Alder Biopharmaceuticals
ALDER BIOPHARMACEUTICALS INC (Form: 10-Q, Received: 04/27/2017 16:05:43)

 

 

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 March 31, 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 April 20, 2017 the registrant had   50,410,458 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Alder BioPharmaceuticals, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 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

22

 

Item 4.

 

 

Controls and Procedures

23

 

PART II. OTHER  INFORMATION

 

 

Item 1.

 

 

Legal Proceedings

24

 

Item 1A.

 

 

Risk Factors

24

 

Item 6.

 

 

Exhibits

49

 

SIGNATURES

50

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)

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

 

(in thousands, except share and per share data)

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

79,713

 

 

$

116,216

 

Short-term investments

 

209,851

 

 

 

235,651

 

Prepaid expenses and other assets

 

19,827

 

 

 

40,380

 

Inventory

 

936

 

 

 

936

 

Total current assets

 

310,327

 

 

 

393,183

 

Property and equipment, net

 

6,776

 

 

 

7,076

 

Investment in unconsolidated entity

 

716

 

 

 

865

 

Other assets

 

30

 

 

 

8,030

 

Total assets

$

317,849

 

 

$

409,154

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

20,300

 

 

$

10,361

 

Accrued liabilities

 

9,243

 

 

 

15,437

 

Deferred rent

 

92

 

 

 

92

 

Total current liabilities

 

29,635

 

 

 

25,890

 

Long-term deferred rent

 

455

 

 

 

481

 

Total liabilities

 

30,090

 

 

 

26,371

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock; $0.0001 par value; 200,000,000 shares authorized; 50,410,368 and 50,368,206 shares issued and outstanding, respectively

 

5

 

 

 

5

 

Additional paid-in capital

 

766,707

 

 

 

761,456

 

Accumulated deficit

 

(478,958

)

 

 

(378,630

)

Accumulated other comprehensive income (loss)

 

5

 

 

 

(48

)

Total stockholders’ equity

 

287,759

 

 

 

382,783

 

Total liabilities and stockholders’ equity

$

317,849

 

 

$

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

 

 

March 31,

 

 

2017

 

 

2016

 

 

(in thousands, except share and per share data)

 

Revenues

 

 

 

 

 

 

 

Collaboration and license agreements

$

 

 

$

 

Operating expenses

 

 

 

 

 

 

 

Research and development

 

90,689

 

 

 

27,647

 

General and administrative

 

9,981

 

 

 

6,045

 

Total operating expenses

 

100,670

 

 

 

33,692

 

Loss from operations

 

(100,670

)

 

 

(33,692

)

Other income (expense)

 

 

 

 

 

 

 

Interest income

 

485

 

 

 

415

 

Foreign currency gain (loss)

 

6

 

 

 

(86

)

Total other income, net

 

491

 

 

 

329

 

Net loss before equity in net loss of unconsolidated entity

 

(100,179

)

 

 

(33,363

)

Equity in net loss of unconsolidated entity

 

(149

)

 

 

 

Net loss

$

(100,328

)

 

$

(33,363

)

Net loss per share - basic and diluted

$

(1.99

)

 

$

(0.76

)

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

 

50,395,632

 

 

 

43,753,517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

March 31,

 

 

2017

 

 

2016

 

 

(in thousands)

 

Net loss

$

(100,328

)

 

$

(33,363

)

Other comprehensive income:

 

 

 

 

 

 

 

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

 

53

 

 

 

414

 

Foreign currency translation income, net of tax

 

 

 

 

21

 

Total other comprehensive income

 

53

 

 

 

435

 

Comprehensive loss

$

(100,275

)

 

$

(32,928

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

5


 

Alder BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2017

 

 

2016

 

 

(in thousands)

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(100,328

)

 

$

(33,363

)

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

 

 

 

 

 

 

 

Equity in net loss of unconsolidated entity

 

149

 

 

 

 

Depreciation and amortization

 

747

 

 

 

235

 

Stock-based compensation

 

5,180

 

 

 

3,017

 

Other non-cash charges, net

 

179

 

 

 

20

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

28,553

 

 

 

460

 

Accounts payable

 

10,341

 

 

 

4,921

 

Accrued liabilities

 

(6,194

)

 

 

(2,557

)

Deferred rent

 

(26

)

 

 

(14

)

Net cash used in operating activities

 

(61,399

)

 

 

(27,281

)

Investing activities

 

 

 

 

 

 

 

Purchases of investments

 

(28,334

)

 

 

(6,566

)

Proceeds from maturities of investments

 

54,008

 

 

 

6,250

 

Purchases of property and equipment

 

(849

)

 

 

(931

)

Proceeds from sale of property and equipment

 

 

 

 

5

 

Net cash provided by (used in) investing activities

 

24,825

 

 

 

(1,242

)

Financing activities

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

71

 

 

 

45

 

Net cash provided by financing activities

 

71

 

 

 

45

 

Effect of exchange rate changes on cash

 

 

 

 

21

 

Net decrease in cash and cash equivalents

 

(36,503

)

 

 

(28,457

)

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of period

 

116,216

 

 

 

206,492

 

End of period

$

79,713

 

 

$

178,035

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

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

$

101

 

 

$

188

 

 

 

 

 

 

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, at $23.25 per share.  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.

 

 

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.

These unaudited 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, 2016.

7


 

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 months ended March 31, 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 of December 31, 2016, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements - Going Concern (ASC 205-40), which requires management to assess the Company’s ability to continue as a going concern for one year after the date the financial statements are issued. This standard requires management to 1) identify and disclose if there are initial conditions indicating substantial doubt about the Company’s ability to continue as a going concern within one year of the issuance date of the financial statements, 2) disclose the principal conditions that gave rise to substantial doubt, 3) disclose management’s evaluation of the significance of those conditions in relation to the Company’s ability to meet its obligations and 4) disclose management’s plans that are intended to mitigate the adverse conditions.  In accordance with the accounting standard, when considering management’s plans to mitigate the conditions giving rise to substantial doubt, management can only consider those plans which are probable to be successfully implemented.  

As disclosed in the 2016 Annual Report on Form 10-K, the Company’s projected expenditures may deplete current cash, cash equivalents and investments in the first quarter of 2018.  As of March 31, 2017, management has further assessed this risk and, in accordance with the requirements of ASC 205-40, determined that there are initial conditions indicating that there is substantial doubt about the Company’s ability to continue as a going concern within one year of the issuance date of these condensed consolidated financial statements.  These indicators are the Company’s accumulated deficit and the forecasted cash expenditures. As of March 31, 2017, the Company had an accumulated deficit of $479.0 million and cash, cash equivalents and short-term investments on hand of $289.6 million. The Company is currently forecasting a significant increase in expenditures to support the Biologics License Application, or BLA, submission, commercial readiness activities, and anticipated commercial launch of eptinezumab.  The Company has developed plans to mitigate this risk, which primarily consist of raising additional capital through a combination of equity or debt financings, new collaborations, and reducing cash expenditures.  

The Company currently expects to seek funding in the second half of 2017.  While the Company has raised capital in the past, the ability to raise capital in future periods is not considered probable, as defined under the accounting standards.  As such, under the requirements of ASC 205-40, management may not consider the potential for future capital raises in their assessment of the Company’s ability to meet its obligations for the next twelve months.

If the Company is not able to secure adequate additional funding, the Company plans to make reductions in spending.  This may include extending payment terms with suppliers, liquidating assets, and suspending or curtailing planned programs. The Company may also have to delay, reduce the scope of, suspend or eliminate one or more research and development programs or its commercialization efforts.  The ability to reduce spending under this plan, at a level that mitigates the factors described above, is not considered probable, as defined in the accounting standards; as such, under the requirements of ASC 205-40, the full extent to which management may extend the Company’s funds through these actions may not be considered in management’s assessment of the Company’s ability to continue as a going concern for the next twelve months.    

As a result, in accordance with the requirements of ASC 205-40, management has concluded that it is required to disclose that substantial doubt exists about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued.  While management has plans in place to mitigate these actions, they are not considered probable, as defined in the accounting standards, and a failure to raise the additional funding or to effectively implement cost reductions could harm the Company’s business, results of operations and future prospects.

8


 

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.

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.

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

 

 

March 31,

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

Net loss (in thousands)

$

(100,328

)

 

$

(33,363

)

Denominator

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

50,395,632

 

 

 

43,753,517

 

Net loss per share - basic and diluted

$

(1.99

)

 

$

(0.76

)

 

 

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 months ended March 31, 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

 

 

March 31,

 

 

2017

 

 

2016

 

Stock options

 

5,963,117

 

 

 

3,748,232

 

Employee stock purchase plan

 

40,740

 

 

 

21,634

 

 

 

6,003,857

 

 

 

3,769,866

 

 

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 March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit maturing in

   one year or less

 

$

7,500

 

 

$

 

 

$

(1

)

 

$

7,499

 

U.S. government agency obligations maturing in

   one year or less

 

 

202,344

 

 

 

121

 

 

 

(113

)

 

 

202,352

 

Total available-for-sale securities

 

$

209,844

 

 

$

121

 

 

$

(114

)

 

$

209,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 months ended March 31, 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 March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

75,466

 

 

$

 

 

$

 

 

$

75,466

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit

 

 

 

 

 

7,499

 

 

 

 

 

 

7,499

 

U.S. government agency obligations

 

 

 

 

 

202,352

 

 

 

 

 

 

202,352

 

 

 

$

75,466

 

 

$

209,851

 

 

$

 

 

$

285,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 March 31, 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 in net loss with respect to Vitaeris for the three months ended March 31, 2017 . This net loss reduced the Company’s carrying value of the Company’s investment in Vitaeris to $ 0.7 million which is classified as a non-current asset as of March 31, 2017 . 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:

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

$

3,064

 

 

$

4,833

 

Contracted research and development

 

 

3,841

 

 

 

9,837

 

Professional services and other

 

 

2,338

 

 

 

767

 

 

 

$

9,243

 

 

$

15,437

 

 

 

 

 

 

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. 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 adults in the United States live with more than four migraines per month and 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. 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.  

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

14


 

 

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 12 weeks for one year in patients with frequent episodic migraine, defined as five to 14 migraine days per month.  PROMISE 1 targeted enrollment of approximately 800 patients. Our second pivotal trial, PRevention Of Migraine via Intravenous ALD403 Safety and Efficacy 2 (PROMISE 2), commenced in November 2016 and is evaluating the safety and efficacy of eptinezumab administered via infusion once every 12 weeks for six months in approximately 1,050 patients with chronic migraine, defined as 15 or more migraine 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 12 weeks for one year in approximately 120 patients with chronic migraine. We expect top-line data from PROMISE 1 to be available in the second quarter of 2017, top-line data from PROMISE 2 to be available in the first half of 2018 and top-line data from the open-label trial to be available in the first half of 2018.  We also plan to have discussions with the FDA in 2017 regarding any additional clinical requirements for our expected commercial supply of eptinezumab in support of our initial BLA submission.  Our objective is to submit a BLA to the FDA based on the results of these three trials 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 investigating additional routes of administration in order to maximize the value of eptinezumab. We expect to have further insight regarding our plans and timing following the availability of top-line data from PROMISE 1, which we believe will expand our understanding of eptinezumab’s profile and potential commercial dose.

