Table of Contents 

 

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 0-29889

 


 

Rigel Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

94-3248524

(State or other jurisdiction of incorporation or

 

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

organization)

 

 

 

 

 

 

 

1180 Veterans Blvd.

 

 

South San Francisco, CA

 

94080

(Address of principal executive offices)

 

(Zip Code)

 

(650) 624-1100

(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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”  and “emerging growth company”in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

Large accelerated filer ☐

 

 

 

Accelerated filer ☒

Non-accelerated filer ☐

 

(Do not check if a smaller reporting company)

 

Smaller reporting company ☐

Emerging Growth Company ☐

 

 

 

 

 

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

 

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

 

As of April 26, 2018, there were 163,580,297 shares of the registrant’s Common Stock outstanding.

 

 

 

 


 

Table of Contents 

RIGEL PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31 2018

 

INDEX

 

 

 

 

 

 

 

 

Page

PART I 

FINANCIAL INFORMATION

 

3

Item 1. 

Financial Statements

 

3

 

Condensed Balance Sheets — March  31, 2018 (Unaudited) and December 31, 2017

 

3

 

Condensed Statements of Operations (Unaudited) —three months ended March  31, 2018 and 2017

 

4

 

Condensed Statements of Comprehensive Loss (Unaudited) —three months ended March 31, 2018 and 2017

 

5

 

Condensed Statements of Cash Flows (Unaudited) —three months ended March  31, 2018 and 2017

 

6

 

Notes to Condensed Financial Statements (Unaudited)

 

7

Item 2. 

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

 

15

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

27

Item 4. 

Controls and Procedures

 

27

PART II 

OTHER INFORMATION

 

28

Item 1. 

Legal Proceedings

 

28

Item 1A. 

Risk Factors

 

28

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

54

Item 3. 

Defaults Upon Senior Securities

 

54

Item 4. 

Mine Safety Disclosures

 

54

Item 5. 

Other Information

 

54

Item 6. 

Exhibits

 

55

 

 

 

 

Signatures 

 

 

56

 

 

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PART I. FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

RIGEL PHARMACEUTICALS, INC.

CONDENSED BALANCE SHEETS

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

 

2018

    

2017(1)

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,125

 

$

38,290

 

Short-term investments

 

 

54,175

 

 

77,461

 

Prepaid and other current assets

 

 

2,320

 

 

1,682

 

Total current assets

 

 

96,620

 

 

117,433

 

Property and equipment, net

 

 

1,439

 

 

875

 

Other assets

 

 

754

 

 

803

 

 

 

$

98,813

 

$

119,111

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

2,623

 

$

2,636

 

Accrued compensation

 

 

4,746

 

 

7,059

 

Accrued research and development

 

 

5,872

 

 

5,028

 

Other accrued liabilities

 

 

5,549

 

 

3,330

 

Deferred liability – sublease, current portion

 

 

 —

 

 

284

 

Total current liabilities

 

 

18,790

 

 

18,337

 

 

 

 

 

 

 

 

 

Long-term portion of deferred rent

 

 

178

 

 

90

 

Other long-term liabilities

 

 

38

 

 

38

 

 

 

 

 

 

 

 

 

Commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock

 

 

 —

 

 

 —

 

Common stock

 

 

148

 

 

147

 

Additional paid-in capital

 

 

1,242,985

 

 

1,239,435

 

Accumulated other comprehensive loss

 

 

(87)

 

 

(82)

 

Accumulated deficit

 

 

(1,163,239)

 

 

(1,138,854)

 

Total stockholders’ equity

 

 

79,807

 

 

100,646

 

 

 

$

98,813

 

$

119,111

 

 


(1)

The balance sheet at December 31, 2017 has been derived from the audited financial statements included in Rigel’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

See Accompanying Notes.

 

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RIGEL PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

    

2018

    

2017

    

 

Contract revenues from collaborations

 

$

 —

 

$

3,584

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

11,242

 

 

12,376

 

 

General and administrative

 

 

13,492

 

 

7,410

 

 

Total costs and expenses

 

 

24,734

 

 

19,786

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(24,734)

 

 

(16,202)

 

 

Interest income

 

 

349

 

 

156

 

 

Gain on disposal of assets

 

 

 —

 

 

732

 

 

Net loss

 

$

(24,385)

 

$

(15,314)

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.17)

 

$

(0.13)

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing net loss per share, basic and diluted

 

 

147,114

 

 

113,598

 

 

 

See Accompanying Notes.

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RIGEL PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

    

2018

    

2017

    

 

Net loss

 

$

(24,385)

 

$

(15,314)

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Net unrealized loss on short-term investments

 

 

(5)

 

 

(11)

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(24,390)

 

$

(15,325)

 

 

 

See Accompanying Notes.

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RIGEL PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2018

    

2017

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

$

(24,385)

 

$

(15,314)

 

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

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,540

 

 

955

 

Gain on disposal of assets

 

 

 —

 

 

(732)

 

Loss on sublease

 

 

 —

 

 

495

 

Depreciation and amortization

 

 

113

 

 

126

 

Net amortization of premium on short-term investment

 

 

(134)

 

 

(33)

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Prepaid and other current assets

 

 

(638)

 

 

65

 

Other assets

 

 

533

 

 

33

 

Accounts payable

 

 

(493)

 

 

(4,385)

 

Accrued compensation

 

 

(2,313)

 

 

(1,464)

 

Accrued research and development

 

 

844

 

 

349

 

Other accrued liabilities

 

 

2,184

 

 

439

 

Deferred rent and other long term liabilities

 

 

(645)

 

 

(1,296)

 

Net cash used in operating activities

 

 

(23,394)

 

 

(20,762)

 

Investing activities

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(5,235)

 

 

(33,385)

 

Maturities of short-term investments

 

 

28,650

 

 

32,544

 

Proceeds from disposal of assets

 

 

 —

 

 

732

 

Capital expenditures

 

 

(197)

 

 

(41)

 

Net cash provided by (used in) investing activities

 

 

23,218

 

 

(150)

 

Financing activities

 

 

 

 

 

 

 

Net proceeds from issuances of common stock upon exercise of options and participation in employee stock purchase plan

 

 

2,011

 

 

341

 

Proceeds from sale and issuance of common stock, net of offering costs

 

 

 —

 

 

43,083

 

Net cash provided by financing activities

 

 

2,011

 

 

43,424

 

Net increase in cash and cash equivalents

 

 

1,835

 

 

22,512

 

Cash and cash equivalents at beginning of period

 

 

38,290

 

 

17,632

 

Cash and cash equivalents at end of period

 

$

40,125

 

$

40,144

 

 

 

See Accompanying Notes.

 

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Rigel Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(unaudited)

 

In this report, “Rigel,” “we,” “us” and “our” refer to Rigel Pharmaceuticals, Inc.

 

1.Nature of Operations

 

We were incorporated in the state of Delaware on June 14, 1996. We are a biotechnology company dedicated to discovering, developing and providing novel small molecule drugs that significantly improve the lives of patients with immune and hematologic disorders, cancer and rare diseases.

 

2.Basis of Presentation

 

Our accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP), for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Act of 1933, as amended (Securities Act). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed financial statements include only normal and recurring adjustments that we believe are necessary to fairly state our financial position and the results of our operations and cash flows. Interim-period results are not necessarily indicative of results of operations or cash flows for a full-year or any subsequent interim period. The balance sheet at December 31, 2017 has been derived from audited financial statements at that date, but does not include all disclosures required by U.S. GAAP for complete financial statements. Because all of the disclosures required by U.S. GAAP for complete financial statements are not included herein, these interim unaudited condensed financial statements and the notes accompanying them should be read in conjunction with our audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates.

 

3.Summary of Significant Accounting Policies

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09—Revenue from Contracts with Customers, which supersedes the revenue recognition requirements under ASC Topic 605, Revenue Recognition, and most industry-specific guidance under the ASC. To date, our revenues have been derived from license and collaboration agreements. The consideration we are eligible to receive under these agreements includes upfront payments, progress dependent contingent payments on events achieved by our collaboration partners, and royalties on net sales of products sold by such partners under the agreements. ASU No. 2014-09 differs from the current accounting standard in many respects, such as in the accounting for variable consideration, including milestone payments or contingent payments. Under our previous accounting policy, we recognized contingent payments as revenue in the period that the payment-triggering event occurred or is achieved. However, under the new accounting standard, it is possible to start to recognize contingent payments before the payment-triggering event is completely achieved, subject to management’s assessment of whether it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We adopted this new standard on January 1, 2018 using the modified retrospective approach. Because all of the performance obligations for our outstanding collaboration agreements had been completed prior to December 31, 2017, we did not record any adjustment on the opening balance of Accumulated Deficit as of January 1, 2018.

