Achaogen
Achaogen Inc (Form: 10-Q, Received: 05/07/2018 09:41:28)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2018

or

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

For the transition period from                      to                     

Commission File Number: 001-36323

 

ACHAOGEN, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

68-0533693

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1 Tower Place, Suite 300

South San Francisco, CA

(Address of principal executive offices)

94080

(Zip Code)

(650) 800-3636

(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       No  

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

 

 

 

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

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

As of May 2, 2018, there were 44,796,291 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 


 

 

ACHAOGEN, INC.

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I—FINANCIAL INFORMATION

 

3

 

 

 

Item 1. Condensed Consolidated Financial Statements (unaudited)

 

3

 

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

 

Condensed Consolidated Statements of Operations

 

4

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

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

 

25

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

Item 4. Controls and Procedures

 

32

 

 

 

PART II—OTHER INFORMATION

 

33

 

 

 

Item 1. Legal Proceedings

 

33

 

 

 

Item 1A. Risk Factors

 

33

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

69

 

 

 

Item 3. Defaults Upon Senior Securities

 

69

 

 

 

Item 4. Mine Safety Disclosures

 

69

 

 

 

Item 5. Other Information

 

69

 

 

 

Item 6. Exhibits

 

69

 

 

 

SIGNATURES

 

71

 

 

 

 

Page 2 of 71


 

PART I—FINANCI AL INFORMATION

Item 1.

Financial Statements.

Achaogen, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share and per share data)

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

94,898

 

 

$

145,219

 

Short-term investments

 

 

49,100

 

 

 

19,572

 

Contracts receivable

 

 

1,789

 

 

 

1,357

 

Prepaids and other current assets

 

 

8,944

 

 

 

6,367

 

Restricted cash

 

 

6,998

 

 

 

5,891

 

Total current assets

 

 

161,729

 

 

 

178,406

 

Property and equipment, net

 

 

17,228

 

 

 

14,810

 

Restricted cash

 

 

1,320

 

 

 

3,855

 

Other long-term assets

 

 

2,828

 

 

 

 

Total assets

 

$

183,105

 

 

$

197,071

 

Liabilities, contingently redeemable common stock and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,870

 

 

$

6,862

 

Accrued liabilities

 

 

14,657

 

 

 

15,441

 

Loan payable, current portion

 

 

 

 

 

12,500

 

Deferred revenue

 

 

1,545

 

 

 

2,100

 

Total current liabilities

 

 

23,072

 

 

 

36,903

 

Loan payable, long-term

 

 

24,472

 

 

 

9,457

 

Warrant liability

 

 

12,161

 

 

 

9,774

 

Derivative liability

 

 

830

 

 

 

686

 

Deferred rent

 

 

9,477

 

 

 

8,289

 

Total liabilities

 

 

70,012

 

 

 

65,109

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Contingently redeemable common stock (Note 9)

 

 

10,000

 

 

 

10,000

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 290,000,000 shares authorized at

   March 31, 2018 and December 31, 2017; 44,791,564 and 42,515,015

   shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively

 

 

45

 

 

 

42

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized and zero

   shares issued and outstanding at March 31, 2018 and December 31, 2017

 

 

 

 

 

 

Additional paid-in-capital

 

 

523,141

 

 

 

494,758

 

Accumulated deficit

 

 

(420,067

)

 

 

(372,838

)

Accumulated other comprehensive loss

 

 

(26

)

 

 

 

Total stockholders’ equity

 

 

103,093

 

 

 

121,962

 

Total liabilities, contingently redeemable common stock and stockholders’ equity

 

$

183,105

 

 

$

197,071

 

 

See accompanying notes to condensed consolidated financial statements.

Page 3 of 71


 

Achaogen, Inc.

Condensed Consolidated Statements of Operations

(In thousands except share and per share data)

(unaudited)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Contract revenue

 

$

2,143

 

 

$

7,463

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

 

30,911

 

 

 

18,597

 

General and administrative

 

 

15,069

 

 

 

6,751

 

Total operating expenses

 

 

45,980

 

 

 

25,348

 

Loss from operations

 

 

(43,837

)

 

 

(17,885

)

Interest expense

 

 

(604

)

 

 

(706

)

Change in warrant and derivative liabilities

 

 

(2,531

)

 

 

(14,956

)

Loss on debt extinguishment

 

 

(819

)

 

 

-

 

Other income, net

 

 

562

 

 

 

288

 

Net loss

 

$

(47,229

)

 

$

(33,259

)

Basic and diluted net loss per common share

 

$

(1.06

)

 

$

(0.93

)

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

 

 

44,356,570

 

 

 

35,725,876

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

Page 4 of 71


 

Achaogen, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Net loss

 

$

(47,229

)

 

$

(33,259

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on available-for-sale securities

 

 

(26

)

 

 

(52

)

Total comprehensive loss

 

$

(47,255

)

 

$

(33,311

)

See accompanying notes to condensed consolidated financial statements.

Page 5 of 71


 

Achaogen, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(47,229

)

 

$

(33,259

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

561

 

 

 

113

 

Amortization of (discount) premium on short-term investments

 

 

(97

)

 

 

(42

)

Stock-based compensation expense

 

 

4,245

 

 

 

2,911

 

Change in warrant and derivative liabilities

 

 

2,531

 

 

 

14,956

 

Loss on debt extinguishment

 

 

819

 

 

 

 

Non-cash interest expense relating to notes payable

 

 

97

 

 

 

207

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Contracts receivable

 

 

(432

)

 

 

6,285

 

Prepaids and other assets

 

 

(2,577

)

 

 

(6,810

)

Other long-term assets

 

 

(2,828

)

 

 

 

Accounts payable and accrued liabilities

 

 

(2,434

)

 

 

2,316

 

Deferred revenue

 

 

(555

)

 

 

 

Other liabilities

 

 

1,188

 

 

 

(95

)

Net cash used in operating activities

 

 

(46,712

)

 

 

(13,418

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,321

)

 

 

(1,185

)

Purchase of short-term investments

 

 

(49,057

)

 

 

(86,759

)

Maturities of short-term investments

 

 

19,600

 

 

 

19,256

 

Net cash used in investing activities

 

 

(30,778

)

 

 

(68,688

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

24,002

 

 

 

 

Payments of issuance costs, related to underwritten public offering

 

 

 

 

 

(42

)

Proceeds from the issuance of common stock in connection with equity incentive plans

 

 

139

 

 

 

535

 

Proceeds from exercise of stock warrants

 

 

 

 

 

288

 

Proceeds from loan payable, net of issuance costs

 

 

24,432

 

 

 

 

Repayment of loan payable

 

 

(22,833

)

 

 

 

Net cash provided by financing activities

 

 

25,740

 

 

 

781

 

Net increase in cash, cash equivalents, and restricted cash

 

 

(51,749

)

 

 

(81,325

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

154,965

 

 

 

119,341

 

Cash, cash equivalents, and restricted cash at end of period

 

$

103,216

 

 

$

38,016

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Interest paid

 

$

507

 

 

$

499

 

Supplemental disclosures of noncash investing and financing information

 

 

 

 

 

 

 

 

Reclassification of warrant liability to additional paid-in capital

 

$

 

 

$

1,521

 

Purchases of property plant and equipment included in deferred rent

 

$

 

 

$

3,794

 

Purchases of property plant and equipment included in accounts payable and accrued expenses

 

$

1,658

 

 

$

 

 

See accompanying notes to condensed consolidated financial statements.

Page 6 of 71


 

Achaogen, Inc.

March 31, 2018

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Basis of Presentation and Consolidation

Achaogen, Inc. (together with its consolidated subsidiary, the “Company”) is a late-stage biopharmaceutical company passionately committed to the discovery, development, and commercialization of innovative antibacterial treatments against multi-drug resistant (“MDR”) gram-negative infections.

The Company is developing plazomicin, its lead product candidate, for the treatment of bacterial infections due to MDR Enterobacteriaceae, including carbapenem-resistant Enterobacteriaceae (“CRE”). On January 2, 2018, the Company announced the acceptance of a New Drug Application (“NDA”) for substantive review by the U.S. Food and Drug Administration (“FDA) for plazomicin, seeking approval to treat complicated urinary tract infections (“cUTI”), including acute pyelonephritis (“AP”) and bloodstream infections (“BSI”) due to certain Enterobacteriaceae in patients who have limited or no alternative treatment options.

The NDA is supported by data from two Phase 3 clinical trials, EPIC (Evaluating Plazomicin In cUTI) and CARE (Combating Antibiotic Resistant Enterobacteriaceae), which evaluated the safety and efficacy of plazomicin in patients with serious infections caused by gram-negative pathogens, including ESBL producing Enterobacteriaceae and CRE. The EPIC study was a Phase 3 trial of plazomicin for the treatment of patients with cUTI and acute pyelonephritis (“AP”). The CARE study was a Phase 3 resistant pathogen trial designed to evaluate the efficacy and safety of plazomicin in patients with serious bacterial infections due to CRE.

The Company is also developing an orally-available antibacterial candidate, C-Scape, a combination of ceftibuten, an approved third generation cephalosporin, and clavulanate, an approved β-lactamase inhibitor to address a serious unmet need for an effective oral treatment for patients with cUTI, including AP, caused by ESBL-producing Enterobacteriaceae. On January 2, 2018, the Company announced positive Phase 1 top-line results and continues to do additional development on C-Scape including a Phase 1 Clinical Pharmacology study.

The Company was incorporated in Delaware in 2002 and commenced operations in 2004. Since commencing operations in 2004, the Company has devoted substantially all its resources to identifying and developing its product candidates and preparing for their commercialization, including conducting preclinical studies and clinical trials and providing general and administrative support for these operations.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the requirements of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information. The results of operations for the three-month period ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year or any other future period. The balance sheet as of  December 31, 2017 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements. Intercompany accounts and transactions have been eliminated upon consolidation.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K.

Liquidity and Going Concern

On April 7, 2015, the Company entered into a Common Stock Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may issue and sell shares of our common stock having aggregate sales proceeds of up to $30.0 million from time to time through an at-the-market (“ATM”) equity offering program under which Cowen acts as sales agent. During the three-month period ended March 31, 2018, the Company sold 2,144,454 shares of common stock under the Sales Agreement, at a weighted-average price of approximately $11.51 per share for aggregate gross proceeds of $24.7 million and aggregate net proceeds of $24.0 million. As of March 31, 2018, the Company had sold 3,250,003 shares of common stock under the Sales Agreement for aggregate gross proceeds of $30.0 million and aggregate net proceeds of $29.2 million. No shares remain available for sale under the Sales Agreement.

Page 7 of 71


 

On May 31, 2017, the Company completed an underwritten public offering of 5,750,000 shares of its common stock at a price to the public of $22.50 per share, including the closing of the full exercise of the underwriters’ option to purchase an additional 750,000 shares of common stock on June 9, 2017. The Company received net pro ceeds from the offering of $121.2 million, after deducting the underwriting discounts and commissions and offering expenses.

On May 4, 2017, the Company entered into an agreement with the Bill & Melinda Gates Foundation (the “Gates Foundation”) to discover drug candidates against gram-negative bacterial pathogens intended to prevent neonatal sepsis (the “Grant Agreement”). Pursuant to the Grant Agreement, the Gates Foundation awarded the Company up to approximately $10.5 million in grant funding (“Grant Funds”) over a three-year research term, of which approximately $3.2 million was received in May 2017 (the “Advance Funds”). Concurrently with the Grant Agreement, the Company entered into a Common Stock Purchase Agreement (the “Gates Purchase Agreement”) with the Gates Foundation, pursuant to which the Company agreed to sell 407,331 shares of its contingently redeemable common stock to the Gates Foundation in a private placement at a purchase price per share equal to $24.55, for gross proceeds to the Company of $10.0 million (“Gates Investment”).  

In connection with the Grant Agreement and the Gates Investment, the Company entered into a strategic relationship with the Gates Foundation (the “Letter Agreement”). Under the terms of the Letter Agreement, the Gates Investment and Grant Funds may only be used to conduct mutually agreed upon work, including the scale up of the Company’s antibody platform technology to launch a product intended to prevent neonatal sepsis (the “NSP”). Pursuant to the Letter Agreement, the Company agreed to make the NSP available and accessible in certain developing countries and to grant the Gates Foundation a non-exclusive license to commercialize selected drug candidates in certain developing countries, which may only be exercised in the event of certain defaults as described in the Letter Agreement (the “Global Access Commitments”). The Global Access Commitments will continue in effect until the earlier of 25 years from the closing of the Gates Investment or 7 years following the termination of all funding provided by the Gates Foundation; provided, that the Global Access Commitments will continue for any products or services developed with funding provided by the Gates Foundation which continue to be developed or available in certain developing countries.

In September 2017, the Company was awarded a contract (the “C-Scape Contract”) valued at up to $18.0 million in grant funding from the Biomedical Advanced Research and Development Authority (“BARDA”) to support the development of C-Scape. The C-Scape Contract includes a base period with committed funding of $12.0 million and subsequent option periods that, if exercised, would bring the total value of the award to $18.0 million.