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. 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. 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 wholly-owned 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.

We were incorporated in 2002 and have not generated any product revenue. Through March 31, 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.

The condensed consolidated financial statements have been prepared assuming that we 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.

As disclosed in the 2016 Form 10-K, our projected expenditures may deplete current cash, cash equivalents and investments in the first quarter of 2018.  As of March 31, 2017, our management has further assessed this risk and, in accordance with the requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements - Going Concern (ASC 205-40), determined that there are initial conditions indicating that there is substantial doubt about our ability to continue as a going concern within one year of the filing date of this report.  These indicators are our

15


 

accumulated deficit and the forecasted cash expenditures. As of March 31, 2017 , we had an accumulated deficit of $ 479.0 million and cash, cash equivalents and short-term investments on hand of $289.6 million . We are currently forecasting a significant increase in expenditures to support our BLA submission, commercial readiness activities , and anticipated commercial launch of eptinezumab.   We have developed plans to mitigate this risk, which primarily consist of raising addition al capital through a combination of equity or debt financings, new collaborations, and reducing cash expenditures.  We currently expect to seek funding in the second half of 2017.    I f we are not able to secure adequate additional funding, we pla n to make r eductions in spending .  This may include extending payment terms with suppliers, liquidating assets, and suspending or curtailing planned programs. We may also have to delay, reduce the scope of, suspend or eliminate one or more research and development pr ograms or our commercialization efforts.   Our ability to raise capital in future periods and our ability to reduce spending to a level that mitigates the factors described above are not considered probable as defined under the accounting standards.  As a r esult, under the requirements of ASC 205-40, the potential for future capital raises and the full extent to which we may extend funds through mitigating actions may not be considered by our management in their assessment of our ability to continue as a goi ng concern for the next twelve months.  Therefore , in accordance with the requirements of ASC 205-40, our management has concluded that we are required to disclose that substantial doubt exists about our ability to continue as a going concern for one year from the filing date of this report .   A failure to raise the additional funding or to effectively implement cost reductions could harm our business, results of operations and future prospects.

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 subject 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 do not have sufficient cash to complete the clinical development of any of our product candidates and will require additional funding in order to complete the development 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 cause 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 outside the United States, to our product candidates to one or more partners.

 

 

Financial Operations Overview

Revenues

We did not recognize any revenue in the three months ended March 31, 2017 and 2016. 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.

16


 

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 pre clinical toxicology studies, clinical 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 ef forts 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 resea rch 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 have incurred and expect to incur additional expenses as a result 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 Ended March 31, 2017 and 2016

Revenue

We did not recognize any revenue in the three months ended March 31, 2017 and 2016.

17


 

Research and Development Expenses

Research and development expenses incurred in the three ended March 31, 2017 and 2016 were as follows:

 

 

Three Months Ended

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

2017

 

 

2016

 

 

% change

 

 

(dollars in thousands)

 

 

 

 

 

External costs:

 

 

 

 

 

 

 

 

 

 

 

Eptinezumab

$

74,703

 

 

$

14,290

 

 

 

423

%

ALD1613

 

 

 

 

3,805

 

 

 

(100

%)

ALD1910

 

659

 

 

 

 

 

 

 

Clazakizumab

 

 

 

 

42

 

 

 

(100

%)

Unallocated internal costs:

 

 

 

 

 

 

 

 

 

 

 

Preclinical discovery and development

 

5,157

 

 

 

4,386

 

 

 

18

%

Pharmaceutical operations

 

5,790

 

 

 

3,977

 

 

 

46

%

Clinical development

 

4,380

 

 

 

1,147

 

 

 

282

%

Total research and development expenses

$

90,689

 

 

$

27,647

 

 

 

228

%

 

 

Research and development expenses increased by $63.0 million, or 228%, for the three months ended March 31, 2017 compared to the same period in 2016. During the three months ended March 31, 2017, external costs incurred for eptinezumab increased by $60.4 million, or 423%. The increased level of spending for eptinezumab was primarily due to an additional $51.4 million in manufacturing costs for commercial readiness activities and drug supply in support of planned and ongoing clinical trials and an additional $8.4 million in clinical trial costs. External costs for ALD1613 decreased $3.8 million because we terminated the development of this product candidate in mid-2016. External costs for ALD1910 increased by $0.7 million as we continue to advance the program. Unallocated internal costs also increased by $5.8 million due primarily to an increase in salaries expense of $2.9 million and an increase in stock-based compensation expense of $1.2 million in the three months ended March 31, 2017 as a result of a 46% increase in our research and development headcount to support our ongoing and planned clinical trials and other development activities.

 

General and Administrative Expenses

General and administrative expenses increased by $3.9 million, or 65%, for the three months ended March 31, 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 43% increase in headcount, and an increase of $2.1 million in professional fees and other administrative costs primarily to support commercial readiness activities.

 

Interest Income

The increase in interest income for the three months ended March 31, 2017 compared to the same period of 2016 was primarily due to favorable yield in interest rates.  

 

Foreign Currency Gain (Loss)

Other income (expense) recognized from foreign currency gains (losses) increased $0.1 million for the three months ended March 31, 2017 compared to the same period of 2016. 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 gain of $6,000 in the three months ended March 31, 2017 and a net foreign currency loss of $0.1 million in the same period of 2016 due primarily to fluctuations in both years in the exchange rate for British pounds relative to U.S. dollars.  

  

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 in equity in net loss for the three months ended March 31, 2017.  

 

18


 

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 March 31, 2017, we had an accumulated deficit of $479.0 million and cash, cash equivalents and short-term investments on hand of $289.6 million, which consisted of cash, money market funds, negotiable certificates of deposit and U.S. government agency obligations. 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.

As disclosed in our 2016 Form 10-K, our projected expenditures may deplete current cash, cash equivalents and investments in the first quarter of 2018.  As of March 31, 2017, our management has further assessed this risk and, in accordance with the requirements of ASC 205-40, determined that there are initial conditions indicating that there is substantial doubt about our ability to continue as a going concern within one year of the filing date of this report.  These indicators are our accumulated deficit and the forecasted cash expenditures.  We are currently forecasting a significant increase in expenditures to support our BLA submission, commercial readiness activities, and anticipated commercial launch of eptinezumab.  We have developed plans to mitigate this risk, which primarily consist of raising additional capital through a combination of equity or debt financings, new collaborations, and reducing cash expenditures.  We currently expect to seek funding in the second half of 2017.  If we are not able to secure adequate additional funding, we plan to make reductions in spending.  This may include extending payment terms with suppliers, liquidating assets, and suspending or curtailing planned programs. We may also have to delay, reduce the scope of, suspend or eliminate one or more research and development programs or our commercialization efforts.  Our ability to raise capital in future periods and our ability to reduce spending to a level that mitigates the factors described above are not considered probable as defined under the accounting standards.  As a result, under the requirements of ASC 205-40, the potential for future capital raises and the full extent to which we may extend funds through mitigating actions may not be considered by our management in their assessment of our ability to continue as a going concern for the next twelve months.  Therefore, in accordance with the requirements of ASC 205-40, our management has concluded that we are required to disclose that substantial doubt exists about our ability to continue as a going concern for one year from the filing date of this report.  A failure to raise the additional funding or to effectively implement cost reductions could harm our business, results of operations and future prospects.

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 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;

 

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.

19


 

Historical Cash Flow Trends

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

 

Three Months Ended

 

 

March 31,

 

 

2017

 

 

2016

 

 

(in thousands)

 

Net cash used in operating activities

$

(61,399

)

 

$

(27,281

)

Net cash provided by (used in) investing activities

 

24,825

 

 

 

(1,242

)

Net cash provided by financing activities

 

71

 

 

 

45

 

Cash Used in Operating Activities

Net cash used in operating activities includes net loss, adjusted for non-cash charges and changes in the components of working capital.  Net cash used in operating activities was $61.4 million in the three months ended March 31, 2017 compared to $27.3 million during the same period in 2016. The $34.1 million increase in net cash used in operating activities in the three months ended March 31, 2017 compared to the same period in 2016 was driven primarily by an increase in net loss of $67.0 million, of which $28.5 million was due to the recognition of manufacturing expenses in support of our commercial readiness activities for eptinezumab which were prepaid at December 31, 2016 and therefore did not use cash in the quarter ended March 31, 2017.  Other changes which also increased cash used in operating activities compared to the prior year period were an increase in stock-based compensation of $2.2 million due to increases in headcount to support our programs under development, and an increase in the change in accounts payable of $5.4 million which was offset by a decrease of $3.6 million in the change in accrued liabilities.  

Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities was $24.8 million in the three months ended March 31, 2017, compared to net cash used in investing activities of $1.2 million during the same period in 2016. The increase of $26.1 million in net cash provided by investing activities was primarily due to the maturities of investments, offset in part by purchases of investments. Purchases of property and equipment used cash of $0.8 million and $0.9 million in the three months ended March 31, 2017 and 2016, respectively.

Cash Provided by Financing Activities

Net cash provided by financing activities were $0.1 million and $45,000 in the three months ended March 31, 2017 and 2016 respectively, due to the exercise of stock options.  

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2017.


20


 

Contractual Obligations

 

Our contractual obligations as of March 31, 2017 were as follows:

 

 

 

 

 

 

Less Than

 

 

 

 

 

 

 

 

 

 

More Than

 

 

 

Total

 

 

1 Year

 

 

1-3 Years

 

 

3-5 Years

 

 

5 Years

 

 

 

(in thousands)

 

Operating lease obligations (1)

 

$

9,297

 

 

$

1,232

 

 

$

4,415

 

 

$

3,650

 

 

$

 

License agreements (2)

 

 

625

 

 

 

50

 

 

 

150

 

 

 

150

 

 

 

275

 

Purchase obligations (3)

 

 

15,679

 

 

 

15,679

 

 

 

 

 

 

 

 

 

 

Contract manufacturing obligations (4)

 

 

235,197

 

 

 

73,598

 

 

 

161,599

 

 

 

 

 

 

 

Total contractual obligations

 

$

260,798

 

 

$

90,559

 

 

$

166,164

 

 

$

3,800

 

 

$

275

 

 

(1)

R epresents future minimum lease payments under our non-cancelable operating lease. The minimum lease payments above do not include any related common area maintenance charges or real estate taxes.

(2)

Some of our licensing agreements obligate us to pay a royalty on net sales of products utilizing licensed technology. Such royalties are dependent on future product sales and are not provided for in the table above as they are not estimable.

