UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

For the quarterly period ended June 30, 2015

or

For the transition period from                      to                      

Commission File Number: 001-36070

 

Five Prime Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Two Corporate Drive

South San Francisco, California 94080

(415) 365-5600

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

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 (§ 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  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):

 

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

As of July 31, 2015, the number of outstanding shares of the registrant’s common stock was 25,805,249.

 

 

 

 

 

 

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TABLE OF CONTENTS

 

In this report, unless otherwise stated or the context otherwise indicates, references to “Five Prime,” “the company,” “we,” “us,” “our” and similar references refer to Five Prime Therapeutics, Inc. The Five Prime logo and RIPPS ^® are our registered trademarks. This report also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders.

 

 

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include statements concerning the following:

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this report in greater detail under the heading “Risk Factors” and elsewhere in this report. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this report.

We obtained the industry, market and competitive position data in this quarterly report from our own internal estimates and research as well as from industry and general publications and research surveys and studies conducted by third parties. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal company research is reliable and the market definitions we use are appropriate, neither such research nor these definitions have been verified by any independent source.

 

 

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

FIVE PRIME THERAPEUTICS, INC.

Condensed Balance Sheets

(In thousands)

 

 

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

 

 

 

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FIVE PRIME THERAPEUTICS, INC.

Condensed Statements of Operations

(In thousands, except per share amounts)

 

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

 

 

 

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FIVE PRIME THERAPEUTICS, INC.

Condensed Statements of Comprehensive Loss

(In thousands)

 

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

 

 

 

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FIVE PRIME THERAPEUTICS, INC.

Condensed Statement of Cash Flows

(In thousands)

 

 

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

 

 

 

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FIVE PRIME THERAPEUTICS, INC.

Notes to Condensed Financial Statements

June 30, 2015

 

Five Prime Therapeutics, Inc. (we, us, our or the Company) is a clinical-stage biotechnology company focused on discovering and developing novel protein therapeutics. Protein therapeutics are antibodies or drugs developed from extracellular proteins or protein fragments that block disease processes, including cancer and inflammatory diseases. We were incorporated in December 2001 in Delaware. Our operations are based in South San Francisco, California and we operate in one segment.

Unaudited Interim Financial Information

The accompanying financial information as of June 30, 2015 is unaudited. The Condensed Financial Statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that our management considers necessary for the fair statement of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. The Condensed Balance Sheet as of December 31, 2014 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America, or GAAP. The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The accompanying Condensed Financial Statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the U.S. Securities and Exchange Commission.

Follow-on Public Offering

In January 2015, we closed an underwritten public offering of 3,829,994 shares of our common stock, which included shares we issued pursuant to our underwriters’ exercise of their over-allotment option. We received net proceeds of $78.7 million, after underwriting discounts, structuring fees and offering expenses.

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements as well as reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

We determine the fair value of financial and nonfinancial assets and liabilities using the fair value hierarchy, which describes three levels of inputs that may be used to measure fair value, as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities;

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We determine the fair value of Level 1 assets using quoted prices in active markets for identical assets. We review trading activity and pricing for Level 2 investments as of each measurement date. Level 2 inputs, obtained from various third-party data providers, represent quoted prices for similar assets in active markets and were derived from observable market data, or, if not directly observable, were derived from or corroborated by other observable market data.

In certain cases where there is limited activity or less transparency around inputs to valuation, we classify securities as Level 3 within the valuation hierarchy. We do not have any Level 3 securities as of June 30, 2015.

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The following table summarizes, for assets recorded at fair value, the respective fair values and the classifications by level of input within the fair value hierarchy defined above (in thousands):

 

 

 

 

  

Net Loss Per Share of Common Stock

We compute basic net loss per common share by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

We excluded the following options and restricted stock awards, or RSAs, to purchase shares of common stock (in thousands) from the calculation of diluted net loss per share for all periods presented as the effect would have been antidilutive:

 

 

Recently Issued Accounting Standards

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction  price to each separate performance obligation. ASU 2014-09 is effective for us in our first quarter of fiscal 2018 using either of two methods: (i) retrospective application of ASU 2014-09 to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective application of ASU 2014-09 with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our financial statements.

 

 

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The following is a summary of our cash equivalents and marketable securities (in thousands):

 

 

 

 

As of June 30, 2015, the amortized cost and estimated fair value of our available-for-sale securities by contractual maturity are shown below (in thousands):

 

 

We did not have any gross unrealized losses from our marketable securities as of June 30, 2015. We made no sales of available-for-sale securities in any of the periods presented.