On February 26, 2018, the Company entered into a new loan and security agreement with Silicon Valley Bank, pursuant to which Silicon Valley Bank agreed to make available to the Company term loans with an aggregate principal amount of up to $50.0 million, $20.9 million of which was used to repay our loan with Solar Capital Ltd., $4.1 million of which was provided to us on February 26, 2018 and $25.0 million of which remains available for borrowing.

On February 27, 2018, the Company filed an amended Registration Statement on Form S-3 (the “2018 Shelf Registration Statement”) covering the offering of up to $250.0 million of common stock, preferred stock, debt securities, warrants and units.  In addition, on February 27, 2018, the Company filed a prospectus supplement to the 2018 Shelf Registration Statement covering the offering, issuance and sale of up to $50.0 million shares of the Company’s common stock in ATM offerings pursuant to a Common Stock Sales Agreement entered into with Cowen and Company, LLC (the “2018 Sales Agreement”).

The Company has incurred losses and negative cash flows from operations every year since its inception.  As of March 31, 2018, the Company had unrestricted cash, cash equivalents and short-term investments of approximately $144.0 million and an accumulated deficit of approximately $420.1 million. The Company believes that its existing cash, cash equivalents and short-term investments, together with the additional $25.0 million term loan available under our loan and security agreement with Silicon Valley Bank, will be sufficient to fund its current planned operations for at least the next twelve months from the filing of this report. The Company plans to raise additional funds through equity or debt financing, government contracts, third party collaborations or other sources to permit additional investments in the commercialization of plazomicin and continued research and development efforts. These funding sources may not be available at terms acceptable to the Company or at all. If the Company is unable to raise additional funding, a reduction in the scope of its research and development programs and other operations may become necessary.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.  The financial statements do not reflect any adjustments relating to the recoverability and reclassification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

Page 8 of 71


 

2. Summary of Significant Accounting Poli cies

Use of Estimates

The accompanying financial statements have been prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent liabilities. On an ongoing basis, management evaluates its estimates, including those related to clinical trial accruals, fair value of derivative and warrant liabilities, common stock and stock-based awards and income taxes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, contracts receivable, prepaid and other current assets, accounts payable, accrued liabilities, and other current liabilities approximate fair value due to their short-term maturities. Short-term investments consist of available-for-sale securities and are carried at fair value. Based upon the borrowing rates currently available to the Company for loans with similar terms, the Company believes the carrying amount of the loan payable approximates its fair value. The warrant and derivative liabilities are recorded at estimated fair value with changes in estimated fair value recorded in the Company's statements of operations.

Cash and Cash Equivalents

Cash equivalents include only securities having a maturity of three months or less at the time of purchase. As of March 31, 2018 and December 31, 2017, cash and cash equivalents consisted of bank deposits, cash, commercial paper, money market funds, cash repurchase agreement investments and overnight cash sweep investments in government money market funds.

Short-term Investments

Short-term investments consist of debt securities with maturities greater than three months, but less than one year from the date of acquisition, and are classified as available for sale. Short-term investments are carried at fair value. Unrealized gains and losses on available-for-sale securities are excluded from earnings and reported as a component of net unrealized (loss) on available-for-sale securities in the Company's consolidated statements of comprehensive loss. The amortized cost of debt securities reflects amortization of purchase premiums and accretion of purchase discounts to date, which are included in interest income.

The Company reviews all of its marketable securities on a regular basis to evaluate whether any security has experienced an other-than-temporary decline in fair value.

Restricted Cash

At March 31, 2018 and December 31, 2017, the Company had restricted cash of $8.3 million and $9.7 million, respectively. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same such amounts shown in the consolidated statements of cash flows (in thousands):

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Cash and cash equivalents

 

$

94,898

 

 

$

145,219

 

Restricted cash, current

 

 

6,998

 

 

 

5,891

 

Restricted cash, non-current

 

 

1,320

 

 

 

3,855

 

Total cash, cash equivalents, and restricted cash

 

$

103,216

 

 

$

154,965

 

 

In May 2017, the Company received $13.2 million of funding from the Gates Foundation from the Grant Funds and Gates Investment (see Note 1). The Letter Agreement restricts the Company’s use to expenditures that are reasonably attributable to the activities required to support the research projects funded by the Gates Foundation, including an allocation of overhead and administrative expenses. As of March 31, 2018 and December 31, 2017, the Company had $7.8 million and $9.2 million, respectively, of restricted cash related to the cash provided by the Gates Foundation. As of March 31, 2018 and December 31, 2017, the Company had $0.5 million of restricted cash, which relates to the Company’s facility leases.

 

Page 9 of 71


 

 

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker regarding resource allocation and assessing performance. The Company has one operating segment.

Customer Concentration

For the three-month periods ended March 31, 2018 and 2017, the Company’s revenue was generated from funding pursuant to U.S. government contracts and a non-profit foundation grant. All contracts receivable relate to funding from U.S. government contracts.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist of cash, cash equivalents and short-term investments. Cash and cash equivalents are deposited in checking, overnight sweep and money market accounts at one financial institution with balances that generally exceed federally insured limits. Management believes that the financial institution is financially sound, and, accordingly, minimal credit risk exists with respect to this financial institution. The Company’s investment policy limits investments to certain types of debt securities issued by the U.S. government, its agencies and institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The Company is exposed to credit risk in the event of default by the institutions holding its cash and cash equivalents or issuing the debt securities. As of March 31, 2018 and December 31, 2017, the Company had not experienced any credit losses in such accounts or investments.

Revenue Recognition

The Company evaluated Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (ASC 606) and determined that the government contracts and non-profit foundation grant are not in scope as the government entities and foundations are not customres under the agreements. For services performed under these contracts and grant agreements, the Company recognizes revenue when: (i) evidence of an arrangement exists, (ii) fees are fixed or determinable, (iii) services have been delivered, and (iv) collectability is reasonably assured. The Company currently generates revenue from government contracts and a non-profit foundation grant. Government contracts provide the Company with payments for certain types of expenditures in return for research and development activities over a contractually defined period. Revenue from government contracts is recognized in the period during which the related costs are incurred and the related services are rendered, provided that the applicable conditions under the government contracts have been met. Costs of contract revenue are recorded as a component of operating expenses in the Company’s consolidated statements of operations.

Funds received from third parties under contract or grant arrangements are recorded as revenue if the Company is deemed to be the principal participant in the arrangements because the activities under the contracts or grants are part of the Company’s development programs. If the Company is not the principal participant, the funds from contracts or grants are recorded as a reduction to research and development expense. Contract funds received are not refundable and are recognized when the related qualified research and development costs are incurred and there is reasonable assurance that the funds will be received. Funds received in advance are recorded as deferred revenue. Management has determined that the Company is the principal participant under the Company’s government contract arrangements and non-profit grant agreement, and accordingly, the Company records amounts earned under these arrangements as revenue.

