

61,480

 

 

 

154

%

 

 

Research and development expenses increased by $31.4 million, or 93%, for the three months ended June 30, 2017 compared to the same period in 2016. During the three months ended June 30, 2017, external costs incurred for eptinezumab increased by $27.1 million, or 126%. The increased level of spending for eptinezumab was primarily due to an additional $19.6 million in manufacturing costs for commercial readiness activities and drug supply in support of planned and ongoing clinical trials and an additional $7.1 million in clinical trial costs. External costs for ALD1613 decreased $2.0 million because we terminated the development of this product candidate in mid-2016. External costs for ALD1910 increased by $0.9 million for IND-enabling activities. Unallocated internal costs also increased by $5.4 million due primarily to an increase in salaries expense of $2.3 million and an increase in stock-based compensation expense of $1.4 million in the three months ended June 30, 2017 as a result of a 37% increase in our research and development headcount to support our ongoing and planned clinical trials and other development activities.

Research and development expenses increased by $94.5 million, or 154%, for the six months ended June 30, 2017 compared to the same period in 2016. During the six months ended June 30, 2017, external costs incurred for eptinezumab increased by $87.5 million, or 245%. The increased level of spending for eptinezumab was primarily due to an additional $71.0 million in manufacturing costs for commercial readiness activities and drug supply in support of planned and ongoing clinical trials and an additional $15.5 million in clinical trial costs. External costs for ALD1613 decreased $5.8 million because we terminated the development of this product candidate in mid-2016. External costs for ALD1910 increased by $1.6 million as we continued to advance the program. Unallocated internal costs also increased by $11.2 million due primarily to an increase in salaries expense of $5.2 million, an increase in stock-based compensation expense of $2.5 million and an increase in facilities-related expenses of $1.4 million in the six months ended June 30, 2017 as a result of a 43% increase in our research and development headcount to support our ongoing and planned clinical trials and other development activities. Costs incurred for medical affairs, professional fees and consulting increased $1.6 million to support our programs.

 

General and Administrative Expenses

General and administrative expenses increased by $3.1 million, or 48%, for the three months ended June 30, 2017 compared to the same period of 2016. The increase was primarily due to an increase in stock-based compensation expense of $1.0 million, an increase of $0.8 million in salaries expense due to a 41% increase in headcount, and an increase of $1.3 million in professional fees and other administrative costs primarily to support commercial readiness activities.

General and administrative expenses increased by $7.0 million, or 56%, for the six months ended June 30, 2017 compared to the same period of 2016. The increase was primarily due to an increase in stock-based compensation expense of $2.0 million, an increase of $1.6 million in salaries expense due to a 46% increase in headcount, and an increase of $3.4 million in professional fees and other administrative costs primarily to support commercial readiness activities. We anticipate increases in general and administrative expenses for commercial marketing as we build out our commercial readiness infrastructure and product launch plans for eptinezumab.

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Interest Income

The decrease in interest income for the three and six months ended June 30, 2017 was primarily due to a lower average cash balance compared to the same period of 2016.  

 

Gain on License of Clazakizumab

In May 2016, we licensed the exclusive worldwide rights to clazakizumab to Vitaeris. We did not recognize any gain on the license of clazakizumab in the three and six months ended June 30, 2017. We recognized a gain on the license agreement of $1.1 million in the three and six months ended June 30, 2016.

 

Foreign Currency Loss

We maintain bank accounts denominated in British pounds, Swiss francs, Australian dollars and Euros for purposes of settling certain obligations arising outside the United States. We recognized a net foreign currency loss of $0.1 million in both the three and six months ended June 30, 2017 and a net foreign currency loss of $0.1 million and $0.2 million in the same periods of 2016, respectively, due primarily to fluctuations in both years in the exchange rates of the British pound relative to the U.S. dollar.  

  

Equity in Net Loss of Unconsolidated Entity

The equity in net loss of unconsolidated entity relates to our investment in Vitaeris. We record our share of any loss or income generated by Vitaeris under the equity method of accounting on a three-month lag. We recognized $0.1 million and $0.3 million in equity in net loss for the three and six months ended June 30, 2017, respectively. We did not record any loss or income generated by Vitaeris in the three and six months ended June 30, 2016.

Liquidity and Capital Resources

 

Due to our significant research and development expenditures, we have generated significant operating losses from inception and we expect to incur significant operating losses in the future. We have funded our operations primarily through sales of our equity securities and payments from our former collaboration partners. As of June 30, 2017, we had an accumulated deficit of $553.6 million and cash, cash equivalents and short-term investments on hand of $224.5 million, which consisted of cash, money market funds, negotiable certificates of deposit and U.S. government agency obligations. On July 18, 2017, we completed an underwritten public offering of 17,250,000 shares of common stock resulting in net proceeds of approximately $161.5 million, after deducting underwriting discounts, commissions and estimated offering expenses. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and degrees of risk.

We are focusing our resources and development efforts principally on eptinezumab in order to maximize its therapeutic and commercial potential. We believe that our available cash, cash equivalents and investments as of June 30, 2017, together with the proceeds received from the July 2017 offering, will be sufficient to meet our projected operating requirements for at least the next twelve months from the filing date of this report. We have based our estimate on the timing for our projected expenditures on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Furthermore, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. We will also need to obtain substantial additional sources of funding to develop and commercialize eptinezumab and other clinical programs as currently contemplated.  We expect to finance future cash needs through equity financings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements, but there are no assurances that we will be able to raise sufficient amounts of funding in the future on acceptable terms, or at all. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements will depend on many factors, as we:

 

continue to prioritize the advancing clinical development of eptinezumab for the prevention of migraine;

 

leverage the commercial potential of eptinezumab by commercializing it for the prevention of migraine in the United States, if approved by the FDA;

 

advance the ALD1910 program;

 

establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize eptinezumab or any of our future product candidates if they receive regulatory approval;

20


 

 

enhance operational, financial and information management systems and hire additional personnel, including personnel to support development of our product candidates and, if a product candidate is approved, our commercialization efforts.

 

leverage our technology platform to discover future product candidates for areas of unmet need; and

 

build a leading biopharmaceutical company to transform current treatment paradigms.

 

There are no assurances that we will be able to raise sufficient amounts of funding in the future on acceptable terms, or at all.  The sale of additional equity would result in dilution to our stockholders. The incurrence of debt financings would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. We may consider partnering one or more of our product candidates for further clinical development and commercialization. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.  

Historical Cash Flow Trends

The following table summarizes our cash flows for the periods indicated:  

 

Six Months Ended

 

 

June 30,

 

 

2017

 

 

2016