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EX-31.2 - EX-31.2 - FIVE PRIME THERAPEUTICS INCfprx-ex312_7.htm
EX-31.1 - EX-31.1 - FIVE PRIME THERAPEUTICS INCfprx-ex311_8.htm
EX-10.1 - EX-10.1 - FIVE PRIME THERAPEUTICS INCfprx-ex101_379.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 June 30, 2016

or

¨

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

For the transition period from                      to                      

Commission File Number: 001-36070

 

Five Prime Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

26-0038620

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

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):

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

As of August 1, 2016, the number of outstanding shares of the registrant’s common stock was 28,344,086.

 

 

 

 

 

 


TABLE OF CONTENTS

 

PART I.

  

FINANCIAL INFORMATION

  

4

 

  

 

Item 1.

  

Financial Statements

  

4

 

  

 

  

 

Condensed Balance Sheets as of June 30, 2016 and December 31, 2015

  

4

 

  

 

  

 

Condensed Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015

  

5

 

  

 

  

 

Condensed Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2016 and 2015

  

6

 

  

 

  

 

Condensed Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015

  

7

 

  

 

  

 

Notes to Condensed Financial Statements

  

8

 

  

Item 2.

  

 

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

  

14

 

  

Item 3.

  

 

Quantitative and Qualitative Disclosures About Market Risk

  

24

 

  

Item 4.

  

 

Controls and Procedures

  

24

PART II.

  

 

OTHER INFORMATION

  

25

 

  

Item 1.

  

 

Legal Proceedings

  

25

 

  

Item 1A.

  

 

Risk Factors

  

25

 

  

Item 6.

  

 

Exhibits

  

48

 

  

 

  

 

Signatures

  

49

 

  

 

  

 

Exhibit Index

  

50

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.

 

 

 

2


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:

 

·

our estimates regarding our expenses, revenues, anticipated capital requirements and our needs for additional financing;

 

·

our receipt of future milestone payments and/or royalties, and the timing of such payments;

 

·

our or our partners’ ability to timely advance drug candidates into and through clinical data readouts and successful completion of clinical trials;

 

·

the timing of the initiation, progress and results of preclinical studies and research and development programs;

 

·

our expectations regarding the potential safety, efficacy or clinical utility of our product candidates;

 

·

the implementation, timing and likelihood of success of our plans to develop companion diagnostics for our product candidates;

 

·

our ability to establish and maintain collaborations and necessary licenses;

 

·

the implementation of our business model and strategic plans for our business, drug candidates and technology;

 

·

the scope of protection we establish and maintain for intellectual property rights covering our drug candidates and technology;

 

·

the size of patient populations targeted by products we or our partners develop and market adoption of our potential products by physicians and patients;

 

·

the timing or likelihood of regulatory filings and approvals;

 

·

the ability to negotiate adequate reimbursement and pricing by third parties and government authorities;

 

·

developments relating to our competitors and our industry; and

 

·

our expectations regarding licensing, acquisitions and strategic operations.

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.

 

 

 

3


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

FIVE PRIME THERAPEUTICS, INC.

Condensed Balance Sheets

(In thousands)

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

38,154

 

 

$

149,971

 

Marketable securities

 

431,072

 

 

 

367,495

 

Receivables from collaborative partners

 

3,399

 

 

 

4,054

 

Income tax receivable

 

1,504

 

 

 

 

Prepaid and other current assets

 

6,005

 

 

 

6,761

 

Total current assets

 

480,134

 

 

 

528,281

 

Property and equipment, net

 

5,634

 

 

 

4,539

 

Deferred tax asset

 

11,620

 

 

 

15,071

 

Other long-term assets

 

380

 

 

 

394

 

Total assets

$

497,768

 

 

$

548,285

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

654

 

 

$

1,894

 

Accrued personnel-related expenses

 

4,015

 

 

 

6,878

 

Other accrued liabilities

 

8,240

 

 

 

5,882

 

Deferred revenue, current portion

 

15,597

 

 

 

17,509

 

Deferred rent, current portion

 

817

 

 

 

768

 

Income tax payable, current portion

 

14,808

 

 

 

46,437

 

Total current liabilities

 

44,131

 

 

 

79,368

 

Deferred revenue, long-term portion

 

24,562

 

 

 

31,268

 

Deferred rent, long-term portion

 

433

 

 

 

865

 

Income tax payable, long-term portion

 

1,799

 

 

 

3,283

 

Other long-term liabilities

 

147

 

 

 

295

 

Commitments

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Common stock

 

27

 

 

 

26

 

Additional paid-in capital

 

391,978

 

 

 

372,605

 

Accumulated other comprehensive income (loss)

 

219

 

 

 

(74

)

Retained earnings

 

34,472

 

 

 

60,649

 

Total stockholders' equity

 

426,696

 

 

 

433,206

 

Total liabilities and stockholders' equity

$

497,768

 

 

$

548,285

 

 

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

 

 

 

4


FIVE PRIME THERAPEUTICS, INC.