 

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Under this new guidance, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine whether arrangements are within the scope of this new guidance, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance performance obligation. The Company applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of this new guidance, we assess the goods or services promised within each contract and identify, as a performance obligation, and assess whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

In February 2016, the FASB issued ASU No. 2016-02—Leases, which is aimed at making leasing activities more transparent, 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. The guidance is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. We plan to adopt this new standard on January 1, 2019.  We are currently evaluating the potential impact of the adoption of ASU No. 2016-02 on our financial statements and cannot estimate the impact of adoption at this time.

 

Contingencies

 

In the first quarter of 2017, we entered into a consulting agreement with a third party, pursuant to which we may be required to pay amounts ranging from $1.5 million to $4.0 million if certain future milestone events occur.  As of March 31, 2018, we concluded that certain future milestone events are probable of achievement. Accordingly, we recorded a contingent liability of $3.0 million as of March 31, 2018. Of this amount, $1.5 million was recognized as expense during the three months ended March 31, 2018 and was recorded as part of general and administrative expenses in the Statements of Operations.

 

4. Stock Award Plans

 

We have four stock option plans, our 2011 Equity Incentive Plan (2011 Plan), 2000 Equity Incentive Plan (2000 Plan), 2000 Non-Employee Directors’ Stock Option Plan (Directors’ Plan) and the Inducement Plan, that provide for granting to our officers, directors and all other employees and consultants options to purchase shares of our common stock. We also have our Employee Stock Purchase Plan (Purchase Plan), wherein eligible employees can purchase shares of our common stock at a price per share equal to the lesser of 85% of the fair market value on the first day of the offering period or 85% of the fair market value on the purchase date. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model which considered our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, volatility, expected term, risk-free interest rate and dividends. We estimate volatility over the expected term of the option using historical share price performance. For expected term, we take into consideration our historical data of options exercised, cancelled and expired. The risk-free rate is based on the U.S. Treasury constant maturity rate. We have not paid and do not expect to pay dividends in the foreseeable future. We use the straight-line attribution method over the requisite employee service period for the entire award in recognizing stock-based compensation expense. We account for forfeitures as they occur.

 

We granted performance-based stock options to purchase shares of our common stock which will vest upon the achievement of certain corporate performance-based milestones. We determined the fair values of these performance-based stock options using the Black-Scholes option pricing model at the date of grant. For the portion of the performance-based stock options of which the performance condition is considered probable of achievement, we recognize stock-based compensation expense on the related estimated fair value of such options on a straight-line basis from the date of grant up to the date when we expect the performance condition will be achieved. For the performance conditions that are not considered probable of achievement at the grant date or upon quarterly re-evaluation, prior to the event actually occurring, we recognize the related stock-based compensation expense when the event occurs or when we

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can determine that the performance condition is probable of achievement. In those cases, we recognize the change in estimate at the time we determine the condition is probable of achievement (by recognizing stock-based compensation expense as cumulative catch-up adjustment as if we had estimated at the grant date that the performance condition would have been achieved) and recognize the remaining compensation cost up to the date when we expect the performance condition will be achieved, if any.

 

5.Net Loss Per Share

 

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period and the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. Potentially dilutive securities include stock options and shares issuable under our stock award plans. The dilutive effect of these potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of our common stock can result in a greater dilutive effect from potentially dilutive securities.

 

We had securities which could potentially dilute basic loss per share, but were excluded from the computation of diluted net loss per share, as their effect would have been antidilutive. These securities consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

March 31, 

 

 

 

 

2018

    

2017

 

 

Outstanding stock options

 

 

20,985

 

 

21,756

 

 

Purchase Plan

 

 

94

 

 

63

 

 

Total

 

 

21,079

 

 

21,819

 

 

 

 

6.Stock-based Compensation

 

Total stock-based compensation expense related to all of our share-based payments that we recognized for the three months ended March 31, 2018 and 2017 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

2018

    

2017

 

 

General and administrative

 

$

940

 

$

595

 

 

Research and development

 

 

600

 

 

360

 

 

Total stock-based compensation expense

 

$

1,540

 

$

955

 

 

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. We have segregated option awards into the following three homogenous groups for the purposes of determining fair values of options: officers and directors, all other employees, and consultants. We account for forfeitures as they occur.

 

We determined weighted-average valuation assumptions separately for each of these groups as follows:

 

·

Volatility—We estimated volatility using our historical share price performance over the expected life of the option. We also considered other factors, such as implied volatility, our current clinical trials and other company activities that may affect the volatility of our stock in the future. We determined that at this time historical volatility is more indicative of our expected future stock performance than implied volatility.

 

·

Expected term—For options granted to consultants, we use the contractual term of the option, which is generally ten years, for the initial valuation of the option and the remaining contractual term of the

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option for the succeeding periods. We analyzed various historical data to determine the applicable expected term for each of the other option groups. This data included: (1) for exercised options, the term of the options from option grant date to exercise date; (2) for cancelled options, the term of the options from option grant date to cancellation date, excluding non-vested option forfeitures; and (3) for options that remained outstanding at the balance sheet date, the term of the options from option grant date to the end of the reporting period and the estimated remaining term of the options. The consideration and calculation of the above data gave us reasonable estimates of the expected term for each employee group. We also considered the vesting schedules of the options granted and factors surrounding exercise behavior of the option groups, our current market price and company activity that may affect our market price. In addition, we considered the optionee type (i.e., officers and directors or all other employees) and other factors that may affect the expected term of the options.

 

·

Risk-free interest rate—The risk-free interest rate is based on U.S. Treasury constant maturity rates with similar terms to the expected term of the options for each option group.

 

·

Dividend yield—The expected dividend yield is 0% as we have not paid and do not expect to pay dividends in the future.

 

The following table summarizes the weighted-average assumptions relating to options granted pursuant to our equity incentive plans for the three months ended March 31, 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

 

March 31, 

 

 

 

 

    

2018

    

2017

    

    

    

Risk-free interest rate

 

2.7

%  

2.3

%  

 

 

Expected term (in years)

 

6.7

 

6.8

 

 

 

Dividend yield

 

0.0

%  

0.0

%  

 

 

Expected volatility

 

64.6

%  

62.9

%  

 

 

 

The exercise price of stock options is at the market price of our common stock on the date immediately preceding the date of grant. Options become exercisable at varying dates and generally expire 10 years from the date of grant.

 

We granted options to purchase 3,396,975 shares of common stock during the three months ended March 31, 2018 with a grant-date weighted-average fair value of $2.79 per share.  As of March 31, 2018, we have 2,672,500  shares related to outstanding performance-based stock option awards with a grant date fair value of $5.7 million which will vest upon achievement of certain corporate performance-based milestones. Of this amount, 1,160,000 shares related to performance-based stock option awards wherein the achievement of the corresponding corporate-based milestones was probable.  Accordingly, we recognized $1.6 million in stock-based compensation expense, of which $402,000 was recorded in the first quarter of 2018.  As of March 31, 2018, there was approximately $4.2 million of unrecognized compensation cost related to these outstanding performance stock options.

 

As of March 31, 2018, there was approximately $14.2 million of unrecognized stock-based compensation cost related to all unvested time-based and performance-based stock options granted under our equity incentive plans.

 

At March  31, 2018, there were 10,544,883 shares of common stock available for future grant under our equity incentive plans and 652,891 options to purchase shares were exercised during the three months ended March 31, 2018.

 

Employee Stock Purchase Plan

 

Our Purchase Plan permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which the stock is purchased is equal to the lesser of 85% of the

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fair market value of the common stock on the first day of the offering or 85% of the fair market value of our common stock on the purchase date. The initial offering period commenced on the effective date of our initial public offering.