 

The following table summarizes option activity under our stock plans and related information:

 

 

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We have granted restricted stock awards, or RSAs, to certain employees. RSAs are share awards that entitle the holder to receive freely tradable shares of our common stock upon vesting and are unforfeitable once fully vested. We based the fair value of RSAs on the closing sales price of our common stock on the grant date.

The following table summarizes the RSAs activity under our stock plans and related information:

 

As of June 30, 2015, there were 4,102,609 shares of common stock available for future issuance under our 2013 Omnibus Incentive Plan.

Stock-Based Compensation

We calculate employee stock-based compensation expense based on awards ultimately expected to vest reduced by estimated forfeitures. We estimate forfeitures at the time of grant and revise forfeitures, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Total stock-based compensation expense recognized was as follows (in thousands):

 

 

 

We estimated the fair value of each stock option using the Black-Scholes option-pricing model based on the date of grant of such stock option with the following assumptions:

 

 

As of June 30, 2015, we had $7.2 million of total unrecognized compensation expense related to nonvested employee and director stock options that we expect to recognize over a weighted-average period of 2.5 years.

 

bluebird bio, Inc.

In May 2015, we entered into an exclusive license agreement, referred to as the license agreement, with bluebird bio, Inc., or bluebird, under which we licensed to bluebird human antibodies to an undisclosed cancer target to research, develop and commercialize chimeric antigen receptor (CAR) T cell therapies using these antibodies.

Under the license agreement, bluebird paid us a $1.5 million upfront fee and is obligated to pay us subsequent milestone payments, which together could total up to $131.0 million per licensed product if bluebird achieves certain development, regulatory and commercial milestones. We are also eligible to receive tiered royalties on product sales. bluebird will conduct and fund clinical development as well as regulatory and commercial activities.

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There are no other deliverables under the agreement other than the license grant. We recognized the $1.5 million upfront fee as revenue upon delivery of the license grant, which was completed in the three months ended June 30, 2015.

In accordance with ASU No. 2010-17, Milestone Method of Revenue Recognition, we determined that the remaining contingent payments under the license agreement do not constitute milestone payments and we will not account for such payments under the milestone method of revenue recognition. The events leading to these payments under the license agreement do not meet the definition of a milestone under ASU 2010-17 because the achievement of these events solely depends on bluebird’s performance. Since we have no remaining performance obligations under the license agreement, we would recognize the contingent payment as revenue in full upon the triggering event.

The license agreement will expire upon the fulfillment of all payment obligations under the license agreement. In addition, bluebird may terminate the license agreement in its entirety without cause at any time with advance written notice and either party may terminate the license agreement in its entirety with written notice for the other party’s material breach if such party fails to cure the breach or immediately upon certain insolvency events.

 

 

We sponsor a 401(k) plan under which eligible employees may elect to contribute to the 401(k) plan, subject to certain limitations, up to the lesser of the statutory maximum or 100% of eligible compensation on a pre-tax basis. We pay the administrative costs for the plan.

 

Effective January 1, 2015, we elected to match employee contributions to the 401(k) plan, or the Company Match, as permitted by the plan. We plan to make matching contributions on June 15 and December 15 each year in an amount equal to 50% of the amount contributed by the employee up to an annual maximum Company Match per employee equal to the lesser of (i) 4% of such employee’s compensation; or (ii) $6,000. We deliver the Company Match through the issuance of shares of our common stock. We delivered 13,720 shares of our common stock as the Company Match on June 15, 2015 and recorded 401(k) plan Company Match expense of $157,000 and $336,000 for the three and six months ended June 30, 2015.

 

 

In July 2015, we entered into a research collaboration and license agreement with INBRX 110 LP, or Inhibrx, to obtain (a) an exclusive, worldwide license to antibodies to glucocorticoid-induced tumor necrosis factor receptor, or GITR, for therapeutic and diagnostic uses, which we refer to respectively as licensed therapeutic products and  licensed diagnostic products, and (b) an exclusive option, or the option, to obtain exclusive, worldwide licenses to multi-specific antibodies developed by Inhibrx that bind to both GITR and other targets, each of which we refer to as a multi-specific product.  We can exercise an option with respect to a multi-specific product within a limited period of time after (i) certain activities related to initiating clinical manufacturing of such multi-specific product or (ii) if not earlier exercised, the dosing of the first patient in a Phase 2 clinical trial of such multi-specific product.