Condensed Statements of Operations

(In thousands, except per share amounts)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Collaboration revenue

$

9,229

 

 

$

6,315

 

 

$

15,749

 

 

$

10,602

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

22,177

 

 

 

13,310

 

 

 

41,033

 

 

 

24,521

 

General and administrative

 

8,106

 

 

 

4,596

 

 

 

16,163

 

 

 

8,816

 

Total operating expenses

 

30,283

 

 

 

17,906

 

 

 

57,196

 

 

 

33,337

 

Loss from operations

 

(21,054

)

 

 

(11,591

)

 

 

(41,447

)

 

 

(22,735

)

Interest income

 

646

 

 

 

117

 

 

 

1,182

 

 

 

225

 

Loss before income tax

 

(20,408

)

 

 

(11,474

)

 

 

(40,265

)

 

 

(22,510

)

Income tax benefit

 

7,271

 

 

 

-

 

 

 

14,088

 

 

 

-

 

Net loss

$

(13,137

)

 

$

(11,474

)

 

$

(26,177

)

 

$

(22,510

)

Basic and diluted net loss per common share

$

(0.49

)

 

$

(0.45

)

 

$

(0.98

)

 

$

(0.89

)

Weighted-average shares used to compute basic and diluted net loss per common share

 

26,924

 

 

 

25,690

 

 

 

26,619

 

 

 

25,383

 

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

 

 

 

5


FIVE PRIME THERAPEUTICS, INC.

Condensed Statements of Comprehensive Loss

(In thousands)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

$

(13,137

)

 

$

(11,474

)

 

$

(26,177

)

 

$

(22,510

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on marketable securities, net of tax

 

109

 

 

 

41

 

 

 

293

 

 

 

71

 

Comprehensive loss

$

(13,028

)

 

$

(11,433

)

 

$

(25,884

)

 

$

(22,439

)

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

 

 

 

6


FIVE PRIME THERAPEUTICS, INC.

Condensed Statements of Cash Flows

(In thousands)

 

 

Six Months Ended

 

 

June 30,

 

 

2016

 

 

2015

 

 

 

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(26,177

)

 

$

(22,510

)

Adjustments to reconcile net loss to net cash used in

   operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

782

 

 

 

823

 

Stock-based compensation expense

 

14,527

 

 

 

2,203

 

Excess tax benefits from employee equity incentive plans

 

(2,533

)

 

 

 

Deferred income taxes

 

3,451

 

 

 

 

Amortization of premium on marketable securities

 

2,346

 

 

 

1,042

 

Loss on disposal of property and equipment

 

(9

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables from collaborative partners

 

655

 

 

 

(308

)

Income tax receivable

 

(1,504

)

 

 

 

Prepaid, other current assets, and other long-term assets

 

770

 

 

 

(637

)

Accounts payable

 

(1,240

)

 

 

257

 

Accrued personnel-related expenses

 

(2,863

)

 

 

(1,524

)

Deferred revenue

 

(8,618

)

 

 

(1,165

)

Deferred rent

 

(383

)

 

 

(178

)

Income tax payable

 

(30,580

)

 

 

 

Other accrued liabilities and other long-term liabilities

 

2,210

 

 

 

1,786

 

Net cash used in operating activities

 

(49,166

)

 

 

(20,211

)

Investing activities

 

 

 

 

 

 

 

Purchases of marketable securities

 

(339,880

)

 

 

(102,994

)

Maturities of marketable securities

 

274,250

 

 

 

47,500

 

Purchases of property and equipment

 

(1,868

)

 

 

(1,416

)

Net cash used in investing activities

 

(67,498

)

 

 

(56,910

)

Financing activities

 

 

 

 

 

 

 

Proceeds from public offering of common stock, net

 

-

 

 

 

78,693

 

Proceeds from issuance of common stock under equity

   incentive plans

 

5,916

 

 

 

 

Repurchase of shares to satisfy tax withholding

 

(3,602

)

 

0

 

Excess tax benefits from employee equity incentive plans

 

2,533

 

 

 

2,257

 

Net cash provided by financing activities

 

4,847

 

 

 

80,950

 

Net increase (decrease) in cash and cash equivalents

 

(111,817

)

 

 

3,829

 

Cash and cash equivalents at beginning of period

 

149,971

 

 

 

15,267

 

Cash and cash equivalents at end of period

$

38,154

 

 

$

19,096

 

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

 

Cash paid for income taxes

$

14,701

 

 

$

 

 

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

 

 

 

7


FIVE PRIME THERAPEUTICS, INC.

Notes to Condensed Financial Statements

June 30, 2016

 

1.

Description of Business

Five Prime Therapeutics, Inc. (we, us, our or the Company) is a clinical-stage biotechnology company focused on discovering and developing innovative protein therapeutics to improve the lives of patients with serious diseases. 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, 2016 is unaudited. The Condensed Financial Statements included in this report reflect all 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 adjustments are of a normal recurring nature, except for an adjustment to correct for the classification of stock-based compensation expense in the three months ended March 31, 2016.  This adjustment corrected for an overstatement of $0.6 million in general and administrative expense and an understatement of $0.6 million in research and development expense. The correction of the error is reflected in the results of operations for the six-month period ended June 30, 2016 and did not affect the prior amount of total operating expense, loss from operations, or net loss reported in the three months ended March 31, 2016.  We prepared the accompanying unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. 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, 2015 filed with the U.S. Securities and Exchange Commission.

2.

Summary of Significant Accounting Policies

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 assets or liabilities measured using Level 3 inputs as of June 30, 2016.

8


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):

 

 

June 30, 2016

 

 

 

 

 

 

Basis of Fair Value

 

 

 

 

 

 

Measurements

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

29,752

 

 

$

29,752

 

 

$

 

 

$

 

U.S. Treasury securities

 

431,072

 

 

 

431,072

 

 

 

 

 

 

 

Total cash equivalents and marketable securities

$

460,824

 

 

$

460,824

 

 

$

 

 

$

 

 

 

 

December 31, 2015

 

 

 

 

 

 

Basis of Fair Value

 

 

 

 

 

 

Measurements

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

34,821

 

 

$

34,821

 

 

$

 

 

$

 

U.S. Treasury securities

 

477,125

 

 

 

477,125

 

 

 

 

 

 

 

Total cash equivalents and marketable securities

$

511,946

 

 

$

511,946

 

 

$

 

 

$

 

 

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

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Options to purchase common stock

 

2,561

 

 

 

2,604

 

 

 

2,739

 

 

 

2,635

 

RSAs

 

1,319

 

 

 

 

 

 

1,412

 

 

 

 

 

 

3,880

 

 

 

2,604

 

 

 

4,151

 

 

 

2,635

 

 

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers: Topic 606, to supersede nearly all existing revenue recognition guidance under 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 GAAP, including identifying performance obligations in a 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. In March, April, and May 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients to provide supplemental adoption guidance and clarification to ASU 2014-09. The effective date for these new standards is the same as the effective date and transition requirements for ASU 2014-09. We are evaluating the potential impact that ASU 2014-09 may have on our financial position and results of operations.

9


In February 2016, FASB issued ASU 2016-02, Leases. ASU 2016-2 is aimed at making leasing activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. ASU 2016-02 is effective for our interim and annual reporting periods during the year ending December 31, 2019 and all annual and interim reporting periods thereafter. Early adoption is permitted. We are evaluating the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures.

In March 2016, FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The guidance will be effective for annual reporting periods beginning after December 15, 2016 and interim periods within those fiscal years with early adoption permitted. We are evaluating the impact that the adoption of ASU 2016-09 will have on our consolidated financial statements and related disclosures.

3.

Cash Equivalents and Marketable Securities

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

 

 

June 30, 2016

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

Cost Basis

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds

$

29,752

 

 

$

 

 

$

 

 

$

29,752

 

U.S. Treasury securities

 

430,735

 

 

 

338

 

 

 

(1

)

 

 

431,072

 

 

 

460,487

 

 

 

338

 

 

 

(1

)

 

 

460,824

 

Less: cash equivalents

 

(29,752

)

 

 

 

 

 

 

 

 

(29,752

)

Total marketable securities

$

430,735

 

 

$

338

 

 

$

(1

)

 

$

431,072

 

 

 

 

December 31, 2015

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

Cost Basis

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds

$

34,821

 

 

$

 

 

$

 

 

$

34,821

 

U.S. Treasury securities

 

477,239

 

 

 

13

 

 

 

(127

)

 

 

477,125

 

 

 

512,060

 

 

 

13

 

 

 

(127

)

 

 

511,946

 

Less: cash equivalents

 

(144,470

)

 

 

 

 

 

19

 

 

 

(144,451

)

Total marketable securities

$

367,590

 

 

$

13

 

 

$

(108

)

 

$

367,495

 

 

As of June 30, 2016, the amortized cost and estimated fair value of our available-for-sale securities by contractual maturity are shown below (in thousands):

 

 

Amortized

 

 

Estimated

 

 

Cost

 

 

Fair Value

 

Debt securities maturing:

 

 

 

 

 

 

 

In one year or less

$

430,735

 

 

$

431,072

 

Total marketable securities

$

430,735

 

 

$

431,072

 

 

We determined that the gross unrealized losses on our marketable securities as of June 30, 2016 were temporary in nature.  We currently do not intend to sell these securities prior to maturity and do not consider these investments to be other-than-temporarily impaired at June 30, 2016. There were no sales of available-for-sale securities in any of the periods presented.

10


4.

Equity Incentive Plans

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

 

 

Options Outstanding

 

 

 

 

 

 

Weighted

 

 

Weighted

 

 

 

 

 

 

Average

 

 

Average

 

 

Number of

 

 

Exercise Price

 

 

Remaining

 

 

Shares

 

 

Per Share

 

 

Term

 

Balance at December 31, 2015

 

3,028,714

 

 

$

12.62

 

 

 

 

 

Options granted

 

404,600

 

 

$

40.53

 

 

 

 

 

Options exercised

 

(697,157

)

 

$

7.35

 

 

 

 

 

Options forfeited

 

(82,793

)

 

$

14.36

 

 

 

 

 

Options expired

 

(127

)

 

$

18.33

 

 

 

 

 

Balance at June 30, 2016

 

2,653,237

 

 

$

14.36

 

 

 

 

 

Options exercisable

 

1,166,045

 

 

$

10.27

 

 

 

6.36

 

 

We have granted RSAs to certain of our 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 RSA activity under our 2013 Omnibus Incentive Plan and related information:

 

RSAs Outstanding

 

 

 

 

 

Weighted-Average

 

 

Number

 

Grant-Date

 

 

of Shares

 

Fair Value

 

Unvested balance at December 31, 2015

 

1,574,870

 

$

19.71

 

RSAs granted

 

107,630

 

$

37.44

 

RSAs vested

 

(266,926

)

$

19.06

 

RSAs forfeited

 

(94,536

)

$

18.73

 

Unvested balance at June 30, 2016

 

1,321,038

 

$

21.36

 

 

 

 

 

 

 

 

 

As of June 30, 2016, there were 2,582,268 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):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Research and development

$

3,868

 

 

$

596

 

 

$

8,143

 

 

$

1,105

 

General and administrative

 

3,258

 

 

 

616

 

 

 

6,384

 

 

 

1,098

 

Total

$

7,126

 

 

$

1,212

 

 

$

14,527

 

 

$

2,203

 

 

During the first quarter of 2016, we reclassified $0.6 million of stock-based compensation expense from general and administrative to research and development.  This adjustment is reflected in the table for the six months ended June 30, 2016.  See Note 1 for further discussion under “Unaudited Interim Financial Information”.

11


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

 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2016

 

2015

 

2016

 

2015

Expected term (years)

5.5-6.3

 

5.5-6.1

 

5.5-6.3

 

5.5-6.1

Expected volatility

72%

 

71%

 

72-74%

 

71-73%

Risk-free interest rate

1.4%

 

1.4-1.9%

 

1.4-1.5%

 

1.4-1.9%

Expected dividend yield

0%

 

0%

 

0%

 

0%

 

As of June 30, 2016, we had $19.7 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 2.8 years.  Additionally, we had $15.1 million of total unrecognized compensation expense related to employee and director RSAs that we expect to recognize over a weighted-average period of 0.9 years.

5.

Collaborative Research and Development Agreements

GlaxoSmithKline

Respiratory Diseases Collaboration

In January 2016, we amended our research collaboration and license agreement, referred to as the respiratory diseases collaboration, with GlaxoSmithKline, or GSK, that we originally entered into in April 2012 to identify new therapeutic approaches to treat refractory asthma and chronic obstructive pulmonary disease function.  The amendment extended the research term by three months to July 2016 to allow for the conduct of additional activities to validate protein targets we discovered in our screens and increased the research funding that GSK is obligated to pay us under the collaboration by $0.7 million.  As of June 30, 2016, we had substantially completed our activities under the respiratory diseases collaboration and we fully recognized the remaining deferred revenue related to this agreement.

FP-1039 License and Collaboration

In March 2016, GSK delivered to us written notice of termination for convenience of our license and collaboration agreement, or the FP-1039 license, with Human Genome Sciences, Inc., which was acquired by GSK in 2012.  Pursuant to the terms of the FP-1039 license, termination of the FP-1039 license will become effective on September 5, 2016, which is 180 days after GSK’s notice of termination.  Pursuant to the terms of the FP-1039 license, in April 2016, we elected to have GSK complete the conduct of the Phase 1b clinical trial of FP-1039 that GSK is currently conducting, at GSK’s expense.

6.

Acquired Technologies

In December 2011, we entered into an exclusive license with Galaxy Biotech, LLC, or Galaxy, for the development, manufacturing and commercialization of certain anti-FGFR2b (fibroblast growth factor receptor 2) monoclonal antibodies.  Under the terms of the agreement, we paid Galaxy an upfront license payment of $3.0 million. We are also required to make additional payments based upon the achievement of certain intellectual property, development, regulatory and commercial milestones, as well as royalties on future net sales of products resulting from development of this licensed technology, if any.   In May 2016, we amended the agreement to revise certain development-related milestones.  As a result, the aggregate amount of development-related milestone payments that we may pay to Galaxy was decreased by $0.5 million. The aggregate amount of intellectual property-related milestone payments, regulatory-related milestone payments and commercial-related milestone payments remain unchanged.  During the quarter ended June 30, 2016, we made a $0.25 million milestone payment to Galaxy and accrued an additional $2.25 million of milestone payments, which consist of milestones expected to be met by December 31, 2016.   We did not make any milestone payments during the quarter ended June 30, 2015.

12


7.

Employee Benefit Plans

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 make matching contributions every pay period in an amount equal to 50% of the amount contributed by the employee up to an annual maximum company match per employee equal to $6,000. We have recorded 401(k) plan company match expense of $216,000 and $461,000, respectively, for the three and six months ended June 30, 2016 and $157,000 and $336,000, respectively, for the three and six months ended June 30, 2015.

8.

Income Taxes

We realized an income tax benefit of $7.3 million and $14.1 million, respectively, for the three and six months ended June 30, 2016 as compared to no tax expense for the three and six months ended June 30, 2015.  The income tax benefit represents our ability to recover taxes accrued in 2015 based on existing tax law that allows us to carryback our 2016 or 2017 tax losses and/or credits to recover prior taxes.  The income tax benefit is based on the annual effective tax rate method and considers our forecasted 2016 pre-tax losses reduced by non-deductible stock based compensation expenses and other immaterial non-deductible permanent items. In addition, as a result of the forecasted loss, the income tax benefit was decreased by a valuation allowance recorded against certain deferred tax assets due to the uncertainty surrounding the realization of such assets in the future.  

As of the year ended December 31, 2015, we recognized approximately $15.1 million of net deferred tax assets based on our review of the reversal pattern of these deferred tax assets that may result in future recovery of tax paid in 2015.  Based on our forecasted loss for 2016, we assessed the recoverability of deferred tax assets based on their reversal patterns.  We will periodically review our ability to realize our deferred tax assets and any adjustment to this recoverability will impact our annual effective tax rate. 

 

 

13


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, 2015, included in our Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission, or the SEC, on March 11, 2016.

Overview

We are a clinical-stage biotechnology company focused on discovering and developing innovative 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. We have an emphasis in immuno-oncology, an area in which we have clinical and discovery programs and product and discovery collaborations. In addition, we plan to use companion diagnostics, where appropriate, for our clinical programs to allow us to select patients most likely to benefit from treatment.

 

 

·

Cabiralizumab (FPA008) is an antibody that inhibits colony stimulating factor-1, or CSF1, receptor, or CSF1R, that we are studying in clinical trials as a monotherapy in pigmented villonodular synovitis, or PVNS, and in multiple cancers in combination with Bristol-Myers Squibb Company’s PD-1 immune checkpoint inhibitor, Opdivo® (nivolumab).  In October 2015, we entered into a license and collaboration agreement, or the cabiralizumab collaboration agreement, with Bristol-Myers Squibb Company, or BMS, pursuant to which we granted BMS an exclusive worldwide license for the development and commercialization of cabiralizumab.

 

·

FPA144 is an antibody that inhibits fibroblast growth factor receptor 2b, or FGFR2b, that we are initially developing to treat patients with gastric (stomach) cancer and is in a Phase 1 clinical trial.

 

·

FP-1039 is a fusion protein that “traps” and neutralizes cancer-promoting fibroblast growth factors, or FGFs, involved in cancer cell proliferation and new blood vessel formation, which is in Phase 1b clinical development to treat patients with malignant pleural mesothelioma.

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. We have identified approximately 700 of these proteins, which we refer to as the immunome, that we believe modulate immune cell interactions and may be important in understanding and treating cancer patients using immuno-oncology therapeutics. Our target discovery platform and capabilities uniquely position us to explore pathways in cancer and inflammation and their intersection in immuno-oncology, an area of oncology with significant therapeutic potential and the focus of our research 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 several targets that we believe could be useful in immuno-oncology and are actively validating these and looking for additional targets. We generate and preclinically test protein therapeutics, including antibodies and ligand traps, containing or directed to the targets we identify. We plan to advance selected therapeutic candidates into clinical development, with a goal of filing at least one Investigational New Drug, or IND, application for a new molecule per year for the foreseeable future, 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 and we expect that our expenses will increase as we advance and expand our clinical development activities, in particular as we advance into later stages of clinical development. We have incurred losses in each period since our inception in 2002, with the exception of the fiscal year ended December 31, 2015, due primarily to the $350.0 million upfront payment we received from BMS from our license and collaboration agreement for cabiralizumab, and the fiscal year ended December 31, 2011, due primarily to the $50.0 million upfront payment we received from Human Genome Sciences, Inc. from our license and collaboration agreement for FP-1039. For the six-month periods ended June 30, 2016 and 2015, we reported a net loss of $26.2 million and $22.5 million, respectively.

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.

14


Second Quarter 2016 and Other Recent Highlights

Cabiralizumab

In May 2016, we began dosing patients in the Phase 2 portion of our Phase 1/2 clinical trial to evaluate cabiralizumab as a potential treatment for PVNS.

FPA144

In April 2016, we presented preclinical data at the 2016 American Association for Cancer Research (AACR) Annual Meeting from our evaluation of the immune cell recruitment and anti-tumor effects of FPA144 in the orthotopic 4T1 model of breast cancer in mice.

In June 2016, we presented updated safety and tolerability data from 27 patients and pharmacokinetics, or PK, data from 23 patients from Part 1 of our Phase 1 trial at the American Society of Clinical Oncology's (ASCO) 2016 Annual Meeting, or the ASCO Annual Meeting.

In July 2016, the U.S. Food and Drug Administration, or the FDA, granted Orphan Drug Designation to FPA144 for the treatment of gastric cancer, including cancer of the gastroesophageal junction in patients whose tumors overexpress FGFR2b.  Orphan Drug Designation is granted by the FDA Office of Orphan Drug Products to products that treat rare diseases. The FDA defines rare diseases as those affecting fewer than 200,000 people in the United States. Orphan Drug Designation provides certain benefits and incentives, including a period of marketing exclusivity for the first marketing application if regulatory approval is received for the designated indication, potential tax credits for certain activities and waiver of certain administrative fees.

FP-1039

GlaxoSmithKline, or GSK, is currently conducting a Phase 1b clinical trial of FP-1039 to evaluate the safety, tolerability, dosage, response rate and duration of response of FP-1039 in combination with chemotherapy in patients with malignant pleural mesothelioma. In June 2016, GSK halted new enrollment into the Phase1b clinical trial because some lots of the FP-1039/GSK3052230 clinical material were trending out of specification, which may limit the supply available for patients. The issue was due to the vials GSK used for filled drug product and was identified by GSK through its standard quality control practices. GSK conducted testing of the lots of FP-1039/GSK3052230 drug product that were trending out of specification to assess the feasibility and safety of use of this material in the Phase 1b clinical trial.  GSK’s analyses demonstrated that the filtered drug product has quality attributes within acceptable limits, including drug potency.  GSK plans to discuss these findings with regulatory authorities and propose to use the filtered drug product in the Phase 1b clinical trial.  GSK continues to dose already-enrolled malignant pleural mesothelioma patients with FP-1039/GSK3052230 in the Phase 1b clinical trial, but GSK has determined not to recruit new malignant pleural mesothelioma patients into the trial beyond the 25 patients that have been enrolled at the 15 mg/kg dose level.

In June 2016, updated data from mesothelioma patients from the ongoing Phase 1b clinical trial were presented at the ASCO Annual Meeting.

GSK Respiratory Diseases Collaboration

In April 2012, we entered into a research collaboration and license agreement, or the respiratory diseases collaboration, with GSK to identify new therapeutic approaches to treat refractory asthma and chronic obstructive pulmonary disease with a particular focus on identifying novel protein therapeutics and antibody targets. The research term for the respiratory diseases collaboration ended in July 2016.  In June 2016, GSK exercised its option under the respiratory diseases collaboration to take an exclusive license to the intellectual property related to an undisclosed respiratory disease target we identified using our proprietary target discovery platform, triggering a $1.5 million license payment to us.  GSK continues to evaluate additional respiratory disease targets we identified during the research term of the respiratory diseases collaboration.  GSK has a time-limited right to exclusively license intellectual property related to these targets under the respiratory diseases collaboration.

Galaxy License Agreement

In May 2016, we amended our exclusive license agreement with Galaxy Biotech, LLC, or Galaxy, that we entered into in December 2011 and pursuant to which Galaxy granted us an exclusive worldwide license to develop and commercialize FGFR2 antibodies, including FPA144.  Pursuant to the amendment, we and Galaxy revised certain milestone definitions, reduced certain milestone payments and added certain development-related milestone payments that will be triggered by dosing of certain patients in the current Phase 1 clinical trial of FPA144, or the Phase 1 milestones.  Any Phase 1 milestone that we do not achieve by December 31, 2016 will be deemed achieved as of December 31, 2016.  We made a $0.25 million milestone payment following our entry into the amendment and expect to make an aggregate of $2.25 million in milestone payments by December 31, 2016 for milestones we expect to achieve on or prior to December 31, 2016, including the Phase 1 milestones.  As a result of the amendment, the aggregate amount of development-related milestone payments that we will be obligated to pay to Galaxy under the license agreement was decreased by $0.5 million.  The aggregate amount of intellectual property-related milestone payments, regulatory-related milestone payments and commercial-related milestone payments remain unchanged as a result of the amendment.

15


Clinical Pipeline

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

Cabiralizumab (FPA008)

Cabiralizumab in Immuno-Oncology

We are conducting a Phase 1a/1b clinical trial with BMS to evaluate the safety, tolerability and preliminary efficacy of combining cabiralizumab with Opdivo® (nivolumab) as a potential treatment for a variety of cancers. The trial is currently expected to enroll approximately 280 patients. We amended the trial protocol to add more patients to the current Phase 1a portion of the trial to enable us to study the highest dose of cabiralizumab as monotherapy and as combination therapy with Opdivo® in patients with certain tumor types beyond those addressed in the Phase 1b cohorts, including in patients whose tumors are refractory to PD-1 checkpoint inhibitors. We will conduct these additional Phase 1a activities in parallel with our commencement of the Phase 1b portion of the trial, which we expect to begin in the second half of 2016.  In the Phase 1b portion, we plan to evaluate the safety, tolerability and preliminary efficacy of the selected dose of cabiralizumab in combination with Opdivo® in the following tumor settings:

 

·

second- or third-line non-small cell lung cancer (NSCLC, anti PD-1 therapy naïve);

 

·

anti PD-1 therapy resistant NSCLC (either de novo or acquired resistance);

 

·

second-line squamous cell carcinoma of the head and neck;

 

·

second-line pancreatic cancer;

 

·

third-line renal cancer;

 

·

third-line ovarian cancer; and

 

·

second-line glioblastoma multiforme (GBM).

Cabiralizumab in PVNS

In January 2016, the FDA granted cabiralizumab Orphan Drug Designation for the treatment of PVNS.  

We are conducting a Phase 1/2 clinical trial of cabiralizumab as a potential treatment for PVNS. We advanced into the Phase 2 portion of this trial in May 2016.  During the Phase 2 expansion portion of the trial, we will evaluate tumor response rate and duration and measures of pain and joint function.

16


FPA144

We are conducting a two-part Phase 1 clinical trial of FPA144 as a treatment for gastric cancer. We are currently enrolling patients in Part 2 of the trial in which we are evaluating the safety, PK and efficacy of FPA144 in metastatic gastric cancer patients, with the aim of exploring the correlation between efficacy and FGFR2b overexpression.  We are conducting tumor testing for FGFR2b overexpression centrally using a proprietary immunohistochemistry, or IHC, assay to identify gastric cancer patients that have tumors that overexpress FGFR2b protein. Part 2 of the trial is designed to enroll gastric cancer patients whose tumor samples have protein overexpression in four separate cohorts as follows:

 

·

up to 30 patients whose tumor samples have strong (3+) FGFR2b protein overexpression on at least 10% of their tumor membrane;

 

·

up to 30 patients whose tumor samples have moderate (2+) FGFR2b protein overexpression on at least 10% of their tumor membrane or strong (3+) FGFR2b protein overexpression on less than 10% of their tumor membrane;

 

·

up to 30 patients whose tumor samples have low (1+) FGFR2b protein overexpression on at least 10% of their tumor membrane or moderate (2+) FGFR2b protein overexpression on less than 10% of their tumor membrane; and

 

·

up to 30 patients with gastric cancer without FGFR2b protein overexpression.

Enrollment in the first and fourth cohorts began in November 2015.  We expect to soon begin enrolling patients in the second and third cohorts described above.  We also are in the process of adding a cohort of bladder cancer patients whose tumors overexpress the FGFR2b protein. Initial enrollment of patients in this bladder cancer cohort is contingent in part on our validation and finalization of the design of a laboratory IHC assay for bladder cancer, which we expect to occur in the fourth quarter of 2016.

In April 2016, we presented preclinical data at the 2016 AACR Annual Meeting from our evaluation of the immune cell recruitment and anti-tumor effects of FPA144 in the orthotopic 4T1 model of breast cancer in mice.

In June 2016, we presented updated data from 27 patients and PK data from 23 patients from Part 1 of our Phase 1 clinical trial at the ASCO Annual Meeting.

FP-1039

GSK is currently conducting a Phase 1b clinical trial of FP-1039 to evaluate the safety, tolerability, dosage, response rate and duration of response of FP-1039 in combination with chemotherapy in patients with malignant pleural mesothelioma pursuant to a license and collaboration agreement, or the FP-1039 license, that we entered into with Human Genome Sciences in March 2011.

In March 2016, GSK delivered to us written notice of termination of the FP-1039 license for convenience.  Pursuant to the terms of the FP-1039 license, termination of the FP-1039 license will become effective on September 5, 2016, which is 180 days after GSK’s notice of termination.  Pursuant to the terms of the FP-1039 license, in April 2016, we elected to have GSK complete the conduct of the Phase 1b clinical trial of FP-1039 that GSK is currently conducting, at GSK’s expense.  

In June 2016, GSK halted new enrollment into the Phase1b clinical trial because some lots of the FP-1039/GSK3052230 clinical material were trending out of specification, which may limit the supply available for patients. The issue was due to the vials GSK used for filled drug product and was identified by GSK through its standard quality control practices. GSK conducted testing of the lots of FP-1039/GSK3052230 drug product that were trending out of specification to assess the feasibility and safety of use of this material in the Phase 1b clinical trial.  GSK’s analyses demonstrated that the filtered drug product has quality attributes within acceptable limits, including drug potency.  GSK plans to discuss these findings with regulatory authorities and propose to use the filtered drug product in the Phase 1b clinical trial.  GSK continues to dose already-enrolled malignant pleural mesothelioma patients with FP-1039/GSK3052230 in the Phase 1b clinical trial, but GSK has determined not to recruit new malignant pleural mesothelioma patients into the trial beyond the 25 patients that have been enrolled at the 15 mg/kg dose level.

In June 2016, updated data from mesothelioma patients from the ongoing Phase 1b clinical trial was presented at the ASCO Annual Meeting.

We will base decisions on any future development of FP-1039 in mesothelioma on overall safety as well as the quantity and durability of responses in the ongoing Phase 1b clinical trial and other business considerations, such as drug supply and manufacturing.

Immuno-Oncology Drug Discovery and Preclinical Programs

We are currently focusing our internal research efforts in the area of immuno-oncology. Cancers grow and spread because tumor cells have developed ways to evade elimination by the immune system. For example, cancer cells make proteins which apply the “brakes” to immune cells and prevent the immune cells from killing the tumor cells. One of the most exciting recent discoveries in cancer therapy has been the identification of ways to release these “brakes” and allow the immune cells to once again kill tumor cells. This new approach has the potential of not only reducing tumor growth like traditional therapies, but potentially eliminating the cancer entirely in some patients.

17


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 identified antibody targets and ligand traps for use in immuno-oncology and are actively screening for and validating additional targets. We generate and pre-clinically test protein therapeutics, including antibodies and ligand traps, directed to the targets we identify. We plan to advance selected therapeutics candidates into clinical development, with a goal of filing at least one IND application for a new molecule per year for the foreseeable future, 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 an active immuno-oncology research collaboration and cabiralizumab license and collaboration agreement with BMS and an FP-1039 product collaboration and license agreement with GSK.  We completed the research term of our research collaboration in respiratory diseases with GSK and our fibrosis and CNS research collaboration with UCB Pharma S.A., or UCB, in July 2016 and March 2016, respectively.

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, 2016 and 2015:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

(in millions)

2016

 

 

2015

 

 

2016

 

 

2015

 

R&D Funding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Respiratory Diseases Collaboration - GSK

$

1.4

 

 

$

1.2

 

 

$

2.3

 

 

$

2.1

 

Fibrosis and CNS Collaboration - UCB

 

 

 

 

0.3

 

 

 

0.1

 

 

 

0.4

 

Immuno-oncology Research Collaboration - BMS

 

0.8

 

 

 

0.7

 

 

 

1.4

 

 

 

1.4

 

Cabiralizumab Collaboration - BMS

 

1.7

 

 

 

0.2

 

 

 

2.8

 

 

 

0.2

 

Ratable Revenue Recognition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Respiratory Diseases Collaboration - GSK

 

0.4

 

 

 

0.6

 

 

 

0.7

 

 

 

1.3

 

Fibrosis and CNS Collaboration - UCB

 

0.7

 

 

 

0.7

 

 

 

1.5

 

 

 

1.5

 

Immuno-oncology Research Collaboration - BMS

 

1.1

 

 

 

1.1

 

 

 

2.2

 

 

 

2.2

 

Cabiralizumab Collaboration - BMS

 

1.5

 

 

 

 

 

 

2.9

 

 

 

 

Milestone and Contingent Payments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Respiratory Diseases Collaboration - GSK

 

1.5

 

 

 

 

 

 

1.5

 

 

 

 

Fibrosis and CNS Collaboration - UCB

 

 

 

 

 

 

 

0.2

 

 

 

 

Other License Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bluebird bio License Agreement

 

0.1

 

 

 

1.5

 

 

 

0.1

 

 

 

1.5

 

Total

$

9.2

 

 

$

6.3

 

 

$

15.7

 

 

$

10.6

 

 

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 entry into any new collaborations and licenses.

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 disease targets and products.

18


We have a research and development team that designs, manages and evaluates the results of all of our research and development activities. We conduct most of our core target discovery and early research and early preclinical activities internally and rely more heavily on third parties, such as clinical research organizations, or CROs, and clinical manufacturing organizations, or CMOs, for the execution of our IND-enabling and development activities, such as GLP 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 conducting target 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, 2016 and 2015:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

(in millions)

2016

 

 

2015

 

 

2016

 

 

2015

 

Development programs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cabiralizumab

$

3.9

 

 

$

4.3

 

 

$

7.4

 

 

$

7.4

 

FPA144

 

5.6

 

 

 

1.3

 

 

 

9.0

 

 

 

2.5

 

FP-1039

 

0.1

 

 

 

0.1

 

 

 

0.1

 

 

 

0.1

 

Subtotal development programs

 

9.6

 

 

 

5.7

 

 

 

16.5

 

 

 

10.0

 

Preclinical programs

 

4.9

 

 

 

1.3

 

 

 

7.2