 

The fair value of awards granted under our Purchase Plan is estimated on the date of grant using the Black-Scholes option pricing model, which uses weighted-average assumptions. Our Purchase Plan provides for a twenty-four month offering period comprised of four six-month purchase periods with a look-back option. A look-back option is a provision in our Purchase Plan under which eligible employees can purchase shares of our common stock at a price per share equal to the lesser of 85% of the fair market value on the first day of the offering period or 85% of the fair market value on the purchase date. Our Purchase Plan also includes a feature that provides for a new offering period to begin when the fair market value of our common stock on any purchase date during an offering period falls below the fair market value of our common stock on the first day of such offering period. This feature is called a “reset.” Participants are automatically enrolled in the new offering period. We had a “reset” on July 1, 2016 because the fair market value of our stock on June 30, 2016 was lower than the fair market value of our stock on January 5, 2015, the first day of the offering period. We applied modification accounting in accordance with ASC Topic No. 718, Stock Compensation, to determine the incremental fair value associated with this Purchase Plan “reset” and will recognize the related stock-based compensation expense according to FASB ASC Subtopic No. 718-50, Employee Share Purchase Plans. The total incremental fair value for this Purchase Plan “reset” was approximately $1.0 million and is being recognized as expense from July 1, 2016 to June 30, 2018.

 

As of March  31, 2018, there were approximately 2,115,568 shares reserved for future issuance under the Purchase Plan. The following table summarizes the weighted-average assumptions related to our Purchase Plan for the three months ended March  31, 2018 and 2017. Expected volatilities for our Purchase Plan are based on the historical volatility of our stock. Expected term represents the weighted-average of the purchase periods within the offering period. The risk-free interest rate for periods within the expected term is based on U.S. Treasury constant maturity rates.

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

March 31, 

 

 

 

    

2018

    

2017

 

    

Risk-free interest rate

 

0.6

%  

0.5

%

 

Expected term (in years)

 

2.0

 

1.5

 

 

Dividend yield

 

0.0

%  

0.0

%

 

Expected volatility

 

63.8

%  

63.1

%

 

 

 

7.Research and Development Accruals

 

We have various contracts with third parties related to our research and development activities. Costs that are incurred but not billed to us as of the end of the period are accrued. We make estimates of the amounts incurred in each period based on the information available to us and our knowledge of the nature of the contractual activities generating such costs. Clinical trial contract expenses are accrued based on units of activity. Expenses related to other research and development contracts, such as research contracts, toxicology study contracts and manufacturing contracts are estimated to be incurred generally on a straight-line basis over the duration of the contracts. Raw materials and study materials purchased for us by third parties are expensed at the time of purchase.

 

 

8.Sponsored Research and License Agreements

 

We conduct research and development programs independently and in connection with our corporate collaborators. Currently, we are a party to collaboration agreements, but do not have ongoing performance obligations, with Bristol-Myers Squibb Company (BMS) for the discovery, development and commercialization of cancer immunotherapies based on our small molecule TGF beta receptor kinase inhibitors, Aclaris Therapeutics International Limited (Aclaris) for the development and commercialization of janus kinase (JAK) inhibitors for the treatment of alopecia areata and other dermatological conditions, AstraZeneca (AZ) for the development and commercialization of R256, an inhaled JAK inhibitor, BerGenBio AS (BerGenBio) for the development and commercialization of AXL inhibitors in oncology, and Daiichi Sankyo (Daiichi) to pursue research related to MDM2 inhibitors, a novel class of

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drug targets called ligases. Under these agreements, which we entered into in the ordinary course of business, we received or may be entitled to receive upfront cash payments, payments contingent upon specified events achieved by such partners and royalties on any net sales of products sold by such partners under the agreements. Total future contingent payments to us under all of these current agreements could exceed $532.4 million if all potential product candidates achieved all of the payment triggering events under all of our current agreements (based on a single product candidate under each agreement). Of this amount, up to $145.5 million relates to the achievement of development events, up to $345.6 million relates to the achievement of regulatory events and up to $41.3 million relates to the achievement of certain commercial or launch events. This estimated future contingent amount does not include any estimated royalties that could be due to us if the partners successfully commercialize any of the licensed products. Future events that may trigger payments to us under the agreements are based solely on our partners’ future efforts and achievements of specified development, regulatory and/or commercial events.

 

In June 2011, we entered into an exclusive license agreement with BerGenBio for the development and commercialization of an oncology program. BerGenBio is responsible for all activities it wishes to perform under the license we granted to it.  In February 2017, we received $3.3 million from BerGenBio as a result of BerGenBio advancing BGB324, an AXL kinase inhibitor licensed under the agreement, to a Phase 2 clinical study.  All deliverables under the agreement had been previously delivered, as such, the above payments of $3.3 million was recognized as revenue in the first quarter of 2017. 

 

9.Cash, Cash Equivalents and Short-Term Investments

 

Cash, cash equivalents and short-term investments consisted of the following (in thousands): 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

 

2018

    

2017

 

Cash

 

$

2,986

 

$

582

 

Money market funds

 

 

4,686

 

 

2,795

 

U.S. treasury bills

 

 

6,729

 

 

6,726

 

Government-sponsored enterprise securities

 

 

6,179

 

 

7,826

 

Corporate bonds and commercial paper

 

 

73,720

 

 

97,822

 

 

 

$

94,300

 

$

115,751

 

Reported as:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,125

 

$

38,290

 

Short-term investments

 

 

54,175

 

 

77,461

 

 

 

$

94,300

 

$

115,751

 

 

Cash equivalents and short-term investments include the following securities with gross unrealized gains and losses (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

 

March 31, 2018

 

Cost

 

Gains

 

Losses

 

Fair Value

 

U.S. treasury bills

 

$

6,741

 

$

 —

 

$

(12)

 

$

6,729

 

Government-sponsored enterprise securities

 

 

6,192

 

 

 —

 

 

(13)

 

 

6,179

 

Corporate bonds and commercial paper

 

 

73,782

 

 

 1

 

 

(63)

 

 

73,720

 

Total

 

$

86,715

 

$

 1

 

$

(88)

 

$

86,628

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

 

December 31, 2017

 

Cost

 

Gains

 

Losses

 

Fair Value

 

U.S. treasury bills

 

$

6,733

 

$

 —

 

$

(7)

 

$

6,726

 

Government-sponsored enterprise securities

 

 

7,835

 

 

 —

 

 

(9)

 

 

7,826

 

Corporate bonds and commercial paper

 

 

97,888

 

 

 1

 

 

(67)

 

 

97,822

 

Total

 

$

112,456

 

$

 1

 

$

(83)

 

$

112,374

 

 

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As of March  31, 2018, our cash equivalents and short-term investments, which have contractual maturities within one year, had a weighted-average time to maturity of approximately 85 days. We view our short-term investments portfolio as available for use in current operations. We have the ability to hold all investments as of March  31, 2018 through their respective maturity dates. At March  31, 2018, we had no investments that had been in a continuous unrealized loss position for more than 12 months.  As of March  31, 2018, a total of 32 individual securities had been in an unrealized loss position for 12 months or less, and the losses were determined to be temporary. The gross unrealized losses above were caused by interest rate increases. No significant facts or circumstances have arisen to indicate that there has been any significant deterioration in the creditworthiness of the issuers of the securities held by us. Based on our review of these securities, including the assessment of the duration and severity of the unrealized losses and our ability and intent to hold the investments until maturity, there were no other-than-temporary impairments for these securities at March  31, 2018.

 

The following table shows the fair value and gross unrealized losses of our investments in individual securities that are in an unrealized loss position, aggregated by investment category (in thousands):

 

 

 

 

 

 

 

 

 

March 31, 2018

    

Fair Value

    

Unrealized Losses

 

U. S. treasury bills

 

$

6,729

 

$

(12)

 

Government-sponsored enterprise securities

 

 

6,179

 

 

(13)

 

Corporate bonds and commercial paper

 

 

35,513

 

 

(63)

 

Total

 

$

48,421

 

$

(88)

 

 

 

 

10.Fair Value

 

Under FASB ASC 820, Fair Value Measurements and Disclosures, fair value is defined as the price at which an asset could be exchanged or a liability transferred in a transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.

 

Assets and liabilities recorded at fair value in our financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

 

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets at the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

 

The fair valued assets we hold that are generally included under this Level 1 are money market securities where fair value is based on publicly quoted prices.

 

Level 2—Inputs, other than quoted prices included in Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the reporting date and for the duration of the instrument’s anticipated life.

 

The fair valued assets we hold that are generally assessed under Level 2 included government-sponsored enterprise securities, U.S. treasury bills and corporate bonds and commercial paper. We utilize third party pricing services in developing fair value measurements where fair value is based on valuation methodologies such as models using observable market inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. We use quotes from external pricing service providers and other on-line quotation systems to verify the fair value of investments provided by our third party pricing service providers. We review independent auditor’s reports from our third party pricing service providers particularly regarding the controls over pricing and valuation of financial instruments and ensure that our internal controls address certain control deficiencies, if any, and complementary user entity controls are in place.

 

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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 and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the reporting date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

 

We do not have fair valued assets and liabilities classified under Level 3.

 

Fair Value on a Recurring Basis

 

Financial assets measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets at Fair Value as of March 31, 2018

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Money market funds

 

$

4,686

 

$

 —

 

$

 —

 

$

4,686

 

U.S. treasury bills

 

 

 —

 

 

6,729

 

 

 —

 

 

6,729

 

Government-sponsored enterprise securities

 

 

 —

 

 

6,179

 

 

 —

 

 

6,179

 

Corporate bonds and commercial paper

 

 

 —

 

 

73,720

 

 

 —

 

 

73,720

 

Total

 

$

4,686

 

$

86,628

 

$

 —

 

$

91,314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets at Fair Value as of December 31, 2017

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Money market funds

 

$

2,795

 

$

 

$

 —

 

$

2,795

 

U.S. treasury bills

 

 

 

 

6,726

 

 

 —

 

 

6,726

 

Government-sponsored enterprise securities

 

 

 

 

7,826

 

 

 —

 

 

7,826

 

Corporate bonds and commercial paper

 

 

 

 

97,822

 

 

 —

 

 

97,822

 

Total

 

$

2,795

 

$

112,374

 

$

 —

 

$

115,169

 

 

 

11.Lease Agreements

 

We currently lease our research and office space under a noncancelable lease agreement with our landlord, HCP BTC, LLC (formerly known as Slough BTC, LLC) which was originally set to expire in 2018. The lease term provides for renewal option for up to two additional periods of five years each. In July 2017, we exercised our option to extend the term of our lease for another five years through January 2023 and modified the amount of monthly base rent during such renewal period. We reevaluated our lease classification and continue to classify our lease as an operating lease during the renewal period.

 

In December 2014, we entered into a sublease agreement, which was amended in 2017, with an unrelated third party to occupy approximately 57,000 square feet of our research and office space. In February 2017, we entered into an amendment to the sublease agreement to increase the subleased research and office space for an additional 9,328 square feet under the same term of the sublease. Effective July 2017, the sublease agreement was amended primarily to extend the term of the sublease through January 2023 and modified the monthly base rent to equal the amount we will pay our landlord. Because the future sublease income under the extended sublease agreement is the same as the amount we will pay our landlord, we did not recognize any loss on sublease relative to this amendment. We expect to receive approximately $21.2 million in future sublease income (excluding our subtenant’s share of facilities operating expenses) through January 2023.

 

 

 

12.Subsequent Events

 

In April 2018, we completed an underwritten public offering in which we sold 16,000,000 shares of our common stock pursuant to an effective registration statement at a price to the public of $3.90 per share. We received net proceeds of approximately $58.4 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. 

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

 

This discussion and analysis should be read in conjunction with our financial statements and the accompanying notes included in this report and the audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2017. Operating results for the three months ended March 31, 2018 are not necessarily indicative of results that may occur in future interim periods or for the full fiscal year.

 

This Quarterly Report on Form 10-Q contains statements indicating expectations about future performance and other forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, that involve risks and uncertainties. We usually use words such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” or the negative of these terms or similar expressions to identify these forward-looking statements. These statements appear throughout this Quarterly Report on Form 10-Q and are statements regarding our current expectation, belief or intent, primarily with respect to our operations and related industry developments. Examples of these statements include, but are not limited to, statements regarding the following: our ability to successfully launch TAVALISSE in the United States by the end of May 2018; our business and scientific strategies; the progress of our and our collaborators’ product development programs, including clinical testing, and the timing of results thereof; our corporate collaborations and revenues that may be received from our collaborations and the timing of those potential payments; our expectations with respect to regulatory submissions and approvals; our drug discovery technologies; our research and development expenses; protection of our intellectual property; sufficiency of our cash and capital resources and the need for additional capital; and our operations and legal risks. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including as a result of the risks and uncertainties discussed under the heading “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

Overview

 

We are a biotechnology company dedicated to discovering, developing and providing novel small molecule drugs that significantly improve the lives of patients with immune and hematologic disorders, cancer and rare diseases. Our pioneering research focuses on signaling pathways that are critical to disease mechanisms. Our first FDA approved product is TAVALISSE™ (fostamatinib disodium hexahydrate), an oral spleen tyrosine kinase (SYK) inhibitor, for the treatment of adult patients with chronic immune thrombocytopenia who have had an insufficient response to a previous treatment.  Our current clinical programs include Phase 2 studies of fostamatinib in autoimmune hemolytic anemia and IgA nephropathy. In addition, we have product candidates in development with partners BerGenBio AS, Daiichi Sankyo, and Aclaris Therapeutics.

 

Since inception, we have financed our operations primarily through the sale of equity securities, and contract payments under our collaboration agreements. Our research and development activities, including preclinical studies and clinical trials, consume substantial amounts of capital. As of March 31, 2018, we had approximately $94.3 million in cash, cash equivalents and short term investments. In April 2018, we completed an underwritten public offering in which we sold 16,000,000 shares of our common stock pursuant to an effective registration statement at a price to the public of $3.90 per share. We received net proceeds of approximately $58.4 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

We believe that our existing capital resources will be sufficient to support our current and projected funding requirements, including the commercial launch of TAVALISSE in the U.S., through at least the next 12 months from the Form 10-Q filing date. We also continue to evaluate ex-U.S. partnerships for fostamatinib and other partnering opportunities across our pipelines.

 

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Our revenues have consisted primarily of revenues from sponsored research and license agreements with our corporate collaborators. Our potential future revenues may include sales from the launch of TAVALISSE (fostamatinib disodium hexahydrate), payments from our current partners and from new partners with whom we enter into agreements in the future, if any, the timing and amount of which is unknown at this time.

 

On April 17, 2018, we announced that the FDA had approved fostamatinib for the treatment of thrombocytopenia in adult patients with chronic ITP who have had an insufficient response to a previous treatment.  On April 30, 2018,  we announced that the American Journal of Hematology published positive results from the FIT Phase 3 clinical program. We expect to launch fostamatinib in the U.S. on our own in late May 2018. We plan to enter into partnership with third parties to commercialize fostamatinib in Europe and Asia.

 

Fostamatinib—Immune Thrombocytopenic Purpura

 

Disease background.  Chronic ITP affects an estimated 65,000 adult patients in the U.S. In patients with ITP, the immune system attacks and destroys the body’s own blood platelets, which play an active role in blood clotting and healing. ITP patients can suffer extraordinary bruising, bleeding and fatigue as a result of low platelet counts. Current therapies for ITP include steroids, blood platelet production boosters that imitate thrombopoietin (TPOs) and splenectomy.

 

Orally-available fostamatinib program.  Taken in tablet form, fostamatinib blocks the activation of SYK inside immune cells. ITP is typically characterized by the body producing antibodies that attach to healthy platelets in the blood stream. Immune cells recognize these antibodies and affix to them, which activates the SYK enzyme inside the immune cell, and triggers the destruction of the antibody and the attached platelet. When SYK is inhibited by fostamatinib, it interrupts this immune cell function and allows the platelets to escape destruction. The results of our Phase 2 clinical trial, in which fostamatinib was orally administered to sixteen adults with chronic ITP, published in Blood, showed that fostamatinib significantly increased the platelet counts of certain ITP patients, including those who had failed other currently available agents.