Page 10 of 71


 

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses include certain payroll and personnel expenses, laboratory supplies, consulting costs, external contract research and development expenses, and allocated overhead, including rent, equipment depreciation, and utilities and relate to both Company-sponsored programs as well as costs incurred pursuant to collaboration agreements, non-profit grants and government contracts. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and recognized as an expense as the goods are delivered or the related services are performed.

For certain research and development services where the Company has not yet been invoiced or otherwise notified of actual cost from the third-party contracted service providers, the Company is required to estimate the extent of the services that have been performed on the Company’s behalf and the associated costs incurred at each reporting period. The majority of the service providers invoice the Company monthly in arrears for services performed. The Company makes estimates of the accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to the Company at that time. The Company periodically confirms the accuracy of the estimates with the service providers and makes adjustments if necessary. Examples of estimated accrued research and development expenses include services from:

 

contract research organizations (“CROs”) and other service providers in connection with clinical studies;

 

contract manufacturers in connection with the production of clinical trial materials; and

 

vendors in connection with preclinical development activities.

The Company bases the expenses related to preclinical studies and clinical trials on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage such studies and trials on the Company’s behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows and expense recognition. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, the Company estimates the time period over which these services will be performed and the level of effort to be expended and costs to be incurred during each reporting period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts the accrual accordingly. The Company’s estimation of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting changes in estimates in any particular period. To date, there have been no material adjustments from the Company’s estimates to the amount actually incurred.

Property and Equipment, Net

Property and equipment consist of office equipment, laboratory equipment, and leasehold improvements and are stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, generally three to seven years. Leasehold improvements are amortized over their estimated useful lives or the remaining lease term, whichever is shorter. Maintenance and repair costs are recorded as a component of operating expenses in the Company’s consolidated statement of operations when incurred.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. If indicators of impairment exist, an impairment loss would be recognized when the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The impairment charge is determined based upon the excess of the carrying value of the asset over its estimated fair value, with estimated fair value determined based upon an estimate of discounted future cash flows or other appropriate measures of estimated fair value. As of March 31, 2018 and December 31, 2017, the Company did not have any impairment charges.

Warrant Liability

On June 3, 2016, the Company issued warrants to purchase 1,999,999 shares of its common stock pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) in connection with a private placement financing transaction (the “Private Placement”). Each warrant has an exercise price of $3.66 per share and is exercisable for five years from the date of issuance. The Company accounts for these warrants as a liability instrument measured at estimated fair value. The initial fair value of the warrants was determined using a calibration model that involved using the Black-Scholes Pricing Model ("Black-Scholes"), which requires inputs such as the risk-free interest rate, expected share price volatility, underlying price per share of the Company's common stock and remaining term of the warrants. The warrants are subject to remeasurement at each balance sheet date, using Black-Scholes, with

Page 11 of 71


 

any changes in the fair value of the outstanding warrants recognized in the condensed consolidated statements of operations. As of March 31, 2018, a warrant to purchase 1,178,782 shares of the Company’s common stock remains outstanding and unexercised.

Contingently Redeemable Common Stock

In May 2017, the Company agreed to sell 407,331 shares of its contingently redeemable common stock to the Gates Foundation in a private placement at a purchase price per share equal to $24.55 (see Note 1). Common stock with embedded redemption features that are settled at the option of the holder, are considered redeemable common stock. Redeemable common stock is considered to be temporary equity and presented in a section between liabilities and equity on the Company’s consolidated balance sheets. Subsequent adjustment of the amount presented in temporary equity is required only if the Company determines that it is probable that the instrument will become redeemable. Upon termination of the redemption features, the redeemable common stock is reclassified into equity. As of March 31, 2018, 407,331 shares of contingently redeemable common stock remain as temporary equity.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases , which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. This ASU will be effective for the Company in fiscal year 2019. Early adoption is permitted. The Company is currently assessing the potential effects of this ASU on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting . This ASU provides guidance about which changes to the terms or conditions of a share-based payment award requires the Company to apply modification accounting. This ASU will be effective for the Company for annual reporting periods, including interim reporting periods, beginning after December 15, 2017. The Company adopted this standard on January 1, 2018 noting it did not have a material impact on the Company’s financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilties , which includes provisions to accounting for equity investments, financial liabilities under the fair value option, and presentation and disclosure requirements for financial instruments. The amended guidance requires equity securities, except for those accounted for under the equity method of accounting, with determinable fair values to be measured at fair with changes in fair value recognized in net income (loss). This ASU will be effective for the Company for annual reporting periods, including interim reporting periods, beginning after December 15, 2017.  The Company adopted this standard on January 1, 2018 noting it did not have a material impact on the Company’s financial statements.

In March 2018, the FASB issued ASU No. 2018-05,  Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 . The amendments add various Securities and Exchange Commission (“SEC) paragraphs pursuant to the issuance of SEC Accounting Bulletin No. 118,  Income Tax Accounting Implications of the Tax Cuts and Jobs Act  (“Act”) (“SAB 118”). The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the Act are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate. The Company has provided a reasonable estimate in the notes to the consolidated financial statements.

Net Loss Per Share

Basic net loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period.  Diluted net loss per common share is computed by dividing the net loss by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. For purposes of this calculation, preferred stock, stock options, restricted stock units and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

For the three-month periods ended March 31, 2018 and 2017, potentially dilutive securities outstanding have been excluded from the computations of diluted weighted-average shares outstanding because such securities have an antidilutive impact due to losses reported. The following potentially dilutive securities have been excluded from diluted net loss per share, because their effect would be antidilutive, as of March 31, 2018 and 2017:

 

Page 12 of 71


 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Shares subject to options to purchase common stock

 

 

6,032,808

 

 

 

4,470,187

 

Restricted stock units

 

 

1,201,246

 

 

 

800,658

 

Shares subject to warrants to purchase common stock

 

 

1,196,296

 

 

 

1,231,659

 

 

3. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The carrying amount of certain financial instruments, including cash and cash equivalents, restricted cash, contracts receivable, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. Assets and liabilities recorded at fair value on a recurring basis in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements 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 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.

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.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

Where quoted prices are available in an active market, securities are classified as Level 1 of the valuation hierarchy, including cash held at overnight sweep accounts. The Company’s Level 2 valuations of marketable securities are generally derived from independent pricing services based upon quoted prices in active markets for similar securities, with prices adjusted for yield and number of days to maturity, or based on industry models using data inputs, such as interest rates and prices that can be directly observed or corroborated in active markets.