(3)

We enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for preclinical research studies and other services and products for operating purposes which are cancelable at any time by us, generally upon 30 days prior written notice. These payments are not included in this table of contractual obligations.

(4)

Represents contractual obligations related to manufacturing our product candidates for use in our clinical trials, including long-term stability studies. Includes estimated purchase obligations as of March 31, 2017 under agreements with third-party contract manufacturing organizations for larger scale production of eptinezumab that became effective during the three months ended March 31, 2017. We expect to incur additional purchase obligations relating to future purchase orders under such agreements.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States general accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us 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, as well as the reported revenues generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no significant and material changes in our critical accounting policies during the three months ended March 31, 2017, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates” in our 2016 Form 10-K. We believe that the accounting policies discussed in our 2016 Form 10-K are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, please see Note 2 to our condensed consolidated financial statements, which are included in this report.  

 

21


 

I tem 3.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

The primary objective of our investment activities is to preserve our capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of cash equivalents and investments in a variety of securities of high credit quality. As of March 31, 2017, we had cash, cash equivalents and short-term investments of $289.6 million consisting of cash, money market accounts, negotiable certificates of deposit in highly rated financial institutions in the United States and U.S. government agency obligations. A portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase. We have estimated the effect on our investment portfolio of a hypothetical increase in interest rates by one percent to be a reduction of $0.6 million in the fair value of our investments as of March 31, 2017. In addition, a hypothetical decrease of 10% in the effective yield of our investments would reduce our expected investment income by approximately $0.2 million over the next twelve months based on our investment balance at March 31, 2017.

Foreign Currency Risk

We contract for the conduct of certain clinical development activities with vendors in Australia and we contract for the conduct of manufacturing activities in various countries in Europe. Our foreign subsidiaries in Australia and Ireland also maintain bank accounts in their local currencies which are Australian dollars and Euros.  We generally transfer funds to our Australian subsidiary and our Irish subsidiary to fund operating needs within 30 days of disbursement. We are subject to exposure due to fluctuations in foreign exchange rates in connection with these currencies, as well as fluctuations in British pounds and Swiss francs. We manage a portion of these cash flow exposures through our bank accounts in which we hold foreign currencies. Our holdings in foreign currencies are marked to market at the end of each period and any net change is recorded as gains or losses in the condensed consolidated statements of operations. As of March 31, 2017, we held the U.S. dollar equivalent of $3.0 million in British pounds, $0.3 million in Swiss francs, $0.6 million in Australian dollars, and $0.3 million in Euros. A hypothetical 10% change in the exchange rate between the U.S. dollar and the British pounds, Swiss francs, Australian dollars, and Euros from the March 31, 2017 rate would have increased/decreased our total unrealized foreign currency loss on our holdings by approximately $0.4 million. For the three months ended March 31, 2017, our net foreign currency gain was not material.  


22


 

I tem 4.

Controls and Procedures

 

Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and our Executive Vice President and Principal Accounting Officer, our principal financial officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) prior to the filing of this quarterly report. Based on that evaluation, our Chief Executive Officer and our Executive Vice President and Principal Accounting Officer, have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were, in design and operation, effective.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

 

 

 

23


 

P ART II. – OTHER INFORMATION

 

 

I tem 1.

Legal Proceedings

On March 31, 2017, we filed a notice of appeal with respect to the decision of the Opposition Division of the European Patent Office in the opposition to Labrys Biologics Inc.’s (owned by Teva Pharmaceutical Industries Ltd.) European Patent No. 1957106 B1 disclosed in “Item 3. Legal Proceedings” in our 2016 Form 10-K.  There were no other material changes with respect to the matters disclosed in “Item 3. Legal Proceedings” in our 2016 Form 10-K during the period covered by this report.

Item 1A.

Risk Factors

You should carefully consider the following risk factors, in addition to the other information contained in this report on Form 10-Q, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this report occurs, our business, operating results and financial condition could be seriously harmed. This report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report .

 

Risks Related to Our Need for Additional Financing and Our Financial Results

 

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

 

We are a clinical-stage biopharmaceutical company. We do not currently have any products approved for sale, and we continue to incur significant research and development and general and administrative expenses. We have incurred significant operating losses in the past and expect to incur substantial and increasing losses for the foreseeable future. For the three months ended March 31, 2017, our net loss was $100.3 million, and as of March 31, 2017, we had an accumulated deficit of $479.0 million.  

 

To date, we have devoted substantially all of our efforts to research and development, including clinical trials, but have not completed development or commercialized any product candidates. We anticipate that our expenses will increase substantially as we:

 

 

continue the research and development of eptinezumab, ALD1910 and our other product candidates;

 

 

seek regulatory approvals for our product candidates that successfully complete clinical trials;

 

 

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; and

 

 

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.

 

To be profitable in the future, we and any of our future collaborators must succeed in developing and eventually commercializing products with significant market potential. This will require success in a range of activities, including advancing product candidates, completing clinical trials of product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling those products for which regulatory approval is obtained. We are only in the preliminary stages of some of these activities. We and any of our future collaborators may not succeed in these activities and may never generate revenues that are sufficient to be profitable in the future.

 

24


 

Drug development is a highly speculat ive undertaking and involves a substantial degree of uncertainty. We have never generated any revenues from product sales and may never be profitable.

 

We have devoted substantially all of our financial resources and efforts to developing our technology platform, identifying product candidates and conducting preclinical studies and clinical trials for our product candidates. We have not completed the development of any products and eptinezumab is our only product candidate in the clinical stage of development. We have never generated revenues from the sale of any products. Our ability to generate revenues and achieve profitability depends in large part on our ability, on our own or with any of our future collaborators, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize our product candidates. We do not anticipate generating revenues from sales of products for several years, if at all. Our ability to generate future revenues from product sales depends on our and any of our future collaborators’ success in:

 

 

completing clinical development and obtaining regulatory approval for eptinezumab;

 

 

entering into collaboration agreements with third parties with respect to eptinezumab or our other product candidates for their development and commercialization in the United States or in international markets, and the continued financial and other support of these third parties under such collaboration agreements;

 

 

launching and commercializing eptinezumab, if approved, and successfully establishing sales, marketing and distribution infrastructure;

 

 

obtaining regulatory approvals for ALD1910 or any future product candidates that we discover and successfully develop;

 

 

establishing and maintaining supply and manufacturing relationships with third parties;

 

 

obtaining coverage and adequate reimbursement from third-party payors; and

 

 

maintaining, protecting, expanding and enforcing our intellectual property, including intellectual property we license from third parties.

 

Because of the numerous risks and uncertainties associated with biologic product development, we are unable to predict the timing or amount of increased expenses and when we will be able to achieve or maintain profitability, if ever. In addition, our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or FDA, or foreign regulatory agencies, to perform studies and trials in addition to those that we currently anticipate, or if there are any delays in our or any of our future collaborators’ clinical trials or the development of any of our product candidates. If one or more of the product candidates that we independently develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing such product candidates.

 

We will need additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all, which would force us to delay, reduce or suspend our research and development programs and other operations or commercialization efforts.

 

We are primarily focused on the advancement of eptinezumab through the clinical development process, as well as the advancement of the ALD1910 program and future product candidates. The completion of the development and the potential commercialization of our product candidates, should they receive regulatory approval, will require substantial funds. We will need to obtain substantial additional sources of funding to develop eptinezumab as currently contemplated. If such additional funding is not available on favorable terms or at all, we may need to delay or reduce the scope of our eptinezumab development program or grant rights in the United States, as well as outside the United States, to eptinezumab to one or more partners.

 

As of March 31, 2017, we had $289.6 million in cash, cash equivalents and short-term investments.  As disclosed in our 2016 Form 10-K, our projected expenditures may deplete current cash, cash equivalents and investments in the first quarter of 2018.  As of March 31, 2017, our management has further assessed this risk and, in accordance with the requirements of ASC 205-40, determined that there are initial conditions indicating that there is substantial doubt about our ability to continue as a going concern within one year of the filing date of this report.  These indicators are our accumulated deficit and the forecasted cash expenditures.  We are currently forecasting a significant increase in expenditures to support our BLA submission, commercial readiness activities, and anticipated commercial launch of eptinezumab.  We have developed plans to mitigate this risk, which primarily consist of raising additional capital through a combination of equity or debt financings, new collaborations, and reducing cash expenditures.  If we are not able to secure adequate additional funding, we plan to make reductions in spending.  This may include extending payment terms with suppliers, liquidating assets, and suspending or curtailing planned programs. We may also have to delay, reduce the scope of, suspend or eliminate one or more research and development programs or our commercialization efforts.  Our ability to raise capital in

25


 

future periods and our ability to reduce spending to a level that mitigates the factors described above are not considered probable as defined under the accounting standards.  As a result, under the requirements of ASC 205-40, the potential for future capital raises and the full extent to which we may extend funds through mitigating actions may not be considered by our management in their assessment of our ability to continue as a going concern for the next twelve months.  Therefore , in accordance with the requirements of ASC 205-40, our management has concluded that we are required to disclose that substantial doubt exists about our ability to continue as a going con cern for one year from the filing date of this report .   A failure to raise the additional funding or to effectively implement cost reductions could harm our business, results of operations and future prospects.

 

Our future financing requirements will depend on many factors, some of which are beyond our control, including the following:

 

 

the rate of progress, recruitment and cost of our clinical trials and clinical success for eptinezumab, ALD1910 and any future product candidates;

 

 

the timing of, and costs involved in, seeking and obtaining approvals from the FDA and other regulatory authorities;

 

 

the costs of commercialization activities if any of our product candidates, such as eptinezumab, receive regulatory approval, including sales, marketing and distribution infrastructure;

 

 

the degree and rate of market acceptance of any products launched by us or any of our future collaborators;

 

 

our ability to enter into additional collaboration, licensing, commercialization or other arrangements and the terms and timing of such arrangements; and

 

 

the emergence of competing technologies or other adverse market developments.

 

We do not have any material committed external source of funds or other support for our development efforts. Until we can generate sufficient revenues to finance our cash requirements, which we may never do, we expect to finance future cash needs through equity financings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. There are no assurances that we will be able to raise sufficient amounts of funding on acceptable terms, or at all.  If we raise additional capital through equity financings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financings, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, buying or selling assets, making capital expenditures or declaring dividends. If 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 certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us.

 

In addition, our clinical trials for eptinezumab may encounter manufacturing, enrollment or other issues that could cause our development costs to increase more than we expect. We do not have sufficient cash to complete the clinical development of any of our product candidates and will require additional funding in order to complete the development activities required for regulatory approval of eptinezumab, ALD1910 or any future product candidates that we develop independently. We intend to prioritize our development efforts on eptinezumab, both in terms of funding and attention of management and our organization. Because successful development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to complete research and development and commercialize our product candidates.

 

Furthermore, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

 

Our ability to use our net operating loss and tax credit carryforwards to offset future taxable income may be subject to certain limitations.

 

As of December 31, 2016, we had U.S. net operating loss carryforwards, or NOLs, of $379.9 million, for which we have recorded a full valuation allowance, which may be used to offset future taxable income or offset income taxes due. In addition, we have U.S. research and development tax credit carryforwards of $13.1 million. These NOLs and tax credit carryforwards expire in various years beginning in 2024, if not utilized. Utilization of the NOLs and tax credit carryforwards may be subject to an annual limitation due to historical or future ownership change rules pursuant to Sections 382 and 383 of the Internal Revenue Code, or the Code. We performed a section 382 ownership analysis through 2015 and determined that an ownership change occurred in 2015. Based on the analysis performed, however, we do not believe that the Section 382 annual limitation will impact our ability to utilize the tax attributes that existed as of the date of the ownership change in a material manner. If we have experienced an ownership

26


 

change in the past or will experience an ownership change as a result of future changes in our stock ownership, some of which changes are outside our control, the tax benefits related to the NOLs and tax credit carryforwards may be further limited or lost .

 

Risks Related to Eptinezumab and Our Other Product Candidates

 

If eptinezumab is not successfully commercialized, our business will be harmed.

 

Eptinezumab is our only product candidate currently in clinical trials. We have invested a significant portion of our efforts and financial resources into the development of eptinezumab to prevent migraines. Our ability to generate revenues from products, which we do not expect to occur for the foreseeable future, if ever, will depend heavily on the successful development, regulatory approval and eventual commercialization of eptinezumab. The success of eptinezumab and our other product candidates will depend on several factors, including the following:

 

 

successful enrollment in, and completion of, clinical trials, including our PROMISE 1, PROMISE 2 and open-label Phase 3 clinical trials and any clinical trials for our commercial supply of eptinezumab that maybe necessary for our initial BLA submission;

 

 

our ability to reach agreements with the FDA and other regulatory authorities on the appropriate regulatory path for approval for eptinezumab or other product candidates;

 

 

receipt of approvals from the FDA and similar regulatory authorities outside the United States for eptinezumab or other product candidates;

 

 

establishing commercial manufacturing arrangements with third parties;

 

 

successfully launching sales, marketing and distribution of any product candidate that may be approved, whether alone or in collaboration with others;

 

 

acceptance of any approved product by the medical community, third-party payors and patients and others involved in the reimbursement process, such as the Centers for Medicare and Medicaid Services in the United States and the National Institute of Clinical Excellence in the United Kingdom;

 

 

effectively competing with other therapies;

 

 

achieving a continued acceptable safety profile of the product following approval; and

 

 

obtaining, maintaining, enforcing and defending intellectual property rights and claims, including intellectual property we license from third parties.

 

If we do not achieve one or more of these factors in a timely manner, or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would harm our business.

 

If clinical trials of eptinezumab or any of our other product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

 

Before obtaining regulatory approval for the sale of eptinezumab or any of our other product candidates, we or any of our future collaborators must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical trials are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. A failure of one or more of such clinical trials could occur at any stage of evaluation. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results.

 

In some cases, we utilize novel mechanisms of action to treat diseases that have not previously been addressed by antibody therapies. We or any of our future collaborators may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our or any of our future collaborators’ ability to receive regulatory approval or commercialize our product candidates, including the following:

 

 

clinical trials of our product candidates, in particular our PROMISE 1, PROMISE 2 and open-label Phase 3 clinical trials, and any clinical trials for our commercial supply of eptinezumab that may be necessary for our initial BLA submission, may

27


 

 

produce negative or inconclusive results, and we or any of our future collaborators may decide, or regulators may require us, to conduct additional clinical trials or abando n product development programs;

 

 

the number of patients required for clinical trials of our product candidates may be larger than we or any of our future collaborators anticipate, enrollment in these clinical trials may be insufficient or slower than anticipated or patients may drop out of these clinical trials at a higher rate than anticipated;

 

 

the cost of clinical trials of our product candidates may be greater than anticipated;

 

 

third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us or any of our future collaborators in a timely manner, or at all;

 

 

we or any of our future collaborators might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that our product candidates have unanticipated serious side-effects or other unexpected characteristics or that the patients are being exposed to unacceptable health risks;

 

 

regulators may not approve our or any of our future collaborators’ proposed clinical development plans;

 

 

regulators or institutional review boards may not authorize us, any of our future collaborators or our investigators to commence a clinical trial or conduct a clinical trial at a prospective site;

 

 

regulators or institutional review boards may require that we, any of our future collaborators or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements; and

 

 

the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate.

 

If we or any of our future collaborators are required to conduct additional clinical trials or other testing of our product candidates beyond those currently contemplated, if we or any of our future collaborators are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we or any of our future collaborators may:

 

 

be delayed in obtaining regulatory approval for our product candidates;

 

 

not obtain regulatory approval at all;

 

 

obtain regulatory approval for indications that are not as broad as intended;

 

 

have the product removed from the market after obtaining regulatory approval;

 

 

be subject to additional post-marketing testing requirements; or

 

 

be subject to restrictions on how the product is distributed or used.

 

Our product development costs will also increase if we experience delays in testing or approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we or any of our future collaborators may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we or any of our future collaborators do, which would impair our or any of our future collaborators’ ability to commercialize our product candidates and harm our business and results of operations.

 

The development and commercialization of biologic products is subject to extensive regulation, and we may not obtain regulatory approvals for eptinezumab or any of our other product candidates.

 

The clinical development, manufacturing, labeling, packaging, storage, recordkeeping, advertising, promotion, export, import, marketing and distribution and other possible activities relating to eptinezumab, ALD1910 and any other product candidate that we may develop in the future are subject to extensive regulation in the United States. Biologics, like eptinezumab, require the submission of a Biologics License Application, or BLA, to the FDA and such product candidates are not permitted to be marketed in the United States until approval from the FDA of a BLA for that product has been obtained. A BLA must be supported by extensive preclinical and clinical data, as well as extensive information regarding chemistry, manufacturing and controls, or CMC, sufficient to demonstrate the safety, purity, potency and effectiveness of the applicable product candidate to the satisfaction of the FDA. We have not submitted

28


 

an application for approval or obtained FDA approval for any product. This lack of experience may impe de our ability to obtain FDA approval in a timely manner, if at all, for eptinezumab, ALD1910 and our future product candidates.

 

Regulatory approval of a BLA is not guaranteed, and the approval process is an expensive and uncertain process that may take several years. The FDA and foreign regulatory entities also have substantial discretion in the approval process. The number and types of preclinical studies and clinical trials that will be required for BLA approval varies depending on the product candidate, the disease or the condition that the product candidate is designed to target and the regulations applicable to any particular product candidate. Despite the time and expense associated with preclinical studies and clinical trials, failure can occur at any stage, and we could encounter problems that require us to repeat or perform additional preclinical studies or clinical trials or generate additional CMC data. The FDA and similar foreign authorities could delay, limit or deny approval of a product candidate for many reasons, including because they:

 

 

may not deem the product candidate to be adequately safe or effective;

 

 

may not find the data from preclinical studies, clinical trials or CMC data to be sufficient to support a claim of safety and efficacy;

 

 

may not approve the manufacturing processes or facilities associated with the product candidate;

 

 

may conclude that the long-term stability of the formulation of the drug product for which approval is being sought has been sufficiently demonstrated;

 

 

may change approval policies or adopt new regulations; or

 

 

may not accept a submission due to, among other reasons, the content or formatting of the submission.

 

To market any biologics outside of the United States, we and any of our future collaborators must comply with the numerous and varying regulatory and compliance related requirements of other countries. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods, including obtaining reimbursement and pricing approval in select markets. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks associated with FDA approval as well as additional, presently unanticipated, risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others, including the risk that our product candidates may not be approved for all indications requested and that such approval may be subject to limitations on the indicated uses for which the product may be marketed.

 

The results of clinical trials conducted at sites outside the United States may not be accepted by the FDA and the results or clinical trials conducted at sites inside the United States may not be accepted by international regulatory authorities.

 

We have conducted, and may in the future choose to conduct, our clinical trials outside the United States.  Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well-designed and conducted and performed by qualified investigators in accordance with ethical principles. The study population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. Generally, the patient population for any clinical trials conducted outside of the United States must be representative of the population for whom we intend to label the product in the United States. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will be dependent upon its determination that the trials also complied with all applicable U.S. laws and regulations. There can be no assurance the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from our international clinical trials, or if international regulatory authorities do not accept the data from our U.S. clinical trials, it would likely result in the need for additional trials, which would be costly and time-consuming and could delay or permanently halt the development of a product candidate.

 

We face substantial competition, and others may discover, develop or commercialize products before or more successfully than we do.

 

The development and commercialization of new therapeutic products is highly competitive. We face competition with respect to eptinezumab and our other current product candidates, and will face competition with respect to product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of biosimilar products, which are expected to become available over the coming years. Many of our

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com petitors are large pharmaceutical companies that have a greater ability to reduce prices for their competing drugs in an effort to maintain or gain market share and undermine the value proposition that drugs commercialized by us might otherwise be able to offer to payors.

 

Potential competitors also include academic institutions, government agencies and other public and private organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Many of these competitors are attempting to develop therapeutics for our target indications.

 

Currently in the United States, there are relatively few medications approved for the prevention of frequent episodic and chronic migraines. Most of the medications used today are generics that are prescribed for abortive treatment of migraines. Medications commonly used for prevention of frequent episodic and chronic migraine include beta blockers such as propranolol, marketed by Wyeth, and other treatments such as topiramate, marketed by Johnson & Johnson, and sodium valproate, marketed by Divalproex. In addition, Botox, marketed by Allergan, is approved for the prevention of chronic migraine and commonly prescribed for frequent episodic migraine. There are also several other companies, including Amgen, Lilly and Teva, that have ongoing clinical trials for CGRP blocking therapies using monoclonal antibodies similar to eptinezumab. Other companies may be in later stages of development than we are or may progress their product candidates through clinical trials faster than our product candidates and, therefore, may obtain FDA or other regulatory approval for their products before we obtain approval for ours. For example, we are aware that Amgen and Teva have each announced that they plan to make BLA submissions in 2017 for their competing CGRP therapies, which, if approved, would enable them to commercialize their CGRP therapies before we are able to do so with eptinezumab.

 

Many of our competitors, including a number of large pharmaceutical companies that compete directly with us, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Our competitors may develop products that are more effective, safer, more convenient or less costly than any that we are developing or that would render our product candidates obsolete or non-competitive. It is possible that our competitors might receive FDA or other regulatory approval for their products before us. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient enrollment for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

 

Delays in the enrollment of patients in our clinical trials could increase our development costs and delay completion of the trials and delays in enrollment of patients in any of our future collaborators’ clinical trials could delay completion of any of our future collaborators’ trials.