 

We designed a Phase 3 clinical program, called fostamatinib in thrombocytopenia (FIT), in which a total of 150 ITP patients were randomized into two identical multi-center, double-blind, placebo-controlled clinical trials. The patients were diagnosed with persistent or chronic ITP, and had blood platelet counts consistently below 30,000 per microliter of blood. Two-thirds of the subjects received fostamatinib orally at 100 mg bid (twice daily) and the other third received placebo on the same schedule. Subjects were expected to remain on treatment for up to 24 weeks. At week four of treatment, subjects who failed to meet certain platelet count and met certain tolerability thresholds could have their dosage of fostamatinib (or corresponding placebo) increased to 150 mg bid. The primary efficacy endpoint of this program was a stable platelet response by week 24 with platelet counts at or above 50,000 per microliter of blood for at least four of the final six qualifying blood draws. In August 2015, the FDA granted our request for Orphan Drug designation for fostamatinib for the treatment of ITP.

 

On August 30, 2016, we announced the results of the first study, reporting that fostamatinib met the study’s primary efficacy endpoint. The study showed that 18% of patients receiving fostamatinib achieved a stable platelet response compared to none receiving a placebo control (p=0.0261). On October 20, 2016, we announced the results of the second study, reporting that the response rate was 18%, consistent with the first study.  However, one patient in the placebo group (4%) achieved a stable platelet response, therefore the difference between those on treatment and those on placebo did not reach statistical significance (p=0.152) and the study did not meet its primary endpoint. Using the most conservative sensitivity analysis, rather than the protocol’s prespecified analysis, one more patient in the second study is considered a non-responder, resulting in 8 of 50 (16%) responders on fostamatinib (p = 0.256 vs. placebo). When the data from both studies are combined, however, this difference is statistically significant (p=0.007).

 

Patients from the FIT studies were given the option to enroll in a long-term open-label extension study and receive treatment with fostamatinib, also a Phase 3 trial. A total of 123 patients enrolled in this study. All the patients who responded to fostamatinib in the FIT studies and enrolled in the long-term open-label extension study maintained a median platelet count of 106,500/uL at a median of 16 months. In addition, there were 44 placebo non-responders that enrolled in the long-term open-label extension study. 41 of these patients had at least 12 weeks of follow-up.  Of those, 9

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patients (22%) have achieved a prospectively defined stable platelet response, which is statistically significant (p=0.0078) and similar to the response rate fostamatinib achieved in the parent studies.

 

A stable response was defined as a patient achieving platelet counts of greater than 50,000/uL on more than 4 of the 6 visits between weeks 14 and 24, without rescue medication. In the post-study analysis we performed, a clinically-relevant platelet response was defined to include patients achieving one platelet count over 50,000/uL during the first 12 weeks of treatment, in absence of rescue medication, but who did not otherwise meet the stable response criteria. Once the platelet count of greater than 50,000/uL is achieved, a loss of response was defined as two consecutive platelet counts of less than 30,000/uL in any subsequent visits. In the combined dataset of both stable and clinically-relevant platelet responders for the FIT studies, the response rate was 43% (43/101), compared to 14% (7/49) for placebo (p=0.0006). 

 

The most frequent adverse events were gastrointestinal-related, and the safety profile of the product was consistent with prior clinical experience, with no new or unusual safety issues uncovered.

 

We submitted an NDA for fostamatinib in ITP in April 2017, which was accepted by the FDA in June 2017, with an action date for the FDA to complete its review by April 17, 2018, under the PDUFA. On April 17, 2018, we announced that the FDA had approved TAVALISSETM (fostamatinib disodium hexahydrate) for the treatment of thrombocytopenia in adult patients with chronic ITP who have had an insufficient response to a previous treatment. On April 30, 2018,  we announced that the American Journal of Hematology published positive results from the FIT Phase 3 clinical program. We expect to launch TAVALISSETM in the U.S. on our own in late May 2018. We plan to enter into partnership with third parties to commercialize fostamatinib in Europe and Asia.

 

Commercial launch activities, including sales and marketing

 

We expect to commercialize TAVALISSE in the U.S. on our own in late May 2018. We plan to enter into partnerships with third parties to commercialize fostamatinib in Europe, Asia and rest of the world. A significant portion of our operating expenses in 2018 will be related to our commercial launch activities for TAVALISSE. Specifically, our marketing and sales efforts will be focused on targeting approximately 3,000 hematologists and hematologist-oncologists in the United States, who manage chronic adult ITP patients. We expect to continue to hire and recruit experienced commercial professionals, including sales representatives in the hematology area, and commercial operations, marketing, and market access professionals to support these efforts.

 

Competitive landscape for TAVALISSE

 

Our industry is intensely competitive and subject to rapid and significant technological change. Fostamatinib will be competing with existing therapies. In addition, a number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. For example, there are existing therapies and drug candidates in development for the treatment of ITP that may be alternative therapies to fostamatinib.

 

Currently, corticosteriods remain the most common first line therapy for ITP, occasionally in conjunction with intravenous immuglobulin (IVIg) or anti-Rh(D) as added agents to help further augment platelet count recovery, particularly in emergency situations. However, it has been estimated that frontline agents lead to durable remissions in only a small percentage of newly-diagnosed adults with ITP. Moreover, concerns with steroid-related side effects often restrict therapy to approximately 4 weeks. As such, many patients progress to persistent or chronic ITP, requiring other forms of therapeutic intervention.

 

Other approaches to treat ITP are varied in their mechanism of action, and there is no consensus about the sequence of their use, according to the most recent ITP guideline from the American Society of Hematology. Options include splenectomy, thrombopoietin receptor agonists (TPO-RAs) and various immunosuppressants (such as rituximab). The response rate criteria of the abovementioned options vary, precluding a comparison of response rates for individual therapies.

 

Even with the above treatment options, a significant number of patients remain severely thrombocytopenic for long durations and are subject to risk of spontaneous or trauma-induced hemorrhage. The addition of fostamatinib to the

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treatment options could theoretically be beneficial since it has a different mechanism of action than the thrombopoietin (TPO) agonists. Fostamatinib is a potent and relatively selective SYK inhibitor, and its inhibition of Fc receptors and B-cell receptors signaling pathways make it a potentially broad immunomodulatory agent. 

 

Other products in the U.S. that are approved by the FDA to increase platelet production through binding and TPO receptors on megakaryocyte precursors include PROMACTA® (Novartis) and Nplate® (Amgen, Inc.).

 

Clinical Stage Programs

 

Fostamatinib—IgAN

 

Disease background.  Immunoglobulin A Nephropathy (IgAN) is an autoimmune disease that severely affects the functioning of the kidneys. An estimated 12,000 Americans are diagnosed with this type of glomerulonephritis each year, with 25% of whom will eventually require dialysis and/or kidney transplantation over time. IgAN is characterized by the deposition of IgA immune complexes in the glomeruli of the kidneys leading to an inflammatory response and subsequent tissue damage that ultimately disrupts the normal filtering function of the kidneys. By inhibiting SYK in kidney cells, fostamatinib may block the signaling of IgA immune complex receptors, reduce the deposition of IgA immune complexes and arrest or slow destruction of the glomeruli.

 

Orally-available fostamatinib program.  Our Phase 2 clinical trial in patients with IgAN, called SIGN (SYK Inhibition for Glomerulonephritis) completed enrollment for its first and second cohorts.  In January 2017, we announced that the first cohort in the Phase 2 study of fostamatinib in IgAN was completed in various centers throughout Asia, the U.S. and Europe. This cohort evaluated the efficacy, safety, and tolerability of the lower dose of fostamatinib (100mg BID, n=26; placebo n=12) as measured by change in proteinuria, renal function, and histology (comparing the pre- and post-study renal biopsies). The primary efficacy endpoint was the mean change in proteinuria from baseline at 24 weeks. The study found that at 24 weeks, fostamatinib was well tolerated with a good safety profile. The second cohort evaluates a higher dose of fostamatinib (150mg BID) and completed enrollment in August 2017. 

 

On April 3, 2018, we announced that trial did not achieve statistical significance for its primary endpoint, which was mean change in  proteinuria comparing fostamatinib dose groups to placebo controls in all patients studied.  However, in a pre-specified subgroup analysis of patients with greater than 1 gram/day of proteinuria at baseline, the initial data showed a greater reduction in proteinuria in fostamatinib-treated patients relative to placebo patients (this finding did not reach statistical significance). Patients with greater than 1 gram/day of proteinuria have an increased risk of disease progression and represent an unmet medical need. Current guidance for clinical trials in IgAN recommends studying patients with greater than 1 gram/day of proteinuria at entry. Further analysis, including histology, are expected later in late 2018.