In certain cases, where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3 within the valuation hierarchy. Level 3 liabilities that are measured at estimated fair value on a recurring basis consist of a derivative liability in connection with the loan repaid in February 2018 and a warrant liability in connection with the Private Placement.

Page 13 of 71


 

As of March 31, 2018 and December 31, 2017, fi nancial assets and liabilities measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above were as follows (in thousands):

 

 

March 31, 2018

 

 

 

Amortized Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

8,318

 

 

 

 

 

 

 

 

 

8,318

 

Money market funds

 

 

37,445

 

 

 

 

 

 

 

 

 

37,445

 

U.S. Treasury bills

 

 

19,889

 

 

 

 

 

 

(5

)

 

 

19,884

 

Subtotal

 

 

65,652

 

 

 

 

 

 

(5

)

 

 

65,647

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

42,365

 

 

 

 

 

 

 

 

 

42,365

 

Corporate securities

 

 

19,325

 

 

 

 

 

 

(21

)

 

 

19,304

 

Other debt securities

 

 

25,000

 

 

 

 

 

 

 

 

 

25,000

 

Subtotal

 

 

86,690

 

 

 

 

 

 

(21

)

 

 

86,669

 

Total

 

$

152,342

 

 

$

 

 

$

(26

)

 

$

152,316

 

Reported as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

94,898

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

$

49,100

 

Restricted cash

 

 

 

 

 

 

 

 

 

 

 

 

 

$

8,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities, Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant Liability

 

 

 

 

 

 

 

 

 

 

 

 

 

$

12,161

 

Derivative Liability

 

 

 

 

 

 

 

 

 

 

 

 

 

$

830

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

$

12,991

 

 

 

 

December 31, 2017

 

 

 

Amortized Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

9,746

 

 

 

 

 

 

 

 

 

9,746

 

Money market funds

 

 

58,769

 

 

 

 

 

 

 

 

 

58,769

 

U.S. Treasury bills

 

 

4,992

 

 

 

 

 

 

 

 

 

4,992

 

Subtotal

 

 

73,507

 

 

 

 

 

 

 

 

 

73,507

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

46,040

 

 

 

 

 

 

 

 

 

46,040

 

U.S. agency securities

 

 

4,990

 

 

 

 

 

 

 

 

 

4,990

 

Other debt securities

 

 

50,000

 

 

 

 

 

 

 

 

 

50,000

 

Subtotal

 

 

101,030

 

 

 

 

 

 

 

 

 

101,030

 

Total

 

$

174,537

 

 

$

 

 

$

 

 

$

174,537

 

Reported as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

145,219

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

$

19,572

 

Restricted cash

 

 

 

 

 

 

 

 

 

 

 

 

 

$

9,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities, Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant Liability

 

 

 

 

 

 

 

 

 

 

 

 

 

$

9,774

 

Derivative Liability

 

 

 

 

 

 

 

 

 

 

 

 

 

$

686

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

$

10,460

 

The amortized cost and estimated fair value of the debt securities by contractual maturity are summarized as follows:

Page 14 of 71


 

 

 

As of March 31, 2018

 

 

As of December 31, 2017

 

 

 

Amortized Cost

 

 

Estimated Fair Value

 

 

Amortized Cost

 

 

Estimated Fair Value

 

Due in one year or less

 

$

144,025

 

 

$

143,999

 

 

$

164,791

 

 

$

164,791

 

Due after one year through five years

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total debt securities

 

$

144,025

 

 

$

143,999

 

 

$

164,791

 

 

$

164,791

 

All available-for-sale securities held as of March 31, 2018 had maturities less than one year from the date of acquisition. There were no sales of available-for-sale securities in any of the periods presented. The carrying value of debt securities that were in unrealized loss positions totaled $39.2 million as of March 31, 2018. The Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. The Company anticipates that it will recover the entire amortized cost basis of such debt securities and has determined that no other-than-temporary impairments associated with credit losses were required to be recognized during the three-month period ended March 31, 2018.

Pursuant to the loan and security agreement with Solar Capital Ltd. (see Note 7), the Company entered into a Success Fee Agreement under which the Company agreed to pay $1.0 million in cash (the "Success Fee") if the Company obtains approval to market plazomicin from the FDA. If such approval is obtained, the Success Fee shall be due the later of (i) August 5, 2019 or (ii) the date such FDA approval is obtained. The estimated fair value of the Success Fee is recorded as a derivative liability and included in other long-term liabilities on the accompanying consolidated balance sheet. As of March 31, 2018 the derivative liability increased by $0.1 million to $0.8 million from December 31, 2017, primarily as a result of a change in the estimated cost of debt and the time value of money, which is presented as a component of change in warrant and derivative liabilities in the Company’s condensed consolidated statements of operations.

The fair value of the derivative liability was determined using a discounted cash flow analysis, and is classified as a Level 3 measurement within the fair value hierarchy since the Company’s valuation utilized significant unobservable inputs. Specifically, the key assumptions included in the calculation of the estimated fair value of the derivative instrument include: i) the Company’s estimates of both the probability and timing of a potential $1.0 million payment to Solar Capital Ltd. as a result of FDA approval to market plazomicin, and ii) a discount rate of 5.8% which was derived from the Company's estimated cost of debt, updated to reflect the new loan and security agreement with Silicon Valley Bank. The estimated fair value of the derivative liability is most sensitive to a change in the discount rate. If the discount rate decreased by 5%, the fair value of the derivative liability as of March 31, 2018 would change by approximately $0.1 million. For the three-month period ended March 31, 2018, there were no material changes to the key assumptions used in the calculation of the estimated fair value other than the decrease in the discount rate from 13% to 5.8%. Any changes in the estimated fair values are presented as changes in warrant and derivative liabilities in the Company's condensed consolidated statements of operations.

Pursuant to the Private Placement (see Note 2), the Company issued warrants to purchase 1,999,999 shares of common stock at an exercise price of $3.66 per share. The Company classified these warrants as a liability measured at fair value using Black-Scholes. Under certain entity conditions, the holder of a warrant may require the Company to settle the warrant in cash at its estimated fair value using Black-Scholes. On June 3, 2016, the closing date of the Private Placement, the $2.6 million initial estimated fair value of the warrants was recorded as a warrant liability on the accompanying condensed consolidated balance sheet. At March 31, 2018 and December 31, 2017, the estimated fair values of the outstanding warrants were approximately $12.2 million and $9.8 million, respectively. The change in the estimated fair value is primarily due to the change in the Company's stock price and is included in changes in warrant and derivative liabilities in the Company's condensed consolidated statements of operations.