 

Pursuant to the collaboration agreement, we paid Inhibrx an upfront fee of $10.0 million. Additionally, with respect to each licensed therapeutic product, we will be obligated to pay up to $62.5 million in specified development milestone payments and (i) if such licensed therapeutic product does not receive a Breakthrough Therapy Designation from the U.S. Food and Drug Administration, or FDA, up to $280.0 million in specified regulatory and commercial milestone payments, or (ii) if such licensed therapeutic product receives a Breakthrough Therapy Designation from the FDA, up to $380.0 million in specified regulatory and commercial milestone payments. Inhibrx is also eligible for low double-digit tiered royalties on future product sales. We may pay all or a portion of milestone payments for development and regulatory events in shares of our common stock, subject to certain limitations and conditions. We would be obligated to register for resale under the Securities Act of 1933, as amended, or the Securities Act, any such shares of our common stock.

 

 

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

You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto for the year ended December 31, 2014, included in our Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission (SEC) on March 18, 2015.

Overview

 

We are a clinical-stage biotechnology company focused on discovering and developing novel protein therapeutics to improve the lives of patients with serious diseases. We currently have three product candidates in clinical development covering multiple potential indications. Each of our product candidates has an innovative mechanism of action and addresses patient populations for which better therapies are still needed. In addition, we are pursuing companion diagnostics, where appropriate, for each of our clinical programs to allow us to select patients most likely to benefit from treatment and therefore accelerate clinical development and improve patient care. Our most advanced product candidates are identified below.

 

 

 

We have a differentiated target discovery platform and library, which we believe encompasses substantially all of the body’s medically important targets for protein therapeutics. This positions us to explore pathways in cancer and inflammation and their intersection in immuno-oncology, an area of oncology with significant therapeutic potential and a growing focus of our research and development activities.  We are applying all aspects of our biologics discovery platform, including cell-based screening, in vivo screening, receptor-ligand matching technologies and bioinformatics, in our immuno-oncology research program. We have identified novel targets that we believe could be useful in immuno-oncology and are actively validating these and looking for additional targets. We have begun and will continue to generate therapeutic proteins, including antibodies or ligand traps, directed to the targets we identify and advance selected candidates into pre-clinical development and eventually into clinical development, with a goal of filing one new Investigational New Drug, or IND, application per year beginning in 2017.

We have no products approved for commercial sale and have not generated any revenue from product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. We have incurred losses in each period since our inception in 2002, with the exception of the fiscal year ended 2011, primarily due to the $50.0 million upfront payment we received from GSK from our license and collaboration agreement for FP-1039. For the six months ended June 30, 2015 and 2014, we reported a net loss of $22.5 million and $18.5 million, respectively. As of June 30, 2015, we had an accumulated deficit of $211.5 million.

Our management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, which we prepared in accordance with GAAP for interim periods and with Regulation S-X promulgated under the Securities and Exchange Act of 1934, as amended, or the Exchange Act.

Second Quarter 2015 and Other Recent Highlights

 

Research Collaboration and License Agreement

 

In July 2015, we entered into a research collaboration and license agreement with INBRX 110 LP, or Inhibrx, pursuant to which we obtained an exclusive, worldwide license to Inhibrx’s glucocorticoid-induced tumor necrosis factor receptor, or GITR, antibodies, which we refer to now as our FPA154 program. Our FPA154 antibody program is currently at lead selection stage.

 

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Clinical Pipeline

The following table summarizes key information about our three most advanced product candidates:

FPA008

FPA008 in Immuno-Oncology

 

We have obtained IND clearance for our Phase 1a/1b trial with BMS to evaluate the safety, tolerability and preliminary efficacy of combining Opdivo^® (nivolumab), BMS’s PD-1 immune checkpoint inhibitor, with FPA008 as a potential treatment for patients with non-small cell lung cancer, or NSCLC, melanoma, head and neck cancer, pancreatic cancer, colorectal cancer and malignant glioma. We expect to commence enrollment in this trial in August 2015 and expect to complete Phase 1a dose escalation and expand into Phase 1b with the selected dose of FPA008 in late 2015 or early 2016.

FPA008 in Pigmented Villonodular Synovitis (PVNS)

We are conducting a Phase 1/2 clinical trial of FPA008 in patients with PVNS. During the Phase 1 dose escalation part of the trial, we will assess the safety, pharmacodynamics and imaging of the joints to determine the dose for expansion. During the Phase 2 expansion, we will evaluate tumor response rate and duration, and measures of pain and joint function. We plan to complete the Phase 1 dose escalation part of this trial and move into the Phase 2 dose expansion part by the end of 2015 or early 2016.