 

Fostamatinib—AIHA

 

Disease background.  AIHA is a rare, serious blood disorder where the immune system produces antibodies that result in the destruction of the body's own red blood cells. Symptoms can include fatigue, shortness of breath, rapid heartbeat, jaundice or enlarged spleen. While no medical treatments are currently approved for AIHA, physicians generally treat acute and chronic cases of the disorder with corticosteroids, other immuno-suppressants, or splenectomy. Research has shown that inhibiting SYK with fostamatinib may reduce the destruction of red blood cells. This disorder affects an estimated 40,000 Americans, for whom no approved treatment options currently exist.

 

Orally available fostamatinib program.  Our Phase 2 clinical trial, also known as SOAR study, is currently enrolling patients with warm AIHA in the second stage of the trial. The trial is an open-label, multi-center, two-stage study that will evaluate the efficacy and safety of fostamatinib in patients with warm AIHA who have previously received treatment for the disorder, but have relapsed. Stage 1 completed enrollment for 19 patients (17 patients evaluable for efficacy) who received 150 mg of fostamatinib orally twice a day for a period of 12 weeks, with an option of entering into a long-term extension study. The patients returned to the clinic every two weeks for blood draws and medical assessment. The primary efficacy endpoint of this study was to achieve increased hemoglobin levels by week 12 of greater than 10 g/dL, and greater than or equal to 2 g/dL higher than baseline.

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In October 2017, we announced that, on a top-line, preliminary basis, Stage 1 of the AIHA study enrolled 17 patients who have had at least one post-baseline hemoglobin measure.  In January 2018, we also announced the updated top-line data as of December 2017 for this open-label study of which 47% of these patients (8 patients out of 17) have responded to fostamatinib treatment. Of the 17, six patients, including the last two patients enrolled, responded during the 12-week evaluation period and an additional two patients met the response criteria in the extension study after 12 weeks of dosing. In February 2018, an additional patient in the Stage 1 extension study met the response criteria.  As of February 2018, 53% of evaluable patients (9 of 17) have responded to fostamatinib treatment. The safety profile was consistent with the existing fostamatinib safety database. Given that the Stage 1 of the study met its primary efficacy endpoint, we have begun enrollment of Stage 2 of this study, in which 20 patients will be enrolled under the same protocol. In January 2018, the FDA granted our request for Orphan Drug designation for fostamatinib for the treatment of AIHA.

 

Partnered Clinical Programs

 

R548 (ATI-501 and ATI-502) - Aclaris

 

Aclaris is developing ATI-501 and ATI-502 an oral and topical Janus Kinase (JAK) 1/3 inhibitor. ATI- 501 is being developed as an oral treatment for patients with AA, including the more severe forms of AA that result in total scalp hair loss, known as alopecia totalis, and total hair loss on the scalp and body, known as alopecia universalis. This Phase 1 cross-over trial was conducted in 12 healthy volunteers at one investigational center in the U.S. to assess the safety, bioavailability, and pharmacodynamics of ATI-501. Aclaris is expected to initiate Phase 2 trials in the second half of 2018.

 

In the trial, treatment with ATI-501 capsules was well tolerated, with a safety profile similar to placebo. No clinically significant laboratory abnormalities were observed. These data are consistent with results from an earlier Phase 1 clinical trial in 44 healthy volunteers in which the study drug was well tolerated at all doses, with a safety profile similar to placebo. During the fourth quarter of 2017, three Phase 2 studies with the topical treatment ATI-502 in AA and Vitilago were initiated with initial results expected in 2018.

 

BGB324 - BerGenBio

 

BerGenBio’s first-in-class selective AXL kinase inhibitor, BGB324, has demonstrated compelling efficacy as a single agent, and in combination with standard of care cancer therapies and checkpoint inhibitors, thereby supporting clinical utility across multiple cancers in preclinical studies. Early clinical studies in healthy volunteers and cancer patients have shown BGB324 to be well-tolerated with a favorable safety profile, and encouraging evidence of single agent and combination activity in AML and NSCLC. A strong correlation has also been observed with predictive biomarkers and the patients that respond. BGB324 has received Orphan Drug Designation in the U.S. for AML.

 

BerGenBio initiated Phase 1/2 studies with BGB324 as a single agent in relapsed acute myeloid leukaemia (AML) and myelodysplastic syndrome (MDS); and in combination with erlotinib (Tarceva®) in advanced (EGFR-positive) NSCLC. BerGenBio is also initiating Phase 2 studies with BGB324 in combination with KEYTRUDA® (pembrolizumab) in non-small cell adenocarcinoma of the lung and triple negative breast cancer (TNBC) in collaboration with another company.

 

DS-3032 - Daiichi

 

DS-3032 is an investigational oral selective inhibitor of the murine double minute 2 (MDM2) protein currently being investigated by Daiichi in three Phase 1 clinical trials for solid and hematological malignancies including acute myeloid leukemia (AML), acute lymphocytic leukemia (ALL), chronic myeloid leukemia (CML) in blast phase, lymphoma and myelodysplastic syndrome (MDS). DS-3032 has not been approved by any regulatory authority for uses under investigation.

 

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Preliminary safety and efficacy data from a Phase 1 study of DS-3032 suggests that DS-3032 may be a promising treatment for hematological malignancies including relapsed/refractory AML and high-risk MDS. Evaluation of additional dosing schedules of DS-3032 is underway and combination studies currently being planned by Daiichi.

 

Research/Preclinical Programs

 

We are conducting proprietary research in the broad disease areas of inflammation/immunology, immuno-oncology and cancers. Within each disease area, our researchers are investigating mechanisms of action as well as screening compounds against potential novel targets and optimizing those leads that appear to have the greatest potential.

 

During the second quarter of 2017, we selected a molecule from our IRAK program for preclinical development. The molecule was selected for development based on its ability to inhibit both the IRAK 1 and IRAK 4 signaling pathways in preclinical studies, potentially providing a clinical benefit in autoimmune and inflammatory diseases such as psoriasis, lupus, gout, psoriatic arthritis and multiple sclerosis. We expect to initiate clinical trials in the second quarter of 2018.

 

Sponsored Research and License Agreements

 

We conduct research and development programs independently and in connection with our corporate collaborators. Currently, we are a party to collaboration agreements, but do not have ongoing performance obligations, with BMS for the discovery, development and commercialization of cancer immunotherapies based on our small molecule TGF beta receptor kinase inhibitors, Aclaris for the development and commercialization of JAK inhibitors for the treatment of alopecia areata and other dermatological conditions, AZ for the development and commercialization of R256, an inhaled JAK inhibitor, BerGenBio for the development and commercialization of AXL inhibitors in oncology, and Daiichi to pursue research related to MDM2 inhibitors, a novel class of drug targets called ligases. Under these agreements, which we entered into in the ordinary course of business, we received or may be entitled to receive upfront cash payments, payments contingent upon specified events achieved by such partners and royalties on any net sales of products sold by such partners under the agreements. Total future contingent payments to us under all of these current agreements could exceed $532.4 million if all potential product candidates achieved all of the payment triggering events under all of our current agreements (based on a single product candidate under each agreement). Of this amount, up to $145.5 million relates to the achievement of development events, up to $345.6 million relates to the achievement of regulatory events and up to $41.3 million relates to the achievement of certain commercial or launch events. This estimated future contingent amount does not include any estimated royalties that could be due to us if the partners successfully commercialize any of the licensed products. Future events that may trigger payments to us under the agreements are based solely on our partners’ future efforts and achievements of specified development, regulatory and/or commercial events.

 

In June 2011, we entered into an exclusive license agreement with BerGenBio for the development and commercialization of an oncology program. BerGenBio is responsible for all activities it wishes to perform under the license we granted to it.  In February 2017, we received $3.3 million from BerGenBio as a result of BerGenBio advancing BGB324, an AXL kinase inhibitor licensed under the agreement, to a Phase 2 clinical study. All deliverables under the agreement had been previously delivered, as such, the above payments of $3.3 million was recognized as revenue in the first quarter of 2017. 

 

Research and Development Expenses

 

Our research and development expenditures include costs related to preclinical and clinical trials, scientific personnel, supplies, equipment, consultants, sponsored research, stock based compensation, and allocated facility costs.

 

We do not track fully burdened research and development costs separately for each of our drug candidates. We review our research and development expenses by focusing on three categories: research, development, and other. Our research team is focused on creating a portfolio of product candidates that can be developed into small molecule therapeutics in our own proprietary programs or with potential collaborative partners and utilizes our robust discovery engine to rapidly discover and validate new product candidates in our focused range of therapeutic indications.

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“Research” expenses relate primarily to personnel expenses, lab supplies, fees to third party research consultants and compounds. Our development group leads the implementation of our clinical and regulatory strategies and prioritizes disease indications in which our compounds may be studied in clinical trials. “Development” expenses relate primarily to clinical trials, personnel expenses, costs related to the submission and management of our NDA, lab supplies and fees to third party research consultants. “Other” expenses primarily consist of allocated facilities costs and allocated stock based compensation expense relating to personnel in research and development groups.

 

In addition to reviewing the three categories of research and development expenses described in the preceding paragraph, we principally consider qualitative factors in making decisions regarding our research and development programs, which include enrollment in clinical trials and the results thereof, the clinical and commercial potential for our drug candidates and competitive dynamics. We also make our research and development decisions in the context of our overall business strategy, which includes the evaluation of potential collaborations for the development of our drug candidates.

 

We do not have reliable estimates regarding the timing of our clinical trials. Preclinical testing and clinical development are long, expensive and uncertain processes. In general, biopharmaceutical development involves a series of steps, beginning with identification of a potential target and including, among others, proof of concept in animals and Phase 1, 2 and 3 clinical trials in humans. Significant delays in clinical testing could materially impact our product development costs and timing of completion of the clinical trials. We do not know whether planned clinical trials will begin on time, will need to be halted or revamped or will be completed on schedule, or at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a trial, delays from scale up, delays in reaching agreement on acceptable clinical trial agreement terms with prospective clinical sites, delays in obtaining institutional review board approval to conduct a clinical trial at a prospective clinical site or delays in recruiting subjects to participate in a clinical trial.

 

We currently do not have reliable estimates of total costs for a particular drug candidate to reach the market. Our potential products are subject to a lengthy and uncertain regulatory process that may involve unanticipated additional clinical trials and may not result in receipt of the necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us from commercializing the product candidates affected. In addition, clinical trials of our potential products may fail to demonstrate safety and efficacy, which could prevent or significantly delay regulatory approval.

 

The following table presents our total research and development expense by category (in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

 

 

March 31, 

 

 

From January 1, 2007*

 

 

    

2018

    

2017

    

    

to March 31, 2018

  

 

 

 

 

 

 

 

 

 

 

 

 

Categories:

 

 

    

 

 

    

 

 

 

    

 

Research

 

$

2,507

 

$

2,627

 

 

$

228,873

 

Development

 

 

6,638

 

 

7,532

 

 

 

348,807

 

Other

 

 

2,097

 

 

2,217

 

 

 

232,423

 

 

 

$

11,242

 

$

12,376

 

 

$

810,103

 


*We started tracking research and development expense by category on January 1, 2007.

 

“Other” expenses mainly represent allocated facilities costs of approximately $1.5 million and $1.9 million for the three months ended March  31, 2018 and 2017, respectively, and allocated stock-based compensation expenses of approximately $600,000 and $360,000 for the three months ended March 31, 2018 and 2017, respectively.

 

For the three months ended March  31, 2018 and 2017, a major portion of our total research and development expense was associated with salaries of our research and development personnel, our ITP, IRAK, IgAN and AIHA programs, and allocated facilities costs.

 

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For further discussion on research and development activities, see “Research and Development Expense” under “Results of Operations” below.

 

Results of Operations

 

Three Months Ended March 31, 2018 and 2017

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

 

 

 

March 31, 

 

Aggregate

 

 

 

    

2018

    

2017

    

Change

    

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Contract revenues from collaborations

 

$

 —

 

$

3,584

 

$

(3,584)

 

 

 

There were no contract revenues from collaborations during the three months ended March 31, 2018. Contract revenues from collaborations of $3.6 million during the three months ended March 31, 2017 is comprised primarily of the $3.3 million payment from BerGenBio as a result of advancing BGB324, a selective, potent and orally available small molecule.

 

Our potential future revenues may include sales from the launch of fostamatinib in ITP, payments from our current partners and from new partners with whom we enter into agreements in the future, if any, the timing and amount of which is unknown at this time.

 

Research and Development Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

 

 

 

March 31, 

 

Aggregate

 

 

 

    

2018

 

2017

    

Change

    

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Research and development expense

 

$

11,242

    

$

12,376

 

$

(1,134)

 

 

Stock-based compensation expense included in research and development expense

 

$

600

 

$

360

 

$

240

 

 

 

The decrease in research and development expense for the three ended March  31, 2018, compared to the same period in 2017,  was primarily due to the decreases in 2018 of costs related to clinical trials as well as the submission of our NDA for fostamatinib in ITP of $2.2 million, allocated facility costs of $367,000 and research supplies of $180,000, partially offset by increases in personnel costs.

 

We expect our research and development expense in 2018 to remain relatively consistent on a quarterly basis.

 

General and Administrative Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

 

 

 

March 31, 

 

Aggregate

 

 

 

    

2018

 

2017

    

Change

    

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

General and administrative expense

 

$

13,492

    

$

7,410

 

$

6,082

 

 

Stock-based compensation expense included in general and administrative expense

 

$

940

 

$

595

 

$

345

 

 

 

The increase in general and administrative expense for the three months ended March  31, 2018, compared to the same period in 2017, was primarily due to the increased expenses related to commercial launch preparation costs of fostamatinib in ITP of $5.0 million, including personnel costs.  

 

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We expect our general and administrative expense in 2018 to increase as we as continue our efforts in the commercial launch of TAVALISSE (fostamatinib disodium hexahydrate), including hiring experienced commercial professionals, as well as sales representatives in the hematology and hematology-oncology area.  

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

 

 

March 31, 

 

Aggregate

 

 

 

    

2018

 

2017

    

Change

    

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Interest income

 

$

349

    

$

156

 

$

193

 

 

 

Interest income results from our interest-bearing cash and investment balances. The increases in interest income for the three months ended March  31, 2018, as compared to the same period in 2017 were primarily due to the higher yield on our investments.

 

Gain on Disposal of Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

 

 

March 31, 

 

Aggregate

 

 

 

    

2018

 

2017

    

Change

    

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Gain on disposal of assets

 

$

 —

    

$

732

 

$

(732)

 

 

 

Gain on disposal of assets during the three months ended March  31, 2017 related to the proceeds from the sale of our fully depreciated property and equipment.

 

Critical Accounting Policies and the Use of Estimates

 

Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We evaluate our estimates, including those related to our stock based compensation and the probability of achievement of corporate performance-based milestone for our performance-based stock option awards, impairment issues, the estimated useful life of assets, and estimated accruals, particularly research and development accruals, on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe 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 from these estimates under different assumptions or conditions. We believe that with the exception of adopting ASU 2014-09 as of January 1, 2018, as discussed below, there have been no significant changes in our critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.

 

Recent Accounting Pronouncements 

 

In May 2014, the FASB issued ASU No. 2014-09—Revenue from Contracts with Customers, which supersedes the revenue recognition requirements under ASC Topic 605, Revenue Recognition, and most industry-specific guidance under the ASC. To date, our revenues have been derived from license and collaboration agreements. The consideration we are eligible to receive under these agreements includes upfront payments, progress dependent contingent payments on events achieved by our collaboration partners, and royalties on net sales of products sold by such partners under the agreements. ASU No. 2014-09 differs from the current accounting standard in many respects, such as in the accounting for variable consideration, including milestone payments or contingent payments. Under our previous accounting policy, we recognized contingent payments as revenue in the period that the payment-triggering event occurred or is achieved. However, under the new accounting standard, it is possible to start to recognize contingent payments before the payment-triggering event is completely achieved, subject to management’s assessment of whether it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with

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the variable consideration is subsequently resolved. We adopted this new standard on January 1, 2018 using the modified retrospective approach. Because all of the performance obligations for our outstanding collaboration agreements had been completed prior to December 31, 2017, we did not record any adjustment on the opening balance of Accumulated Deficit as of January 1, 2018.

 

Under this new guidance, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company  expects to receive in exchange for those goods or services. To determine whether arrangements are within the scope of this new guidance, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance performance obligation. The Company applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of this new guidance, we assess the goods or services promised within each contract and identify, as a performance obligation, and assess whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

In February 2016, the FASB issued ASU No. 2016-02—Leases, which is aimed at making leasing activities more transparent, 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. The guidance is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. We plan to adopt this new standard on January 1, 2019.  We are currently evaluating the potential impact of the adoption of ASU No. 2016-02 on our financial statements and cannot estimate the impact of adoption at this time.

 

Liquidity and Capital Resources

 

Cash Requirements

 

From inception, we have financed our operations primarily through sales of equity securities and contract payments under our collaboration agreements. We have consumed substantial amounts of capital to date as we continue our research and development activities, including preclinical studies and clinical trials and our preparation for commercial launch of TAVALISSE (fostamatinib disodium hexahydrate).

 

As of March 31, 2018, we had approximately $94.3 million in cash, cash equivalents and short‑term investments, as compared to approximately $115.8 million as of December 31, 2017, a decrease of approximately $21.5 million. The decrease was primarily attributable to the payments associated with funding our operating expenses during the three months ended March  31, 2018, partially offset by the $2.0 million proceeds from issuances of common stock upon exercise of options.

 

In December 2014, we entered into a sublease agreement with an unrelated third party to occupy a portion of our research and office space. This sublease agreement was amended in February 2017 to sublease additional research and office space. Effective July 2017, the sublease agreement was amended primarily to extend the term of the sublease through January 2023. During the three months ended March 31, 2018, we received approximately $1.4 million of sublease income and reimbursements. We expect to receive approximately $21.2 million in future sublease income (excluding our subtenant’s share of facility’s operating expenses) through January 2023. In April 2018, we completed an underwritten public offering in which we sold 16,000,000 shares of our common stock pursuant to an effective registration statement at a price to the public of $3.90 per share. We received net proceeds of approximately $58.4 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

We believe that our existing capital resources will be sufficient to support our current and projected funding requirements, including the commercial launch of TAVALISSE in the U.S., through at least the next 12 months from the Form 10-Q filing date. We also continue to evaluate ex-U.S. partnerships for fostamatinib and other partnering opportunities across our pipelines. We have based this estimate on assumptions that may prove to be wrong, and we

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could utilize our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with commercial launch, the development of our product candidates and other research and development activities, we are unable to estimate with certainty our future product revenues, our revenues from our current and future collaborative partners, the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials and other research and development activities.

 

Our operations will require significant additional funding for the foreseeable future. Unless and until we are able to generate a sufficient amount of product, royalty or milestone revenue, we expect to finance future cash needs through public and/or private offerings of equity securities, debt financings and/or collaboration and licensing arrangements, and to a much lesser extent through the proceeds from exercise of stock options and interest income earned on the investment of our excess cash balances and short-term investments. With the exception of contingent and royalty payments that we may receive under our existing collaborations, we do not currently have any committed future funding. To the extent we raise additional capital by issuing equity securities, our stockholders could at that time experience substantial dilution. Any debt financing that we are able to obtain may involve operating covenants that restrict our business. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some of our rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.

 

Our future funding requirements will depend upon many factors, including, but not limited to:

 

·

the costs to commercialize TAVALISSE for the treatment of ITP in the United States, or any other future product candidates, if any such candidate receives regulatory approval for commercial sale;

 

·

the progress and success of our clinical trials and preclinical activities (including studies and manufacture of materials) of our product candidates conducted by us;

 

·

the costs and timing of regulatory filings and approvals by us and our collaborators;

 

·

the progress of research and development programs carried out by us and our collaborative partners;

 

·

any changes in the breadth of our research and development programs;

 

·

the ability to achieve the events identified in our collaborative agreements that may trigger payments to us from our collaboration partners;

 

·

our ability to acquire or license other technologies or compounds that we may seek to pursue;

 

·

our ability to manage our growth;

 

·

competing technological and market developments;

 

·

the costs and timing of obtaining, enforcing and defending our patent and other intellectual property rights; and

 

·

expenses associated with any unforeseen litigation, including any securities class action lawsuits.

 

Insufficient funds may require us to delay, scale back or eliminate some or all of our commercial efforts and/or research or development programs, to lose rights under existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose or may adversely affect our ability to operate as a going concern.

 

For the three months ended March  31, 2018 and 2017, we maintained an investment portfolio primarily in money market funds, U. S. treasury bills, government‑sponsored enterprise securities, and corporate bonds and commercial paper. Cash in excess of immediate requirements is invested with regard to liquidity and capital

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preservation. Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk. We will continue to monitor the impact of the changes in the conditions of the credit and financial markets to our investment portfolio and assess if future changes in our investment strategy are necessary.

 

Cash Flows from Operating, Investing and Financing Activities

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2018

    

2017

 

 

 

(in thousands)

 

Net cash provided by (used in):

 

 

    

 

 

    

 

Operating activities

 

$

(23,394)

 

$

(20,762)

 

Investing activities

 

 

23,218

 

 

(150)

 

Financing activities

 

 

2,011

 

 

43,424

 

Net increase in cash and cash equivalents

 

$

1,835

 

$

22,512

 

 

Net cash used in operating activities was approximately $23.4 million for the three months ended March 31, 2018, compared to approximately $20.8 million for the three months ended March 31, 2017. Net cash used in operating activities for the three months ended March 31, 2018 was primarily due to the cash payments related to our research and development programs and commercial launch preparation costs. Net cash used in operating activities for the three months ended March 31, 2017 was primarily due to the cash payments related to our research and development programs, partially offset by the $3.3 million payment we received from BerGenBio.  The timing of cash requirements may vary from period to period depending on our commercial launch activities related to TAVALISSE (fostamatinib disodium hexahydrate), our research and development activities, including our planned preclinical and clinical trials, and future requirements to establish commercial capabilities for any products that we may develop.

 

Net cash provided by investing activities was approximately $23.2 million for the three months ended March 31, 2018, compared net cash used in investing activites of approximately $150,000 for the three months ended March 31, 2017. Net cash provided by investing activities during the three months ended March 31, 2018 related to net maturities of short-term investments, partially offset by capital expenditures.  Net cash used in investing activities during the three months ended March 31, 2017 related to net purchases of short-term investments as well as capital expenditures, partially offset by the proceeds from disposal of property and equipment. Capital expenditures were approximately $197,000 for the three months ended March 31, 2018, compared to approximately $41,000 for the same period in 2017.

 

Net cash provided by financing activities was approximately $2.0 million for the three months ended March 31, 2018, compared to approximately $43.4 million for the three months ended March 31, 2017. Net cash provided by financing activities for the three months ended March 31, 2018 related to the cash proceeds received from the exercise of stock options. Net cash provided by financing activities for the three months ended March 31, 2017 consisted of net proceeds of $43.0 million from issuance of common stock pursuant to the underwritten public offering, as well as proceeds from exercise of stock options.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2018, we had no off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K under the Exchange Act).

 

Contractual Obligations

 

We conduct our research and development programs internally and through third parties that include, among others, arrangements with universities, consultants and contract research organizations (CRO). We have contractual arrangements with these parties, however our contracts with them are cancelable generally on reasonable notice within one year and our obligations under these contracts are primarily based on services performed. We do not have any purchase commitments under any collaboration arrangements.

 

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We have agreements with certain CROs to conduct our clinical trials and with third parties relative to our commercial launch of fostamatinib. The timing of payments for any amounts owed under the respective agreements will depend on various factors including, but not limited to, patient enrollment and other progress of the clinical trial and various activities related to commercial launch. We will continue to enter into contracts in the normal course of business with various third parties who support our clinical trials, support our preclinical research studies, and provide other services related to our operating purposes as well as our commercial launch of TAVALISSE (fostamatinib disodium hexahydrate). We can terminate these agreements at any time, and if terminated, we would not be liable for the full amount of the respective agreements. Instead, we will be liable for services provided through the termination date plus certain cancellation charges, if any, as defined in each of the respective agreements. In addition, these agreements may, from time to time, be subjected to amendments as a result of any change orders executed by the parties. As of March 31, 2018, we had the following contractual commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than

 

Payment Due By Period

 

More than

 

 

    

Total

    

1 Year

    

1 - 3 Years