The fair value of the warrant liability is classified as a Level 3 measurement within the fair value hierarchy since the Company’s valuation utilized significant unobservable inputs, including the risk-free interest rate, expected share price volatility, underlying price per share of the Company's common stock and remaining term of the warrants. At March 31, 2018 and December 31, 2017, the estimated fair values of the warrants were determined using Black-Scholes with the following assumptions:

 

 

March 31, 2018

 

 

December 31, 2017

 

Expected volatility

 

 

80%

 

 

 

80%

 

Expected term

 

3.2 years

 

 

3.4 - 4.3 years

 

Risk-free interest rate

 

2.4%

 

 

1.6 - 2.0%

 

Dividend yield

 

 

—%

 

 

 

—%

 

The expected volatility is based on the Company's expected volatility. The expected term is based on the remaining life of the warrants. The risk-free interest rate is obtained from the yields on actively traded U.S. Treasury securities for a period equal to the expected term of the warrants. The dividend yield is zero because the Company has never paid cash dividends and has no present

Page 15 of 71


 

intention to pay cash dividends. Should the share price change by 5%, the fair value of the warrant liability as of March  31, 2018 would change by approximately $0.7 million.

Changes in the fair value of recurring measurements included in Level 3 of the fair value hierarchy are presented as changes in warrant and derivative liabilities in the Company's condensed consolidated statements of operations and were as follows for the three-month period ended March 31, 2018 (in thousands):

 

 

Estimated Fair Value

of Warrant Liability

 

 

Estimated Fair Value

of Derivative Liability

 

Balance of Level 3 Liabilities at December 31, 2017

 

$

9,774

 

 

$

686

 

Change in estimated fair value of warrant liability

 

 

2,387

 

 

 

Change in estimated fair value of derivative liability

 

 

 

 

144

 

Balance of Level 3 Liabilities at March 31, 2018

 

$

12,161

 

 

$

830

 

.

4. Balance Sheet Components

Prepaids and other current assets

Prepaids and other current assets consisted of the following (in thousands):

 

 

March 31, 2018

 

 

December 31, 2017

 

Deferred manufacturing costs

 

$

6,041

 

 

$

4,317

 

Prepaid expenses

 

 

2,152

 

 

 

1,755

 

Other current assets

 

 

751

 

 

 

295

 

 

 

$

8,944

 

 

$

6,367

 

Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):

 

 

March 31, 2018

 

 

December 31, 2017

 

Office equipment

 

$

1,658

 

 

$

863

 

Laboratory equipment

 

 

7,184

 

 

 

6,663

 

Leasehold improvements

 

 

9,526

 

 

 

9,355

 

Construction-in-progress

 

 

2,532

 

 

 

1,040

 

 

 

 

20,900

 

 

 

17,921

 

Less: accumulated depreciation

 

 

(3,672

)

 

 

(3,111

)

Property and equipment, net

 

$

17,228

 

 

$

14,810

 

Depreciation and amortization expense for the three-month periods ended March 31, 2018 and 2017 was $0.6 million and $0.1 million, respectively.

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

March 31, 2018

 

 

December 31, 2017

 

Accrued clinical and development expenses

 

$

5,229

 

 

$

6,480

 

Payroll and related bonus expenses

 

 

4,656

 

 

 

6,281

 

Other

 

 

4,772

 

 

 

2,680

 

 

 

$

14,657

 

 

$

15,441

 

 

Page 16 of 71


 

5. License and Collaboration Agreements

Thermo Fisher Scientific, Inc.

In April 2016, the Company entered into an agreement with its collaboration partner, Microgenics Corporation (“Thermo Fisher”), a wholly owned subsidiary of Thermo Fisher Scientific, Inc., to develop and commercialize an assay to support plazomicin. If approved, the Company and Thermo Fisher plan to have a commercial assay for plazomicin available at launch to enable healthcare professionals to make decisions on safe and efficacious doses of plazomicin. In accordance with the terms of the agreement, the Company is required to make milestone payments with respect to research, development, regulatory and commercialization milestones (if any). All such milestone payments may total, in aggregate, up to but no more than approximately $6.8 million. In further consideration of this agreement, in the event of a successful commercialization of the assay, the Company is required to pay a minimum threshold annual revenue to Thermo Fisher.

As of March 31, 2018, the Company has incurred $3.8 million in milestone payments and these costs were fully recorded as research and development expense. The Company recorded $0.1 million and $0.2 million of research and development expense during the three-month periods ended March 31, 2018 and 2017, respectively.

Crystal Biosciences, Inc.

In May 2016, the Company entered into a collaboration and license agreement with Crystal Biosciences, Inc. (“Crystal”). Pursuant to the terms of this agreement, the Company and Crystal agreed to collaborate on the discovery of monoclonal antibodies against multiple targets. Crystal agreed to conduct the initial discovery work with its antibody platform and the Company has the right to develop and commercialize the antibodies discovered through this collaboration. The Company is required to provide signing and milestone payments with respect to research, development, regulatory and commercialization milestones (if any). All such milestone payments may total, in aggregate, up to but no more than approximately $20.6 million. The upfront signing fee, technology access fees and research funding were recorded as research and development expense. This collaboration and license agreement also provides that the Company shall pay royalties equal to a low single-digit percentage of annual worldwide net sales of the commercialized product. In 2017, Ligand Pharmaceuticals Incorporated (“Ligand”) acquired Crystal and the platform became a part of the OmniAb platform. This acquisition does not materially impact the Company’s ongoing collaboration.

Ionis Pharmaceuticals

In January 2006, the Company entered into a license agreement with Ionis Pharmaceuticals, Inc. (“Ionis”). Ionis granted the Company an exclusive, worldwide license with the right to grant and authorize sublicenses related to the research and development of aminoglycoside products. As an up-front fee, the Company issued 97,402 shares of Series A convertible preferred stock at a fair value of $15.40 per share. This license fee of $1,500,000 was recorded as research and development expense in 2006. In further consideration of this license, and in accordance with the terms of the agreement, the Company is required to make milestone payments with respect to development, regulatory and commercialization milestones, and to pay a percentage of revenue received from sublicensees (if any). All such milestone and sublicense revenue payments may total, in the aggregate, up to but no more than $19,500,000 for the first product and $9,750,000 following the second product commercialized under the agreement with Ionis. The Company is also required to pay additional milestone payments of up to $20,000,000 in the aggregate upon the first achievement of specified threshold levels of annual net sales of all aminoglycoside products in a calendar year. The license agreement also provides that the Company shall pay royalties equal to a low single-digit percentage of annual worldwide net sales of all licensed products, including, if applicable, plazomicin.

Through March 31, 2018, the Company had compensated Ionis $7,000,000 in connection with the first three milestones under the license for the first aminoglycoside product candidate. As of March 31, 2018, the Company had no outstanding payments due under the license.

6. Revenue Contracts

Certain of the Company’s drug discovery and development activities are performed under contracts with the Gates Foundation and U.S. government agencies. Management has determined that the Company is the principal participant in the following contract arrangements, and, accordingly, the Company records amounts earned under the arrangements as revenue. Costs incurred under the Revenue Contracts are recorded as operating expenses in the Company's consolidated statements of operations.

Bill & Melinda Gates Foundation

In May 2017, the Company entered into an agreement with the Gates Foundation to discover drug candidates against gram-negative bacterial pathogens intended to prevent neonatal sepsis (the “Grant Agreement”). The Gates Foundation awarded the Company up to approximately $10.5 million in grant funding (“Grant Funds”) over a three-year research term, of which approximately $3.2 million of committed funding was received in May 2017 (the “Advance Funds”). The Advance Funds are

Page 17 of 71


 

rep lenished by the Gates Foundation each calendar year, or sooner, following the Company’s submission of a progress report, including expenses incurred for the research activities. Under certain conditions, as described in the Grant Agreement, the Gates Found ation may terminate the Grant Agreement and the Company is obligated to return to the Gates Foundation any unused portion of the Advance Funds. In accordance with the Company’s significant accounting policies, the Advance Funds are recorded as deferred rev enue. As of March 31, 2018, the Company has recorded revenue of $1.6 million under this agreement.

The Company recorded contract revenue of $0.6 million and zero, respectively under this agreement during the three-month periods ended March 31, 2018 and 2017.

Biomedical Advanced Research and Development Authority

In August 2010, the Company was awarded a contract with the Biomedical Advanced Research and Development Authority (“BARDA”) for the development, manufacturing, nonclinical and clinical evaluation of, and regulatory filings for, plazomicin as a countermeasure for diseases caused by antibiotic-resistant pathogens and biothreats. The original contract included committed funding of $27.6 million for the first two years of the contract and subsequent options exercisable by BARDA to provide additional funding. As of March 31, 2018, the original contract and the three-exercised options and modifications total $124.4 million of obligated funding, of which a total of $124.3 million has been recorded as revenue, with $0.1 million remaining available from the committed funding under this BARDA contract.

In September 2017, the Company was awarded the C-Scape Contract (the “C-Scape Contract”) valued at up to $18.0 million from BARDA to support the development of C-Scape. The C-Scape Contract includes a base period with committed funding of $12.0 million and subsequent option periods that, if exercised, would bring the total value of the award to $18.0 million. As of March 31, 2018, the Company has recorded revenue of $2.4 million, with $9.6 million remaining available from the committed funding under the C-Scape Contract.

The Company recorded contract revenue of $1.5 million and $7.1 million under these agreements during the three-month periods ended March 31, 2018 and 2017, respectively.

 

7. Borrowings

Solar Capital Ltd. Loan Agreement

On August 5, 2015, the Company entered into a loan and security agreement (the “Solar Loan Agreement”) with Solar Capital Ltd. (the “Solar Capital”) pursuant to which Solar Capital agreed to make available to the Company term loans in an aggregate principal amount of up to $25.0 million with a maturity date of August 5, 2019. An initial $15.0 million term loan was funded at closing on August 5, 2015, and a second $10.0 million term loan was funded on June 20, 2016. Borrowings under the term loans bore interest per annum at 6.99% plus the greater of 1% or the one-month LIBOR. The obligation also included a final fee of $2.0 million, representing 8% of the term loan currently funded, which accreted over the life of the loan as interest expense. On February 26, 2018, the Company terminated the Solar Loan Agreement and repaid the outstanding principal and accrued interest expense of $20.9 million. For the three-month period ended March 31, 2018, the Company recorded a loss from debt extinguishment of $0.8 million as the difference between the net carrying amount of the Solar Capital debt and the amount paid.

On August 5, 2015, pursuant to the Solar Loan Agreement, the Company entered into a Success Fee Agreement with Solar Capital under which the Company agreed to pay Solar Capital $1.0 million if the Company obtains FDA approval to market plazomicin. If such approval is obtained, the Success Fee shall be due the later of (i) August 5, 2019 or (ii) the date such FDA approval is obtained. The estimated fair value of the Success Fee is recorded as a derivative liability and included in other long-term liabilities on the accompanying consolidated balance sheet.

Silicon Valley Bank Loan Agreement

On February 26, 2018, the Company entered into a loan and security agreement (the “SVB Loan Agreement”) with Silicon Valley Bank (“SVB”). The Loan Agreement provides for (i) a $25.0 million Term A loan facility with a maturity of five years (the “Term A Loan”) and (ii) an up to $25.0 million Term B loan facility, which may be drawn, subject to certain conditions, by the Company during the first 12 months after February 26, 2018 ( the “Term B Loans” and collectively, with the Term A Loan, the “Term Loans”). Each Term B Loan has a maturity of four years. As of March 31, 2018, the Company received initial funding from the Term A Loan of $25.0 million, which was primarily used to repay the Company’s prior loan agreement with Solar Capital.

Borrowings under the Term A Loan bear interest at a floating per annum rate equal to the greater of (a) the prime rate minus 1.50% and (b) 3.00%, and the Term B Loans bear interest through maturity at a floating per annum rate equal to the greater of (a) 1.00% above the prime rate and (b) 5.50%. In addition to paying interest on outstanding principal, the Company will be required to

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pay an unused Term B Loan fee of 1.00% of the commitments under the Term B Loans if the Company does not borrow any Term B Loans.  

The Company is permitted to make interest-only payments on the Term A Loan through February 2020 and the Term B Loans for the first twenty-four (24) months following the funding date of each respective Term B Loan after which the Company will be required to repay the Term A Loan in 36 consecutive equal monthly installments of principal and repay any Term B Loans in 24 consecutive equal monthly installments of principal. The Company is obligated to pay a fee equal to 6.00% of the funded Term Loans upon the earliest to occur of the maturity date, the prepayment or repayment of such Term Loans or the termination of the Loan Agreement. The final payment fee of $1.5 million, which represents 6% of the funded Term A Loan is accreted under the effective interest method over the life of the loan as interest expense. The Company may voluntarily prepay all, but not less than all, of the outstanding Term Loans. The Term Loans are secured by substantially all of the Company’s assets, except for its intellectual property which is subject to a negative pledge and certain other customary exclusions. The Loan Agreement contains customary representations, warranties and covenants. The Company is required to have cash on deposit at Silicon Valley Bank equal to the greater of (a) $48.0 million and (b) the “Monthly Cash Burn,” which is defined as the difference of (1)(i) net loss plus (ii) unfinanced capital expenditures minus (2)(i) depreciation and amortization expenses, (ii) non-cash stock compensation expense and (iii) other non-cash expenses as approved by SVB. If at any time the Company’s aggregate balances at SVB are less than the foregoing, the Company is required to deposit at SVB cash collateral in an amount equal to the outstanding Term A Loan. As of March 31, 2018, the Company had maintained the compensating balance of $48.0 million, which was included in cash and cash equivalents on the consolidated balance sheet.

 

Pursuant to the SVB Loan Agreement, the Company incurred $1.2 million of debt issuance costs related to external legal and transaction fees. The Company recorded $0.6 million of debt issuance costs as a direct deduction from the carrying value of the Term A Loan which are amortized as interest expense using the effective-interest method over the term of the Term A Loan.  The remaining $0.6 million of debt issuance costs related to the unfunded Term B Loan is recorded in Prepaids and Other Current Assets on the consolidated balance sheet and is amortized on a straight-line basis over the draw period of the Term B Loan.    

Future principal debt payments on the currently outstanding SVB loan are payable as follows (in thousands):

 

 

March 31, 2018

 

2018

 

$

 

2019

 

 

 

2020

 

 

6,944

 

2021

 

 

8,333

 

2022

 

 

8,333

 

Thereafter (1)

 

 

2,889

 

Total principal and final fee payments

 

 

26,500

 

Unamortized debt issuance costs and final fee

 

 

(2,028

)

Loan payable, long-term

 

$

24,472

 

(1) Includes $1.5 million final fee payment

 

 

 

 

The Company recorded interest expense related to the loans of $0.6 million and $0.7 million for the three-month periods ended March 31, 2018 and 2017, respectively.

8. Stockholders' Equity

Stockholders’ Equity

On April 7, 2015, the Company filed a Registration Statement on Form S-3 (the “2015 Shelf Registration Statement”), which included a prospectus covering the offering, issuance and sale of up to $30.0 million of shares of the Company’s common stock from time to time in an ATM equity offering. The Company entered into a Common Stock Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may issue and sell shares of its common stock having aggregate sales proceeds of up to $30.0 million from time to time through an ATM equity program under which Cowen acts as sales agent.

During the three-month period ended March 31, 2018, the Company sold 2,144,454 shares of common stock under the Sales Agreement, at a weighted-average price of approximately $11.51 per share for aggregate gross proceeds of $24.7 million and aggregate net proceeds of $24.0 million. As of March 31, 2018, the Company had sold 3,250,003 shares of common stock under the Sales Agreement for aggregate gross proceeds of $30.0 million and aggregate net proceeds of $29.2 million. No shares remain available for sale under the Sales Agreement.

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On May 31, 2017, the Company completed an underwritten public offering of 5,750,000 shares of its common stock at a price to the public of $22.50 per share, including the closing of the full exercise of the underwriters’ option to purchase an additional 750,000 shares of common stock on June 9, 2017. The Company received net proceeds from the offering of $121.2 million, after deducting the underwriting discoun ts and commissions and offering expenses.

On February 27, 2018, the Company filed an amended Registration Statement on Form S-3 (the “2018 Shelf Registration Statement”) covering the offering of up to $250.0 million of common stock, preferred stock, debt securities, warrants and units.  In addition, on February 27, 2018, the Company filed a prospectus supplement to the 2018 Shelf Registration Statement covering the offering, issuance and sale of up to $50.0 million shares of its common stock in ATM offerings pursuant to a Common Stock Sales Agreement (the “2018 Sales Agreement”) entered into with Cowen and Company, LLC on February 27, 2018. As of March 31, 2018 $50.0 million of common stock remained available to be sold under the 2018 Sales Agreement, subject to certain conditions specified therein.

Warrants

During 2012 and 2011, the Company issued warrants to Oxford Finance LLC and SVB to purchase 20,016 and 10,008 shares, respectively, of its Series C convertible preferred stock at an exercise price of $11.99 per share. The warrants were issued in connection with a loan and security agreement, which was repaid in full in June 2014. Immediately prior to the closing of the Company’s initial public offering, these warrants automatically converted into warrants exercisable for shares of common stock, resulting in the reclassification of the related preferred stock warrant liabilities to additional paid-in capital.

On June 3, 2016, the Company sold 7,999,996 shares of its common stock and warrants to purchase 1,999,999 shares of its common stock pursuant to the Purchase Agreement for aggregate gross proceeds of $25.4 million in the Private Placement. The warrants have an exercise price of $3.66 per share and are exercisable up to five years from the date of issuance. The Company's Chief Operating Officer, a related party, participated in the Private Placement by purchasing 141,453 shares of common stock and a warrant to purchase 35,363 shares of common stock for an aggregate purchase price of $0.5 million. Issuance costs of $0.3 million were offset against equity as a reduction from gross proceeds. At the close of the Private Placement, the estimated fair values of the common stock and warrants issued were $22.9 million and $2.6 million, respectively.

As of March 31, 2018 the following warrants to purchase shares of common stock were outstanding and exercisable:

Warrant Holder

 

Issue Date

 

In Connection With

 

Warrant to Purchase

 

Shares

 

 

Exercise Price

 

 

Expiration Date

Oxford Finance LLC

 

4/30/2012

 

Loan agreement

 

Common stock

 

 

11,676

 

 

$

11.99

 

 

11/1/2021

Oxford Finance LLC

 

11/1/2011

 

Loan agreement

 

Common stock

 

 

5,838

 

 

$

11.99

 

 

11/1/2021

Growth Equity Opportunities Fund IV, LLC

 

6/3/2016

 

Private Placement

 

Common stock

 

 

1,178,782

 

 

$

3.66

 

 

6/3/2021

 

 

 

 

 

 

 

 

 

1,196,296

 

 

 

 

 

 

 

Warrants outstanding as of March 31, 2018 and December 31, 2017 have a weighted-average exercise price of $3.78

Equity Incentive Plans

2014 Equity Incentive Award Plan

In February 2014, the Company’s stockholders approved the 2014 Equity Incentive Award Plan (the "2014 Plan"), which became effective as of March 11, 2014. Under the 2014 Plan, the Company may grant incentive stock options ("ISOs"), nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units ("RSUs") and other stock-based awards for the purchase of that number of shares of common stock. Effective January 1, 2018, the compensation committee of the bo