FPA008 in Rheumatoid Arthritis (RA)

 

We are conducting an open-label safety and dose escalation component of a Phase 1 trial of FPA008 in patients with active RA. We plan to present preliminary data from this RA component of the Phase 1 trial by the end of 2015.

 

FPA144

 

We are conducting a Phase 1a/1b clinical trial of FPA144 in solid tumor and gastric cancer patients. By the end of 2015, we expect to complete the dose escalation portion of the trial and begin expansion in selected gastric cancer patients with FGFR2b protein overexpression or FGFR2 gene amplification in their tumors as identified by molecular diagnostic assays.  We anticipate reporting preliminary data from the dose escalation portion of the trial by the end of 2015 or early 2016.

 

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FP-1039

 

GSK is conducting a Phase 1b clinical trial of FP-1039 combined with standard doses of chemotherapy in patients with newly-diagnosed or recurrent squamous non-small cell lung cancer and malignant pleural mesothelioma.  We expect GSK to present preliminary safety and efficacy data from this trial at the World Conference on Lung Cancer in September 2015.

 

Preclinical Pipeline

 

We are applying all aspects of our biologics discovery platform to discover and validate targets that we believe could be useful in immuno-oncology and to generate therapeutic proteins, including antibodies and ligand traps, directed to these targets.  We have several ongoing antibody discovery campaigns and expect to initiate additional antibody and ligand trap campaigns as we continue to validate additional targets.  We plan to advance select candidates into pre-clinical development and eventually clinical development.

 

Using our biologics discovery platform, we identified GITR as one of the most effective tumor suppressors among hundreds of targets that regulate immune response to tumors.  GITR is selectively expressed on effector and regulatory T cells and agonist antibodies to GITR can induce tumor regressions, particularly in combination therapy.  We identified Inhibrx as having unique multivalent antibody scaffolds designed to multimerize and activate GITR receptors to a high degree without any Fc receptor binding, which we believe will achieve greater agonist activity with a higher therapeutic index and less variability among patients than antibodies currently under development.  In July 2015, we entered into a research collaboration and license agreement with Inhibrx under which we obtained an exclusive, worldwide license to Inhibrx’s GITR antibodies, which we refer to now as our FPA154 program.  Our FPA154 antibody program is currently at lead selection stage.

 

We plan to file at least one new IND application per year from our research programs beginning in 2017.

Financial Overview

Collaboration and License Revenue

We have not generated any revenue from product sales. We have derived our revenue to date from upfront payments, research and development funding and milestone payments under collaboration and license agreements with our collaboration partners and licensees.  We currently have a respiratory diseases research collaboration and an FP-1039 license agreement with GSK, a fibrosis and CNS research collaboration with UCB Pharma S.A., or UCB, and an immuno-oncology collaboration and an FPA008 clinical collaboration with Bristol-Myers Squibb Company, or BMS, under which we are performing obligations and a license agreement with bluebird bio. In 2014, we also were performing obligations under a muscle diseases research collaboration with GSK under which we received funding and recognized revenue.

Summary Revenue by Collaboration and License Agreements

The following is a comparison of collaboration and license revenue for the three and six months ended June 30, 2015 and 2014:

 

 

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We expect that any revenue we generate will fluctuate from period to period as a result of the timing and amount of milestones and other payments from our existing collaborations and licenses or any new collaborations and licenses we may enter into.

Research and Development

Research and development expenses consist of costs we incur in performing internal and collaborative research and development activities. Expenses incurred related to collaborative research and development agreements approximate the revenue recognized under these agreements. Research and development costs consist of salaries and benefits, including associated stock-based compensation, lab supplies and facility costs, as well as fees paid to other entities that conduct certain research and development activities, including manufacturing, on our behalf.

We are conducting research and development activities on several oncology and inflammatory disease targets and products.

We have a research and development team that designs, manages and evaluates the results of all of our research and development activities. We conduct nearly all of the core target discovery and early research and preclinical activities internally and rely on third parties, such as clinical research organizations, or CROs, and clinical manufacturing organizations, or CMOs, for the execution of certain of our research and development activities, such as toxicology studies, drug substance and drug product manufacturing and the conduct of clinical trials. We account for research and development costs on a program-by-program basis. In the early phases of research and discovery, our costs are often related to improving our discovery platform or preliminary screening activities and are not necessarily allocable to a specific program. We assign costs for such activities to a distinct non-program related project code. We allocate research and development management, overhead, common usage laboratory supplies and facility costs on a full-time equivalent basis.

The following is a comparison of research and development expenses for the three and six months ended June 30, 2015 and 2014: