atra-10q_20150930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

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

For the quarterly period ended September 30, 2015

OR

¨

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

For the transition period from              to             

001-36548

(Commission file number)

 

ATARA BIOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

46-0920988

(State of incorporation)

 

(I.R.S. Employer Identification No.)

 

701 Gateway Blvd., Suite 200

South San Francisco, CA

 

94080

(Address of principal executive offices)

 

(Zip code)

(650) 278-8930

(Registrant’s telephone number, including area code)

 

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  x    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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

x

Smaller reporting company

¨

(Do not check if a smaller reporting company)

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

The number of shares of the registrant’s Common Stock outstanding as of October 31, 2015 was 28,631,144 shares.

 

 

 

 

 


 

ATARA BIOTHERAPEUTICS, INC.

INDEX

 

 

  

 

  

Page

PART I.

  

FINANCIAL INFORMATION

  

 

 

 

 

Item 1.

  

Financial statements (Unaudited)

  

3

 

 

 

 

  

Condensed Consolidated Balance Sheets

  

3

 

 

 

 

  

Condensed Consolidated and Combined Statements of Operations and Comprehensive Loss

  

4

 

 

 

 

  

Condensed Consolidated and Combined Statements of Cash Flows

  

5

 

 

 

 

  

Notes to Condensed Consolidated and Combined Financial Statements

  

6

 

 

 

Item 2.

  

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

  

15

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

  

23

 

 

 

Item 4.

  

Controls and Procedures

  

23

 

 

 

PART II.

  

OTHER INFORMATION

  

 

 

 

 

Item 1.

  

Legal Proceedings

  

24

 

 

 

Item 1A.

  

Risk Factors

  

24

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

54

 

Item 3.

  

Defaults Upon Senior Securities

  

54

 

Item 4.

  

Mine Safety Disclosures

  

54

 

Item 5.

  

Other information

  

54

 

Item 6.

  

Exhibits

  

55

 

 

 

  

Signatures

  

57

 

 

 

 

  

Index to Exhibits

  

58

 

 

 

 

 

2


 

Atara Biotherapeutics, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

54,466

 

 

$

21,897

 

Short-term available-for-sale investments

 

279,799

 

 

 

82,219

 

Prepaid expenses and other current assets

 

5,970

 

 

 

1,910

 

Total current assets

 

340,235

 

 

 

106,026

 

Property and equipment, net

 

46

 

 

 

48

 

Other assets

 

98

 

 

 

48

 

Total assets

$

340,379

 

 

$

106,122

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

1,853

 

 

$

440

 

Accrued compensation

 

1,562

 

 

 

1,225

 

Income tax payable

 

1

 

 

 

1

 

Other accrued liabilities

 

3,034

 

 

 

1,058

 

Total current liabilities

 

6,450

 

 

 

2,724

 

Other long-term liabilities

 

181

 

 

 

216

 

Total liabilities

 

6,631

 

 

 

2,940

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock—$0.0001 par value, 20,000,000 shares authorized; none issued and

    outstanding as of September 30, 2015 and December 31, 2014

 

 

 

 

 

Common stock—$0.0001 par value, 500,000,000 shares authorized; 28,326,096

   and 19,692,937 shares issued and outstanding as of September 30, 2015 and

   December 31, 2014, respectively

 

3

 

 

 

2

 

Additional paid-in capital

 

410,556

 

 

 

144,169

 

Accumulated other comprehensive income (loss)

 

51

 

 

 

(100

)

Accumulated deficit

 

(76,862

)

 

 

(40,889

)

Total stockholders’ equity

 

333,748

 

 

 

103,182

 

Total liabilities and stockholders’ equity

$

340,379

 

 

$

106,122

 

 

See accompanying notes.

 

3


 

Atara Biotherapeutics, Inc.

Condensed Consolidated and Combined Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

8,113

 

 

$

4,241

 

 

$

20,887

 

 

$

9,332

 

Research and development costs paid to

   Amgen

 

 

 

 

 

 

 

 

 

 

 

1,066

 

In-process research and development license

   acquired from MSK

 

 

 

 

 

 

 

 

4,500

 

 

 

 

General and administrative

 

 

4,146

 

 

 

1,708

 

 

 

11,291

 

 

 

7,162

 

Total operating expenses

 

 

12,259

 

 

 

5,949

 

 

 

36,678

 

 

 

17,560

 

Loss from operations

 

 

(12,259

)

 

 

(5,949

)

 

 

(36,678

)

 

 

(17,560

)

Interest and other income

 

 

380

 

 

 

30

 

 

 

696

 

 

 

59

 

Loss before provision for income taxes

 

 

(11,879

)

 

 

(5,919

)

 

 

(35,982

)

 

 

(17,501

)

Provision (benefit) for income taxes

 

 

(11

)

 

 

 

 

 

(9

)

 

 

(22

)

Net loss

 

$

(11,868

)

 

$

(5,919

)

 

$

(35,973

)

 

$

(17,479

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on investments

 

 

117

 

 

 

(11

)

 

 

151

 

 

 

(11

)

Other comprehensive gain (loss)

 

 

117

 

 

 

(11

)

 

 

151

 

 

 

(11

)

Comprehensive loss

 

$

(11,751

)

 

$

(5,930

)

 

$

(35,822

)

 

$

(17,490

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.43

)

 

$

(4.20

)

 

$

(1.46

)

 

$

(13.07

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

   used to calculate basic and diluted net loss

   per common share

 

 

27,674,821

 

 

 

1,410,507

 

 

 

24,628,043

 

 

 

1,337,501

 

 

See accompanying notes.

4


 

Atara Biotherapeutics, Inc.

Condensed Consolidated and Combined Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

Nine months

 

 

ended September 30,

 

 

2015

 

 

2014

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(35,973

)

 

$

(17,479

)

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

 

 

 

 

 

 

 

Non-cash research and development expenses

 

 

 

 

750

 

Depreciation expense

 

21

 

 

 

4

 

Amortization of investment premiums and discounts

 

1,714

 

 

 

249

 

Stock-based compensation expense

 

7,287

 

 

 

4,328

 

Interest accrued on notes receivable from stockholder

 

 

 

 

(2

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Other assets

 

(50

)

 

 

(34

)

Prepaid expenses and other current assets

 

(2,514

)

 

 

33

 

Accounts payable

 

1,413

 

 

 

(37

)

Income tax payable

 

 

 

 

(92

)

Other accrued liabilities

 

1,976

 

 

 

440

 

Accrued compensation

 

337

 

 

 

169

 

Other long-term liabilities

 

25

 

 

 

 

Net cash used in operating activities

 

(25,764

)

 

 

(11,671

)

Investing activities

 

 

 

 

 

 

 

Purchase of investments and accrued interest

 

(285,390

)

 

 

(28,618

)

Maturities and sales of short-term investments

 

84,701

 

 

 

2,200

 

Purchase of property and equipment

 

(19

)

 

 

(10

)

Net cash used in investing activities

 

(200,708

)

 

 

(26,428

)

Financing activities

 

 

 

 

 

 

 

Proceeds from sale of common stock, net of offering costs

 

263,434

 

 

 

 

Taxes paid related to net share settlement of restricted stock units

 

(4,588

)

 

 

 

Proceeds from exercise of stock options

 

195

 

 

 

 

Repayment of notes receivable from stockholder

 

 

 

 

337

 

Proceeds from sale of convertible preferred stock

 

 

 

 

13,500

 

Offering costs incurred in connection with sale of convertible preferred stock

 

 

 

 

(19

)

Offering costs incurred in anticipation of public filing

 

 

 

 

(1,631

)

Net cash provided by financing activities

 

259,041

 

 

 

12,187

 

Increase (decrease) in cash and cash equivalents

 

32,569

 

 

 

(25,912

)

Cash and cash equivalents-beginning of period

 

21,897

 

 

 

51,615

 

Cash and cash equivalents-end of period

$

54,466

 

 

$

25,703

 

 

 

 

 

 

 

 

 

Non-cash financing activities

 

 

 

 

 

 

 

Issuance of common stock for research and development expenses related to technology licensing option

$

 

 

$

750

 

Issuance of common stock upon vesting of stock awards

$

60

 

 

$

65

 

Change in other long-term liabilities related to non-vested stock awards

$

(60

)

 

$

(65

)

Offering costs in anticipation of public filing included in other accrued liabilities and

   accounts payable

$

 

 

$

407

 

Supplemental cash flow disclosure—Cash paid for income taxes

$

2

 

 

$

70

 

 

See accompanying notes.

 

5


 

Atara Biotherapeutics, Inc.

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)

 

1.

Organization and Description of Business

Atara Biotherapeutics, Inc. (“Atara”, “we” or “our”) was incorporated in August 2012 in Delaware. We are a clinical-stage biopharmaceutical company focused on developing meaningful therapies for patients with unmet medical needs in diseases that have seen limited therapeutic innovation, with an initial focus on muscle wasting conditions, oncology and viral-associated diseases. Our product candidate portfolio was acquired through licensing arrangements with Amgen Inc. (“Amgen”) and Memorial Sloan Kettering Cancer Center (“MSK”) in exchange for convertible preferred stock, common stock, milestone payments and commitments for future royalties. See Note 4 for further information.

In February 2015, we completed a follow-on offering of 4,147,358 shares of common stock at an offering price to the public of $18.00 per share.  We received net proceeds of approximately $69.5 million, after deducting underwriting discounts and commissions and offering expenses.

In July 2015, we completed a follow-on offering of 3,980,768 shares of common stock at an offering price to the public of $52.00 per share.  We received net proceeds of approximately $193.9 million, after deducting underwriting discounts and commissions and offering expenses.

    

2.

Summary of Significant Accounting Policies

Basis of Presentation and Recapitalization

The accompanying interim condensed consolidated and combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accounting policies followed in the preparation of the interim condensed consolidated and combined financial statements are consistent in all material respects with those presented in Note 2 to the consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Atara was originally formed as a management company with the sole purpose of providing management, financial and administrative services for Nina Biotherapeutics, Inc. (“Nina”), Santa Maria Biotherapeutics, Inc. (“Santa Maria”) and Pinta Biotherapeutics, Inc. (“Pinta”).  Prior to March 31, 2014, the accompanying financial statements include the operations of Atara, Nina, Pinta and Santa Maria on a combined basis as the four individual companies were under common ownership and common management since inception. All intercompany transactions have been eliminated.

On March 31, 2014, our board of directors approved and we implemented a recapitalization (the “Recapitalization”) in which (a) all the outstanding shares of common stock of Atara were cancelled and forfeited by existing stockholders and (b) the stockholders of Nina, Pinta and Santa Maria exchanged their existing common and convertible preferred stock for newly-issued shares of Atara, with the same rights and privileges as the outstanding capital stock of Nina, Pinta and Santa Maria. The shares were exchanged on a collective nine-for-one basis. The Recapitalization lacked economic substance as the newly-issued shares have the same rights and privileges as the previously outstanding capital stock of Nina, Pinta and Santa Maria and there was no change in ownership percentages of the individual stockholders. As a result of the Recapitalization, Nina, Pinta and Santa Maria became wholly owned subsidiaries of Atara effective March 31, 2014. The Recapitalization is considered a tax-free exchange for U.S. federal income tax purposes.

Because the four individual companies were under common ownership and the Recapitalization lacked economic substance, we accounted for the Recapitalization as a combination of businesses under common control. The assets and liabilities of Nina, Pinta and Santa Maria were recorded by Atara at their historical carrying amounts on March 31, 2014 and beginning March 31, 2014, the financial statements of the Company are presented on a consolidated basis.

Liquidity

We have incurred significant operating losses since inception and have relied on public and private equity financings to fund our operations. At September 30, 2015, we had an accumulated deficit of $76.9 million. As we continue to incur losses, our transition to profitability will depend on the successful development, approval and commercialization of product candidates and on the achievement of sufficient revenues to support our cost structure. We may never achieve profitability, and unless and until we do, we will need to continue to raise additional capital. Management expects that existing cash and cash equivalents as of September 30, 2015 will be sufficient to fund our current operating plan for at least the next twelve months.

6


 

Other Accrued Liabilities

Other accrued liabilities consist of the following:

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

 

(in thousands)

 

Accrued research and development costs

$

2,537

 

 

$

824

 

Other accrued liabilities

 

497

 

 

 

234

 

  Total

$

3,034

 

 

$

1,058

 

Net Loss per Common Share

Basic and diluted net loss per common share is presented, giving effect to the Recapitalization, including cancellation of existing Atara common stock and a nine-for-one share exchange. Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration of common stock equivalents. Diluted net loss per common share is computed by dividing the net loss by the weighted-average number of shares of common stock and common share equivalents outstanding for the period. Common share equivalents are only included in the calculation of diluted net loss per common share when their effect is dilutive. Our restricted stock awards are considered to be participating securities as they are entitled to participate in undistributed earnings with shares of common stock. Due to net losses, there is no impact on the net loss per common share calculation in applying the two-class method since the participating securities have no legal requirement to share in any losses.

Potentially dilutive securities, which include convertible preferred stock, unvested restricted common stock awards, unvested restricted stock units and vested and unvested options have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per common share and be antidilutive. Therefore, the denominator used to calculate both basic and diluted net loss per common share is the same in all periods presented.

The following common stock equivalents have been excluded from the computations of diluted net loss per common share as the effect of including such securities would be antidilutive:

 

 

Three months

 

 

Nine months

 

 

ended September 30,

 

 

ended September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Convertible preferred stock

 

 

 

 

12,299,184

 

 

 

 

 

 

12,249,056

 

Unvested restricted common stock

 

333,652

 

 

 

631,031

 

 

 

397,618

 

 

 

702,135

 

Unvested restricted stock units

 

453,449

 

 

 

 

 

 

492,716

 

 

 

 

Vested and unvested options

 

543,990

 

 

 

 

 

 

369,419

 

 

 

 

  Total

 

1,331,091

 

 

 

12,930,215

 

 

 

1,259,753

 

 

 

12,951,191

 

 

In addition, options to purchase 380,083 and 240,014 shares have been excluded from the above table for the three and nine months ended September 30, 2015, respectively, as the exercise prices of the underlying options were greater than the average fair value of our common stock for the periods presented.

Recent Accounting Pronouncements

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”, that provides guidance to customers about whether a cloud computing arrangement includes a software license. If such an arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for it as a service contract. This ASU will be effective for annual periods beginning after December 15, 2015, and early application is permitted. Entities may apply the new guidance either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively.  We adopted this standard prospectively on July 1, 2015.  Adoption of this standard did not have a material impact on our financial statements.

In August 2014, the FASB issued a new accounting standard to provide guidance on the presentation of management’s plans, when conditions or events raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.  The new standard is effective for fiscal years ending after December 15, 2016.  The adoption of this standard is not expected to have a material impact on our financial statements.

7


 

In May 2014, the FASB issued a new accounting standard, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in the current standard, Revenue Recognition.  This new standard affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets.  The new standard is effective for fiscal years beginning after December 15, 2017.  We will evaluate the application of this standard on our financial statements and disclosures when we enter into any contracts with customers.

 

3.

Fair Value of Financial Instruments

Our financial assets and liabilities carried at fair value are primarily comprised of investments in money market funds, corporate bonds, U.S. government securities, asset-backed securities and commercial paper. The fair value accounting guidance requires that assets and liabilities be carried at fair value and classified in one of the following three categories:

Level 1:

  

Quoted prices in active markets for identical assets or liabilities that we have the ability to access

 

Level 2:

  

 

Observable market based inputs or unobservable inputs that are corroborated by market data such as quoted prices, interest rates and yield curves

 

Level 3:

  

 

Inputs that are unobservable data points that are not corroborated by market data

We review the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels of certain securities within the fair value hierarchy. We recognize transfers into and out of levels within the fair value hierarchy in the period in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, and Level 3 for all periods presented.

The following table represents the fair value hierarchy for our financial assets and financial liabilities measured at fair value on a recurring basis:  

 

 

 

 

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

Prices in

 

 

Other

 

 

 

Total

 

 

Active Markets

 

 

Observable Inputs

 

 

 

Fair Value

 

 

(Level 1)

 

 

(Level 2)

 

 

 

(in thousands)

 

At September 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

44,889

 

 

$

44,889

 

 

$

 

Agency bonds

 

 

4,500

 

 

 

 

 

 

4,500

 

Corporate bonds

 

 

4,936

 

 

 

 

 

 

4,936

 

Total cash equivalents

 

$

54,325

 

 

$

44,889

 

 

$

9,436

 

Short-term available-for-sale investments:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

197,768

 

 

$

 

 

$

197,768

 

Agency bonds

 

 

33,468

 

 

 

 

 

 

33,468

 

Asset-backed securities

 

 

48,563

 

 

 

 

 

 

48,563

 

Total short-term available-for-sale

   investments

 

$

279,799

 

 

$

 

 

$

279,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

18,141

 

 

$

18,141

 

 

$

 

Agency bonds

 

 

1,750

 

 

 

 

 

 

1,750

 

Corporate bonds

 

 

2,006

 

 

 

 

 

 

2,006

 

Total cash equivalents

 

$

21,897

 

 

$

18,141

 

 

$

3,756

 

Short-term available-for-sale investments:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

57,958

 

 

$

 

 

$

57,958

 

Agency bonds

 

 

10,764

 

 

 

 

 

 

10,764

 

Treasury bonds

 

 

465

 

 

 

 

 

 

465

 

Commercial paper

 

 

1,200

 

 

 

 

 

 

1,200

 

Asset-backed securities

 

 

11,832

 

 

 

 

 

 

11,832

 

Total short-term available-for-sale

   investments

 

$

82,219

 

 

$

 

 

$

82,219

 

 

8


 

Financial assets and liabilities are considered Level 2 when their fair values are determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities. In addition, Level 2 financial instruments are valued using comparisons to like-kind financial instruments and models that use readily observable market data as their basis. Corporate bonds, U.S. government securities, asset-backed securities and commercial paper are valued primarily using market prices of comparable securities, bid/ask quotes, interest rate yields and prepayment spreads and are included in Level 2.

Financial assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. We have no Level 3 financial assets and liabilities.

Short-term available-for-sale investments are carried at fair value and are included in the tables above under short-term investments. The aggregate market value, cost basis, and gross unrealized gains and losses of short-term available-for-sale investments by major security type are as follows:

 

 

Total

 

 

Total

 

 

Total

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Total

 

 

Cost

 

 

Gain

 

 

Loss

 

 

Fair Value

 

 

(in thousands)

 

At September 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

197,773

 

 

$

71

 

 

$

(76

)

 

$

197,768

 

Agency bonds

 

33,438

 

 

 

36

 

 

 

(6

)

 

 

33,468

 

Asset-backed securities

 

48,537

 

 

 

35

 

 

 

(9

)

 

 

48,563

 

Total short-term available-for-sale

   investments

$

279,748

 

 

$

142

 

 

$

(91

)

 

$

279,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

58,046

 

 

$

1

 

 

$

(89

)

 

$

57,958

 

Agency bonds

 

10,769

 

 

 

 

 

 

(5

)

 

 

10,764

 

Treasury bonds

 

466

 

 

 

 

 

 

(1

)

 

 

465

 

Commercial paper

 

1,200

 

 

 

 

 

 

 

 

 

1,200

 

Asset-backed securities

 

11,838

 

 

 

2

 

 

 

(8

)

 

 

11,832

 

Total short-term available-for-sale

   investments

$

82,319

 

 

$

3

 

 

$

(103

)

 

$

82,219

 

The amortized cost and fair value of short-term available-for-sale investments, by contractual maturity, were as follows:

 

 

 

Total

 

 

 

 

 

 

 

Amortized

 

 

Total

 

 

 

Cost

 

 

Fair Value

 

 

 

(in thousands)

 

At September 30, 2015:

 

 

 

 

 

 

 

 

Maturing within one year

 

$

115,786

 

 

$

115,853

 

Maturing in one to five years

 

 

163,962

 

 

 

163,946

 

Total short-term available-for-sale investments

 

$

279,748

 

 

$

279,799

 

 

 

 

 

 

 

 

 

 

At December 31, 2014:

 

 

 

 

 

 

 

 

Maturing within one year

 

$

56,752

 

 

$

56,714

 

Maturing in one to five years

 

 

25,567

 

 

 

25,505

 

Total short-term available-for-sale investments

 

$

82,319

 

 

$

82,219

 

 

 

9


 

4.

Significant Agreements  

Amgen License Agreements - In September 2012, we entered into three license agreements with Amgen, one of our investors, for the development, manufacturing, use and distribution of products using certain proprietary compounds. Under the terms of these agreements, we paid $250,000 and issued 5,538,462 shares of Series A-1 convertible preferred stock (615,384 shares after giving effect to the Recapitalization) to Amgen. We are obligated to make additional payments to Amgen of up to $86.0 million upon the achievement of certain development and regulatory approval milestones, of which $1.0 million has been paid to date. Of these milestone payments, $14.0 million relate to milestones for clinical trials. The remaining $72.0 million relate to milestones for regulatory approvals in various territories and are anticipated to be made no earlier than 2018. Thereafter, we are obligated to make tiered payments based on achievement of commercial milestones based upon net sales levels. The maximum payments would be $206.0 million based on sales of over $1.0 billion for each of three products in a calendar year. We are also obligated to pay mid-single-digit percentage tiered royalties on future net sales of products which are developed and approved as defined by the agreements. Our royalty obligations as to a particular licensed product will be payable, on a country-by-country and product-by-product basis, until the later of (a) the date of expiration of the last to expire valid claim within the licensed patents that covers the manufacture, use or sale, offer to sell, or import of such licensed product by us or a sublicense in such country, (b) loss of regulatory exclusivity or (c) 10 years after the first commercial sale of the applicable licensed product in the applicable country. These agreements expire at the end of all royalty obligations to Amgen and, upon expiration, the licenses will be fully paid, royalty-free, irrevocable and non-exclusive. As of September 30, 2015 and December 31, 2014, there were no outstanding obligations due to Amgen.

At September 30, 2015, Amgen owns approximately 5.2% of our outstanding voting capital stock. Amgen does not have any rights to participate in our product candidates’ development and is not represented on our board of directors.

MSK Agreements – In September 2014, we entered into an exclusive option agreement with MSK under which we had the right to acquire the exclusive worldwide license rights to the three clinical stage T-cell therapies of MSK.  The initial option period was for twelve months, with extensions available to extend the term up to 27 months at the option of Atara.  Under the terms of the option agreement, we were obligated to use reasonable efforts to prepare a request to be submitted to the U.S. Food and Drug Administration (the “FDA”) regarding a meeting to discuss pivotal trials for one of the clinical stage T-cell therapies.  In exchange for the exclusive option, we paid MSK $1.25 million in cash and issued 59,761 shares of our common stock to MSK.  At the time of issuance, we estimated the fair value of the common stock issued to MSK to be $750,000.  This total of $2.0 million was recorded as research and development expense in our condensed consolidated and combined statement of operations and comprehensive loss in the third quarter of 2014.  

In June 2015, we exercised our option and entered into an exclusive license agreement with MSK.  In connection with the execution of the License Agreement, Atara is obligated to make an upfront cash payment to MSK of $4.5 million and this amount has been recorded as research and development expense in our condensed consolidated and combined statement of operations and comprehensive loss in the second quarter of 2015. Atara is obligated to make additional payments of up to $33.0 million to MSK based on achievement of specified development, regulatory and sales-related milestones, as well as escalating mid single-digit royalties based on future sales of products resulting from the development of the licensed product candidates. In addition, under certain circumstances, we must make certain minimum annual royalty payments to MSK, which are creditable against earned royalties owed for the same annual period. We are also obligated to pay a low double-digit percentage of consideration we receive for sublicensing the licensed rights. The license agreement expires on a product-by-product and country-by-country basis on the later of: (i) expiration of the last licensed patent rights related to each licensed product, (ii) expiration of any market exclusivity period granted by law with respect to each licensed product, and (iii) a specified number of years after the first commercial sale of the licensed product in each country. Upon expiration of the license agreement, Atara will retain non-exclusive rights to the licensed products.

Patent Obligations – Under the terms of our license agreements with Amgen and MSK, we pay costs related to the preparation, filing, prosecution, defense and maintenance of the patents covered by the license agreements.  During the three months ended September 30, 2015 and 2014, we incurred expenses of $412,389 and $447,518, respectively, related to the preparation, filing and maintenance of patents. During the nine months ended September 30, 2015 and 2014, patent costs were $1,251,824 and $842,228. These patent costs were recorded in the condensed consolidated and combined statement of operations and comprehensive loss as general and administrative expenses.

 

10


 

5.

Commitments and Contingencies  

Operating Leases

In September 2015, we amended our lease agreement for office and laboratory facilities in Westlake Village, California to add additional office space and extend the term of the agreement to April 2019.

As of September 30, 2015, future minimum commitments for all operating leases are as follows:

 

 

Operating Leases

 

 

(in thousands)

 

2015

$

156

 

2016

 

595

 

2017

 

407

 

2018

 

402

 

2019

 

137

 

Total

$

1,697

 

 

Rent expense for the three months ended September 30, 2015 and 2014 was $115,063 and $19,867, respectively.   Rent expense for the nine months ended September 30, 2015 and 2014 was $294,510 and $49,620, respectively.

Indemnification Agreements

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for indemnification for certain liabilities. The exposure under these agreements is unknown because it involves claims that may be made against us in the future but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations. We also have indemnification obligations to our directors and executive officers for specified events or occurrences, subject to some limits, while they are serving at our request in such capacities. There have been no claims to date and we believe the fair value of these indemnification agreements is minimal. Accordingly, we have not recorded any liabilities for these agreements as of September 30, 2015 and December 31, 2014.

 

6.

Stockholders’ Equity

Restricted Common Stock

In August 2012, in connection with our formation, our CEO purchased 9,595,384 shares of restricted common stock at a nominal per share purchase price. The shares were issued subject to certain vesting conditions, restrictions on transfer and a Company right of repurchase of any unvested share at their original purchase price. These shares are placed in escrow until vested, and have rights to vote and participate in dividends and distributions. The combined grant date intrinsic value for this award was $1,704,094 and 7,996,153 of these shares had service and fundraising vesting conditions. Under the service vesting condition, shares vest monthly over 48 months, commencing from the first closing of Series A convertible preferred stock financing on October 22, 2012. 1,599,231 of these shares were subject to performance milestones and fundraising vesting conditions. The fundraising vesting conditions for all shares were satisfied as of December 31, 2013. All shares subject to service vesting conditions are subject to accelerated vesting in the event of certain change of control transactions.

In March 2013, an Atara employee purchased 2,423,074 shares of restricted common stock for $331,170. The shares were issued under our 2012 Equity Incentive Plan (as discussed below) and are subject to certain vesting conditions, restrictions on transfer and a Company right of repurchase of any unvested shares at their original purchase price. These shares are placed in escrow until vested, and have rights to vote and participate in dividends and distributions. Under these agreements, the shares vest as follows: 2,319,228 shares vest over four years, with one-quarter vesting after one year of service and the remainder vesting in equal installments over the subsequent thirty-six months, and 103,846 shares vest upon achievement of certain performance milestones. Vesting of all shares is subject to acceleration of vesting in the event of certain change of control transactions.

The amounts paid for both restricted stock purchases were initially recorded as other long-term liabilities. As shares vest, we reclassify liabilities to equity and report shares as outstanding in the condensed consolidated and combined financial statements. On March 31, 2014, the shares were exchanged for 1,335,384 shares of Atara common stock.  At September 30, 2015, 1,030,336 shares had vested and are classified as equity. Restricted stock shares not vested at September 30, 2015 totaled 305,048 shares and are expected to be fully vested by December 31, 2016.

11


 

As both the Chief Executive Officer and the Atara employee were consultants of Nina, Pinta and Santa Maria through the Recapitalization date, we accounted for these awards as non-employee stock-based awards. Following the Recapitalization, these awards were accounted as employee awards based upon the fair market value of common stock on March 31, 2014. Stock-based compensation expense related to these awards is recorded using an accelerated graded vesting model and was $213,240 and $431,974 for the three months ended September 30, 2015 and 2014, respectively, and $802,360 and $4.3 million for the nine months ended September 30, 2015 and 2014, respectively.  The unrecognized stock-based compensation expense related to this unvested restricted stock was $381,402 at September 30, 2015 and this expense is expected to be recognized over a weighted-average period of 0.55 years.  The aggregate intrinsic value of unvested restricted stock is $9.5 million at September 30, 2015.

2014 Equity Incentive Plans

In March 2014, we adopted the 2014 Equity Incentive Plan (the “2014 plan”) as part of our Recapitalization. In connection with the Recapitalization, Atara assumed the plans of Nina, Pinta and Santa Maria and all outstanding restricted stock units (“RSUs”) and restricted stock awards granted under such plans.  At the date of Recapitalization, RSUs and restricted stock awards issued by Nina, Pinta and Santa Maria to Atara employees became employee awards and the awards’ grant dates were established as the Recapitalization date.  In May 2014, our board of directors amended and restated our 2014 plan and the amended plan became effective on October 15, 2014 upon the pricing of our initial public offering.  The maximum number of shares of our common stock that may be issued pursuant to stock awards under the 2014 plan is 4,536,797 shares, including 1,294,041 shares that were previously available for issuance under the 2012 plans.

The number of shares of our common stock reserved for issuance pursuant to stock awards under our 2014 plan will automatically increase on January 1 of each year for a period of up to ten years, beginning on January 1, 2015 and ending on and including January 1, 2024, by 5% of the number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors.  The number of shares of our common stock available for issuance under the 2014 plan is 1,819,006 at September 30, 2015.

Under the terms of the 2014 plan, we may grant options, restricted stock awards and RSUs to employees, directors, consultants and other service providers.  RSUs typically require settlement by the earlier of seven years from the date of grant or the service termination (or, for RSUs granted prior to February 2014, two years following the service termination date). Stock options are granted at prices no less than 100% of the estimated fair value of the shares on the date of grant as determined by the board of directors, provided, however, that the exercise price of an option granted to a 10% shareholder cannot be less than 110% of the estimated fair value of the shares on the date of grant. Options granted to employees and non-employees generally vest over four years and expire in seven years.

Restricted Stock Units and Awards

The RSUs granted prior to our initial public offering had a time-based service condition and a liquidity-based performance condition, and vest when both conditions are met. We determined that the liquidity-based performance condition was not probable of occurring and recorded no stock-based compensation expense related to the RSUs prior to our initial public offering.  Upon the closing of our initial public offering in October 2014, we recorded $3.8 million of stock-based compensation expense in our consolidated and combined statement of operations and comprehensive loss for the quarter ended December 31, 2014.  The remaining unrecognized stock-based compensation expense relating to nonvested RSUs will be recognized as the RSUs vest over the remaining service periods through 2018. As of September 30, 2015, there was $2.4 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted average period of 1.19 years. The aggregate intrinsic value of the RSUs outstanding at September 30, 2015 was $15.8 million.

The following is a summary of RSU activity, including the restricted stock award discussed above, under our 2014 plan:

 

 

 

Restricted Stock Awards

 

 

RSUs

 

 

 

Shares

 

 

Weighted Average Grant Date Fair Value

 

 

Shares

 

 

Weighted Average Grant Date Fair Value

 

Unvested at December 31, 2014

 

 

112,740

 

 

$

0.40

 

 

 

619,303

 

 

$

4.64

 

Granted

 

 

 

 

 

 

 

 

87,600

 

 

$

25.15

 

Forfeited

 

 

 

 

 

 

 

 

(2,645

)

 

$

8.59

 

Vested

 

 

(48,317

)

 

$

0.40

 

 

 

(223,285

)

 

$

6.06

 

Unvested at September 30, 2015

 

 

64,423

 

 

$

0.40

 

 

 

480,973

 

 

$

7.69

 

 

12


 

Under our RSU net settlement procedures, we withhold shares at settlement to cover the minimum payroll withholding obligations for employee income and other employment taxes.  During 2015, we settled 400,346 RSUs, of which 287,881 RSUs were net settled by withholding 122,061 shares.  The value of these withheld RSUs was $4.6 million, based on the closing price of our common stock on the settlement date.  This amount was remitted to the appropriate taxing authorities and $4.6 million has been reflected as a financing activity in our consolidated and combined statement of cash flows. These withheld shares are no longer considered issued and outstanding, thereby reducing our shares outstanding used to calculated earnings per share, and these shares were returned to the shares reserved for issuance under our 2014 plan and are available for future issuance.

Stock Options

The following is a summary of option activity under our 2014 plan:

 

 

 

Number of shares

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term

 

Aggregate Intrinsic Value

 

Outstanding at December 31, 2014

 

 

623,936

 

 

$

13.69

 

 

 

 

 

 

 

Granted (weighted-average grant

   date fair value of $19.22 per share)

 

 

1,115,699

 

 

 

33.57

 

 

 

 

 

 

 

Exercised

 

 

(11,844

)

 

 

16.50

 

 

 

 

 

 

 

Forfeited

 

 

(72,759

)

 

 

37.11

 

 

 

 

 

 

 

Balance at September 30, 2015

 

 

1,655,032

 

 

$

26.04

 

 

6.29

 

$

15,260,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options vested and expected to

   vest at September 30, 2015

 

 

1,655,032

 

 

$

26.04

 

 

6.29

 

$

15,260,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at September 30, 2015

 

 

202,209

 

 

$

16.75

 

 

6.09

 

$

2,971,166

 

 

Aggregate intrinsic value represents the difference between the closing stock price of our common stock on September 30, 2015 and the exercise price of outstanding, in-the-money options. As of September 30, 2015, there was $20.7 million of unrecognized stock-based compensation expense related to stock options that is expected to be recognized over a weighted average period of 3.14 years.  

The fair value of options issued during 2015 was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions:

 

 

 

Three Months Ended September 30, 2015

 

 

Nine Months Ended September 30, 2015

 

 

 

Employees

 

 

Non Employees

 

 

Employees

 

 

Non Employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-free interest rate

 

1.5% - 1.7%

 

 

2.1%

 

 

1.3% - 1.7%

 

 

1.6% - 2.1%

 

Expected life of options in years

 

4.5

 

 

7.0

 

 

4.5

 

 

7.0

 

Expected volatility of underlying stock

 

73.4% - 73.9%

 

 

 

71.9%

 

 

71.1% - 73.9%

 

 

70.1% - 71.9%

 

Expected dividend yield

 

 

0.0%

 

 

 

0.0%

 

 

 

0.0%

 

 

 

0.0%

 

 

Stock-based Compensation Expense

Total stock-based compensation expense related to all employee and non-employee awards was as follows (in thousands):

 

 

Three months

 

 

Nine months

 

 

ended September 30,

 

 

ended September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Research and development

$

899

 

 

$

135

 

 

$

3,439

 

 

$

967

 

General and administrative

 

1,335

 

 

 

351

 

 

 

3,848

 

 

 

3,361

 

 

$

2,234

 

 

$

486

 

 

$

7,287

 

 

$

4,328

 

 

 

13


 

7.

Subsequent Events 

In October 2015, Atara entered into an exclusive license agreement and a research and development agreement with QIMR Berghofer Medical Research Institute.  Under the terms of the license agreement, Atara obtained an exclusive, worldwide license to develop and commercialize allogeneic cytotoxic T-lymphocytes (“CTL”) therapy programs utilizing technology and know-how developed by the third party.  In consideration for the exclusive license, Atara made a $3.0 million upfront payment and will make subsequent milestone payments based on future net sales of products developed under the terms of the license agreement. Under the research and development agreement, Atara will also be obligated to make milestone payments based on achievement of specified developmental and regulatory events

 

 

14


 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated and combined financial statements and related notes included  in our 2014 Annual Report on Form 10-K. This discussion and other parts of this quarterly report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this quarterly report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a clinical-stage biopharmaceutical company focused on developing innovative therapies for patients with debilitating diseases. We have two groups of product candidates: molecularly targeted biologics and allogeneic, or third-party derived, antigen-specific T-cells, a type of white blood cell. Our molecularly targeted product candidates are biologics that inhibit myostatin and activin, members of the Transforming Growth Factor-Beta, or TGF-ß, protein superfamily, which play roles in the growth and maintenance of muscle and many other body tissues. Our lead molecularly targeted product candidate, PINTA 745, is in a Phase 2 clinical trial for protein energy wasting, a condition affecting many end-stage renal disease patients. Our second molecularly targeted product candidate is STM 434. We commenced a Phase 1 clinical study of STM 434 for ovarian cancer and other solid tumors in 2014. We have five additional molecularly targeted product candidates that modulate the TGF-ß pathway, including ATA 842, in preclinical development. Our T-cell product candidates arise from a platform technology designed to produce off-the-shelf, partially human leukocyte antigen matched cellular therapeutics. We licensed these product candidates from Memorial Sloan Kettering Cancer Center in June 2015. Our initial T-cell product candidates target viral- or cancer-specific antigens and are design