atra-10q_20170930.htm

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2017

OR

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

For the transition period from              to             

 

Commission file number 001-36548

 

ATARA BIOTHERAPEUTICS, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

46-0920988

(State or other jurisdiction of incorporation or organization)

 

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

 

611 Gateway Blvd., Suite 900

South San Francisco, CA

 

94080

(Address of principal executive offices)

 

(Zip Code)

(Registrant’s telephone number, including area code: (650) 278-8930

 

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 small 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  

The number of outstanding shares of the Registrant’s Common Stock as of October 31, 2017 was 30,595,866 shares.

 

 

 

 

 

 


 

ATARA BIOTHERAPEUTICS, INC.

INDEX

 

 

  

 

  

Page

PART I.

  

FINANCIAL INFORMATION

  

 

 

 

 

Item 1.

  

Financial Statements (Unaudited)

  

3

 

 

 

 

  

Condensed Consolidated Balance Sheets

  

3

 

 

 

 

  

Condensed Consolidated Statements of Operations and Comprehensive Loss

  

4

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows

  

5

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements

  

6

 

 

 

Item 2.

  

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

  

15

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

  

24

 

 

 

Item 4.

  

Controls and Procedures

  

24

 

 

 

PART II.

  

OTHER INFORMATION

  

 

 

 

 

Item 1.

  

Legal Proceedings

  

25

 

 

 

Item 1A.

  

Risk Factors

  

25

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

56

 

Item 3.

  

Defaults Upon Senior Securities

  

56

 

Item 4.

  

Mine Safety Disclosures

  

56

 

Item 5.

  

Other Information

  

56

 

Item 6.

  

Exhibits

  

57

 

 

 

  

Signatures

  

58

 

 

 

 

2


 

Atara Biotherapeutics, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,493

 

 

$

47,968

 

Short-term investments

 

 

139,728

 

 

 

207,714

 

Restricted cash - short-term

 

 

194

 

 

 

194

 

Prepaid expenses and other current assets

 

 

5,802

 

 

 

4,677

 

Total current assets

 

 

206,217

 

 

 

260,553

 

Property and equipment, net

 

 

22,176

 

 

 

3,259

 

Restricted cash - long-term

 

 

1,200

 

 

 

 

Other assets

 

 

100

 

 

 

102

 

Total assets

 

$

229,693

 

 

$

263,914

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,539

 

 

$

2,778

 

Accrued compensation

 

 

5,319

 

 

 

3,745

 

Accrued research and development expenses

 

 

3,810

 

 

 

2,408

 

Other accrued liabilities

 

 

1,848

 

 

 

744

 

Total current liabilities

 

 

16,516

 

 

 

9,675

 

Long-term liabilities

 

 

7,221

 

 

 

503

 

Total liabilities

 

 

23,737

 

 

 

10,178

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock—$0.0001 par value, 500,000 shares authorized as of

   September 30, 2017 and December 31, 2016; 30,596 and 28,933 shares

   issued and outstanding as of September 30, 2017 and December 31, 2016,

   respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

467,378

 

 

 

431,075

 

Accumulated other comprehensive loss

 

 

(88

)

 

 

(183

)

Accumulated deficit

 

 

(261,337

)

 

 

(177,159

)

Total stockholders’ equity

 

 

205,956

 

 

 

253,736

 

Total liabilities and stockholders’ equity

 

$

229,693

 

 

$

263,914

 

 

 

See accompanying notes.

 

 

3


 

Atara Biotherapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

20,598

 

 

$

18,802

 

 

$

56,435

 

 

$

43,040

 

General and administrative

 

 

11,062

 

 

 

7,140

 

 

 

29,295

 

 

 

19,448

 

Total operating expenses

 

 

31,660

 

 

 

25,942

 

 

 

85,730

 

 

 

62,488

 

Loss from operations

 

 

(31,660

)

 

 

(25,942

)

 

 

(85,730

)

 

 

(62,488

)

Interest and other income, net

 

 

564

 

 

 

576

 

 

 

1,554

 

 

 

1,684

 

Loss before provision for income taxes

 

 

(31,096

)

 

 

(25,366

)

 

 

(84,176

)

 

 

(60,804

)

Provision for income taxes

 

 

 

 

 

7

 

 

 

2

 

 

 

10

 

Net loss

 

$

(31,096

)

 

$

(25,373

)

 

$

(84,178

)

 

$

(60,814

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

 

26

 

 

 

(158

)

 

 

95

 

 

 

553

 

Comprehensive loss

 

$

(31,070

)

 

$

(25,531

)

 

$

(84,083

)

 

$

(60,261

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(1.02

)

 

$

(0.88

)

 

$

(2.84

)

 

$

(2.12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding used

   to calculate basic and diluted net loss per common share

 

 

30,474

 

 

 

28,801

 

 

 

29,597

 

 

 

28,670

 

 

See accompanying notes.

4


 

Atara Biotherapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Nine months ended September 30,

 

 

 

2017

 

 

2016

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(84,178

)

 

$

(60,814

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

17,003

 

 

 

15,128

 

Amortization of investment premiums and discounts

 

 

607

 

 

 

2,811

 

Depreciation expense

 

 

678

 

 

 

210

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,125

)

 

 

(602

)

Other assets

 

 

2

 

 

 

6

 

Accounts payable

 

 

(1

)

 

 

3,018

 

Accrued compensation

 

 

1,574

 

 

 

532

 

Accrued research and development expenses

 

 

1,402

 

 

 

(3

)

Other accrued liabilities

 

 

1,104

 

 

 

433

 

Long-term liabilities

 

 

370

 

 

 

420

 

Net cash used in operating activities

 

 

(62,564

)

 

 

(38,861

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(152,837

)

 

 

(252,279

)

Maturities of short-term investments

 

 

162,094

 

 

 

127,749

 

Sales of short-term investments

 

 

58,217

 

 

 

187,508

 

Purchases of property and equipment

 

 

(10,535

)

 

 

(2,025

)

Restricted cash

 

 

(1,200

)

 

 

 

Net cash provided by investing activities

 

 

55,739

 

 

 

60,953

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock from "at-the-market" facility, net

 

 

19,206

 

 

 

 

Taxes paid related to net share settlement of restricted stock units

 

 

(351

)

 

 

(75

)

Proceeds from employee stock awards

 

 

495

 

 

 

250

 

Net cash provided by financing activities

 

 

19,350

 

 

 

175

 

Increase in cash and cash equivalents

 

 

12,525

 

 

 

22,267

 

Cash and cash equivalents at beginning of period

 

 

47,968

 

 

 

23,746

 

Cash and cash equivalents at end of period

 

$

60,493

 

 

$

46,013

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

Capitalized lease obligations

 

$

6,215

 

 

$

 

Property and equipment purchases included in liabilities

 

$

3,064

 

 

$

129

 

Interest capitalized during construction period for build-to-suit lease transaction

 

$

133

 

 

$

 

Issuance of common stock upon vesting of stock awards

 

$

 

 

$

60

 

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

 

$

 

 

$

(60

)

Supplemental cash flow disclosure

 

 

 

 

 

 

 

 

Cash paid for taxes

 

$

 

 

$

10

 

 

See accompanying notes.

 

 

5


 

Atara Biotherapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.

Description of Business

Atara Biotherapeutics, Inc. (“Atara”, “we”, “our” or “the Company”) was incorporated in August 2012 in Delaware. Atara is a cell therapy company developing novel treatments for patients with cancer and multiple sclerosis (MS).  The Company’s “off-the-shelf”, or allogeneic, T-cells are engineered from donors with healthy immune function and allow for rapid delivery from inventory to patients without a requirement for pretreatment.  Atara’s T-cell immunotherapies are designed to precisely recognize and eliminate cancerous or diseased cells without affecting normal, healthy cells.  

We licensed rights to T-cell product candidates from Memorial Sloan Kettering Cancer Center (“MSK”) in June 2015 and to know-how and technology from QIMR Berghofer Medical Research Institute (“QIMR Berghofer”) in October 2015 and September 2016. See Note 6 for further information.

 

 

2.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s consolidated financial information. The results of operations for the nine-month period ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year or any other future period. The condensed consolidated balance sheet as of December 31, 2016 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete consolidated financial statements.

Significant Risks and Uncertainties

We have incurred significant operating losses since inception and have relied on public and private equity financings to fund our operations. As of September 30, 2017, we had an accumulated deficit of $261.3 million. As we continue to incur losses, our transition to profitability will depend on the successful development, approval and commercialization of product candidates and on the achievement of sufficient revenues to support our cost structure. We may never achieve profitability, and unless and until we do, we will need to continue to raise additional capital. Management expects that our cash, cash equivalents and short-term investments as of September 30, 2017 will be sufficient to fund our planned operations into the first quarter of 2019.

Concentration of Credit Risk and Other Uncertainties

We place cash and cash equivalents in the custody of financial institutions that management believes are of high credit quality, the amount of which at times, may be in excess of the amount insured by the Federal Deposit Insurance Corporation. We also have short-term investments in money market funds, U.S. Treasury, government agency and corporate debt obligations, commercial paper and asset-backed securities, which can be subject to certain credit risk. However, we mitigate the risks by investing in high-grade instruments, limiting our exposure to any one issuer, and monitoring the ongoing creditworthiness of the financial institutions and issuers.

We are subject to certain risks and uncertainties and believe that changes in any of the following areas could have a material adverse effect on future financial position or results of operations: our ability to obtain future financing; regulatory approval and market acceptance of, and reimbursement for, our product candidates, if approved; performance of third-party clinical research organizations and manufacturers upon which we rely; development of sales channels; protection of our intellectual property; litigation or claims against us based on intellectual property, patent, product, regulatory or other factors; and our ability to attract and retain employees necessary to support our growth.

6


 

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. Significant estimates relied upon in preparing these financial statements include estimates related to clinical trial and other accruals, stock-based compensation expense, construction costs and income taxes. Actual results could differ materially from those estimates.

Leases

We lease office space in multiple locations. In addition, we are constructing a manufacturing facility in Thousand Oaks, California under a non-cancelable lease agreement. The leases are reviewed for classification as operating or capital leases. For operating leases, rent is recognized on a straight-line basis over the lease period. For capital leases, we record the leased asset with a corresponding liability for principal and interest. Payments are recorded as reductions to these liabilities with interest being charged to interest expense in our statements of operations and comprehensive loss.

We analyzed the nature of the renovations and our involvement during the construction period of our manufacturing facility and determined that we are the deemed “owner” of the construction project during the construction period. As a result, we are required to capitalize the fair value of the building as well as the construction costs incurred on our condensed consolidated balance sheet along with a corresponding financing liability for landlord-paid construction costs (i.e. “build-to-suit” accounting). Upon occupancy for build-to-suit leases, we are also required to assess whether the circumstances qualify for sale recognition under “sale-leaseback” accounting guidance.

Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which is intended to increase the transparency and comparability in the reporting of leasing arrangements by generally requiring leased assets and liabilities to be recorded on the balance sheet. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018, with early adoption permitted. We have not yet determined the potential effect the new standard will have on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. We prospectively adopted the new standard on January 1, 2017 and that adoption did not have a material effect on our consolidated financial statements due to the full valuation allowance of our deferred tax assets.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The new standard will be effective for us on January 1, 2020. Early adoption will be available on January 1, 2019. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments should be presented and classified in the statement of cash flows. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted. We have not yet determined the method of adoption and the potential effect the new standard will have on our consolidated financial statements.

 

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies the statement of cash flow treatment of restricted cash or restricted cash equivalents. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted. The standard should be applied using a retrospective transition method to each period presented. We have not yet determined the potential effect the new standard will have on our consolidated financial statements.

 

7


 

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The amended standard specifies the modification accounting applicable to any entity which changes the terms or conditions of a share-based payment award. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted. We have not yet determined the potential effect the new standard will have on our consolidated financial statements.

 

 

3.

Net Loss per Common Share

Basic net loss per common share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration of common share equivalents. Diluted net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock and common share equivalents outstanding for the period. Common share equivalents are only included in the calculation of diluted net loss per common share when their effect is dilutive.

Potential dilutive securities, which include unvested restricted stock awards (“RSAs”), unvested restricted stock units (“RSUs”), vested and unvested options to purchase common stock and shares to be issued under our employee stock purchase plan (“ESPP”) have been excluded from the computation of diluted net loss per share as the effect is antidilutive. Therefore, the denominator used to calculate both basic and diluted net loss per common share is the same in all periods presented.

The following table represents the potential common shares issuable pursuant to outstanding securities as of the related period end dates that were excluded from the computation of diluted net loss per common share as their inclusion would have an antidilutive effect:

 

 

As of September 30,

 

 

2017

 

 

2016

 

Unvested RSAs

 

 

 

 

18,510

 

Unvested RSUs

 

1,735,999

 

 

 

1,371,269

 

Vested and unvested options

 

4,910,449

 

 

 

3,744,176

 

ESPP share purchase rights

 

32,205

 

 

 

15,888

 

Total

 

6,678,653

 

 

 

5,149,843

 

 

 

4.

Financial Instruments

Our financial assets are measured at fair value on a recurring basis using the following hierarchy to prioritize valuation inputs, in accordance with applicable GAAP:

 

Level 1:

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

 

Level 2:

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

 

Level 3:

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

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

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

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

8


 

The following tables summarize the estimated fair value and related valuation input hierarchy of our available-for-sale securities as of each period end:

 

 

 

 

 

Total

 

 

Total

 

 

Total

 

 

Total

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

As of September 30, 2017:

 

Input Level

 

Cost

 

 

Gain

 

 

Loss

 

 

Fair Value

 

 

 

 

 

(in thousands)

 

Money market funds

 

Level 1

 

$

47,593

 

 

$

 

 

$

 

 

$

47,593

 

U.S. Treasury obligations

 

Level 2

 

 

51,692

 

 

 

2

 

 

 

(16

)

 

 

51,678

 

Government agency obligations

 

Level 2

 

 

4,760

 

 

 

1

 

 

 

(6

)

 

 

4,755

 

Corporate debt obligations

 

Level 2

 

 

82,402

 

 

 

9

 

 

 

(69

)

 

 

82,342

 

Commercial paper

 

Level 2

 

 

2,085

 

 

 

 

 

 

 

 

 

2,085

 

Asset-backed securities

 

Level 2

 

 

7,976

 

 

 

 

 

 

(9

)

 

 

7,967

 

Total available-for-sale securities

 

 

 

 

196,508

 

 

 

12

 

 

 

(100

)

 

 

196,420

 

Less amounts classified as cash equivalents

 

 

 

 

(56,692

)

 

 

 

 

 

 

 

 

(56,692

)

Amounts classified as short-term investments

 

 

 

$

139,816

 

 

$

12

 

 

$

(100

)

 

$

139,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Total

 

 

Total

 

 

Total

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

As of December 31, 2016:

 

Input Level

 

Cost

 

 

Gain

 

 

Loss

 

 

Fair Value

 

 

 

 

 

(in thousands)

 

Money market funds

 

Level 1

 

$

28,816

 

 

$

 

 

$

 

 

$

28,816

 

U.S. Treasury obligations

 

Level 2

 

 

65,403

 

 

 

3

 

 

 

(21

)

 

 

65,385

 

Government agency obligations

 

Level 2

 

 

23,860

 

 

 

5

 

 

 

(5

)

 

 

23,860

 

Corporate debt obligations

 

Level 2

 

 

113,649

 

 

 

8

 

 

 

(172

)

 

 

113,485

 

Commercial paper

 

Level 2

 

 

699

 

 

 

 

 

 

 

 

 

699

 

Asset-backed securities

 

Level 2

 

 

13,414

 

 

 

4

 

 

 

(6

)

 

 

13,412

 

Total available-for-sale securities

 

 

 

 

245,841

 

 

 

20

 

 

 

(204

)

 

 

245,657

 

Less amounts classified as cash equivalents

 

 

 

 

(37,944

)

 

 

 

 

 

1

 

 

 

(37,943

)

Amounts classified as short-term investments

 

 

 

$

207,897

 

 

$

20

 

 

$

(203

)

 

$

207,714

 

 

The amortized cost and fair value of our available-for-sale securities by contractual maturity were as follows:

 

 

As of September 30, 2017

 

 

As of December 31, 2016

 

 

Amortized

 

 

Estimated

 

 

Amortized

 

 

Estimated

 

 

Cost

 

 

Fair Value

 

 

Cost

 

 

Fair Value

 

 

(in thousands)

 

 

(in thousands)

 

Maturing within one year

$

171,265

 

 

$

171,220

 

 

$

198,022

 

 

$

197,956

 

Maturing in one to five years

 

25,243

 

 

 

25,200

 

 

 

47,819

 

 

 

47,701

 

Total available-for-sale securities

$

196,508

 

 

$

196,420

 

 

$

245,841

 

 

$

245,657

 

 

As of September 30, 2017, certain available-for-sale securities had been in a continuous unrealized loss position, each for less than twelve months. As of this date, no significant facts or circumstances were present to indicate a deterioration in the creditworthiness of the respective issuers, and the Company has no requirement or intention to sell these securities before maturity or recovery of their amortized cost basis. During the three and nine months ended September 30, 2017 and 2016, we did not recognize any other-than-temporary impairment losses.

In addition, restricted cash collateralized by money market funds is a financial asset measured at fair value and is a Level 1 financial instrument under the fair value hierarchy. As of September 30, 2017 and December 31, 2016, restricted cash totaled $1.4 million and $0.2 million, respectively.

 

 

9


 

5.

Property and Equipment

Property and equipment consisted of the following as of each period end:

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Construction in progress

 

$

19,643

 

 

$

970

 

Lab equipment

 

 

2,375

 

 

 

1,506

 

Leasehold improvements

 

 

623

 

 

 

580

 

Furniture and fixtures

 

 

536

 

 

 

526

 

Computer equipment and software

 

 

66

 

 

 

66

 

 

 

 

23,243

 

 

 

3,648

 

Less accumulated depreciation and amortization

 

 

(1,067

)

 

 

(389

)

Property and equipment, net

 

$

22,176

 

 

$

3,259

 

 

Property and equipment includes lab equipment, furniture and fixtures, computer equipment and software, which are depreciated over the estimated useful lives of the assets, ranging from three to five years. Leasehold improvements are amortized over the lesser of the useful life of the leasehold improvements or the lease term. Construction in progress represents capitalized costs for our manufacturing facility in Thousand Oaks, California. Depreciation and amortization expense was $0.3 million and $0.1 million for the three months ended September 30, 2017 and 2016, and $0.7 million and $0.2 million for the nine months ended September 30, 2017 and 2016, respectively.

 

 

6.

License and Collaboration Agreements

MSK Agreements – In September 2014, we entered into an exclusive option agreement with MSK under which we had the right to acquire the exclusive worldwide license rights to three clinical stage T-cell therapies from MSK. In exchange for the option, we paid $1.25 million in cash and issued 59,761 shares of our common stock to MSK. At the time of issuance, we estimated the fair value of the stock issued to MSK to be $0.75 million. The total of $2.0 million was recorded as research and development expense in our statements of operations and comprehensive loss. In June 2015, we exercised an option to enter into an exclusive license agreement with MSK for three clinical stage T-cell therapies. In connection with the execution of the license agreement, we paid $4.5 million in cash to MSK, which was recorded as research and development expense in our condensed consolidated statement of operations and comprehensive loss.

We are required to make additional payments of up to $33.0 million to MSK based on achievement of specified regulatory and sales-related milestones, as well as mid-single-digit percentage tiered royalty payments based on future sales of products resulting from the development of the licensed product candidates, if any. In addition, under certain circumstances, we are required to make certain minimum annual royalty payments to MSK, which are creditable against earned royalties owed for the same annual period. We are also required to pay a low double-digit percentage of any consideration we receive for sublicensing the licensed rights. The license agreement expires on a product-by-product and country-by-country basis on the later of: (i) expiration of the last licensed patent rights related to each licensed product, (ii) expiration of any market exclusivity period granted by law with respect to each licensed product, and (iii) a specified number of years after the first commercial sale of the licensed product in each country. Upon expiration of the license agreement, Atara will retain non-exclusive rights to the licensed products.  

QIMR Berghofer Agreements – In October 2015, we entered into an exclusive license agreement and a research and development collaboration agreement with QIMR Berghofer. 

Under the terms of the license agreement, we obtained an exclusive, worldwide license to develop and commercialize allogeneic cytotoxic T-lymphocyte (“CTL”) therapy programs utilizing technology and know-how developed by QIMR Berghofer.  In consideration for the exclusive license, we paid $3.0 million in cash to QIMR Berghofer, which was recorded as research and development expense in our statement of operations and comprehensive loss in the fourth quarter of 2015. In September 2016, the exclusive license agreement and research and development collaboration agreement were amended and restated. Under the amended and restated agreements, we obtained an exclusive, worldwide license to develop and commercialize additional CTL programs as well as the option to license additional technology in exchange for $3.3 million in cash, which was recorded as research and development expense in our statement of operations and comprehensive loss in the third quarter of 2016 and paid in October 2016. The amended and restated license agreement also provides for various milestone and royalty payments to QIMR Berghofer based on future product sales, if any.

10


 

Under the terms of the amended and restated research and development collaboration agreement, we are also required to reimburse the cost of agreed-upon development activities related to programs developed under the collaboration. These payments are expensed on a straight-line basis over the related development periods and recorded in research and development expense in our condensed consolidated statements of operations and comprehensive loss. The agreement also provides for various milestone payments to QIMR Berghofer based on achievement of certain developmental and regulatory milestones.

Milestones and royalties under each of the above agreements are contingent upon future events and will be recorded as expense when it is probable that the milestones will be achieved or royalties are due. As of September 30, 2017 and December 31, 2016, there were no outstanding obligations for milestones and royalties.  

Amgen License Agreements – In September 2012, we entered into license agreements with Amgen, Inc., for several molecular programs, including PINTA745, ATA842 and STM434. In December 2015, we announced the suspension of further development of PINTA745, and in June 2016, we returned the rights related to this and the ATA842 program to Amgen. In October 2017, we returned all remaining rights under the license agreements to Amgen.

 

 

7.

Commitments and Contingencies

License and Collaboration Agreements

Certain potential payments related to our license and collaboration agreements, including milestone and royalty payments, are detailed in Note 6. As the achievement of these milestones and royalties are currently not fixed and determinable, such commitments have not been included in our condensed consolidated balance sheets.  

Other Research and Development Agreements

We may enter into contracts in the normal course of business with clinical research organizations for clinical trials, with contract manufacturing organizations for clinical supplies, and with other vendors for pre-clinical studies, supplies and other services for our operating purposes. These contracts generally provide for termination on notice, with the exception of potential termination charges related to one of our contract manufacturing agreements in the event certain minimum purchase volumes are not met. As of September 30, 2017 and December 31, 2016, there were no amounts accrued related to termination charges for minimum purchase volumes not being met.

Operating Leases

We lease our corporate headquarters in South San Francisco, California under a non-cancellable lease agreement that expires in April 2021. In connection with the lease, we were required to issue a letter of credit in the amount of $0.2 million to the landlord, which expires in December 2017 and is classified as restricted cash in our condensed consolidated balance sheet. We also lease office space in Westlake Village, California under a lease agreement that expires in April 2019. 

 

Rent expense was $0.4 million and $0.3 million for the three months ended September 30, 2017 and 2016, respectively and $1.0 million and $0.9 million, for the nine months ended September 30, 2017 and 2016, respectively.

 

Financing Obligation—Build-to-Suit Lease

 

In February 2017, we entered into a lease agreement for approximately 90,580 square feet of office, lab and cellular therapy manufacturing space in Thousand Oaks, California.  The initial 15-year term of the lease commences upon the substantial completion of landlord’s work as defined under the agreement. The contractual obligations during the initial term are $16.4 million in aggregate.  We have the option to extend the lease for two additional periods of ten and nine years, respectively, after the initial term. In connection with the lease, we were required to issue a letter of credit in the amount of $1.2 million to the landlord, which is recorded as long-term restricted cash in our condensed consolidated balance sheet.

 

Based on the terms of the lease agreement and due to our involvement in certain aspects of the construction, we have been deemed the owner of the building (for accounting purposes only) during the construction period in accordance with U.S. GAAP.  Under this build-to-suit lease arrangement, we recognize construction in progress based on all construction costs incurred by both us and the landlord. We also recognize a financing obligation equal to all costs funded by the landlord.

 

11


 

As of September 30, 2017, we have recorded $6.2 million of construction in progress relating to landlord’s costs of the building incurred through that date, and have recognized a corresponding long-term financing obligation for the same amount. In addition, we have recorded $12.1 million of construction in progress for construction costs incurred by us and $0.1 million of capitalized interest during the construction period through September 30, 2017. Further, we recorded ground lease expense of $88,000 and $205,000 for the three and nine months ended September 30, 2017 respectively, in our condensed consolidated statement of operations and comprehensive loss, representing the estimated cost of renting the land during the construction period.

 

Indemnification Agreements

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for indemnification for certain liabilities. The exposure under these agreements is unknown because it involves claims that may be made against us in the future but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations. We also have indemnification obligations to our directors and executive officers for specified events or occurrences, subject to some limits, while they are serving at our request in such capacities. There have been no claims to date and we believe the fair value of these indemnification agreements is minimal. Accordingly, we did not record liabilities for these agreements as of September 30, 2017 and December 31, 2016.

Contingencies

From time to time, we may be involved in legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business or otherwise. The ultimate outcome of any litigation is uncertain and unfavorable outcomes could have a negative impact on our results of operations and financial condition. Regardless of outcome, litigation can have an adverse impact on us because of the defense costs, diversion of management resources and other factors. We are not currently involved in any material legal proceedings.

 

 

8.

Stockholders’ Equity

Equity Offering

 

In March 2017, we entered into a sales agreement (the “ATM facility”) with Cowen and Company, LLC (“Cowen”) under which we may offer and sell, in our sole discretion, shares of our common stock, having an aggregate offering price of up to $75.0 million through Cowen, as our sales agent. We will pay Cowen a commission of up to 3.0% of the gross sales proceeds of any common stock sold under the ATM facility. The issuance and sale of these shares by us pursuant to the ATM facility are deemed “at the market” offerings and are available under the Securities Act of 1933, as amended.

During the three and nine-months ended September 30, 2017, we sold an aggregate of 655,876 and 1,349,865 shares of common stock, respectively, under the ATM facility, at an average price of approximately $15.55 per share and $14.82 per share, respectively, for gross proceeds of $10.2 million and $20.0 million, respectively and net proceeds of $9.9 million and $19.2 million, respectively, after deducting commissions and other offering expenses. As of September 30, 2017, $55.0 million of common stock remained available to be sold under this facility, subject to certain conditions as specified in the agreement.

 

Equity Incentive Plan

Under the terms of the 2014 Equity Incentive Plan (“2014 EIP”), we may grant options, RSAs and RSUs to employees, directors, consultants and other service providers. As of September 30, 2017, a total of 10,310,669 shares of common stock were reserved for issuance under the 2014 Plan, of which 3,921,737 shares were available for future grant and 6,388,932 shares were subject to outstanding options and RSUs.

12


 

Restricted Stock Units

The following is a summary of RSU activity under our 2014 EIP:

 

 

 

RSUs

 

 

 

Shares

 

 

Weighted

Average

Grant Date Fair Value

 

Unvested as of December 31, 2016

 

 

1,286,262

 

 

$

16.61

 

Granted

 

 

782,413

 

 

$

15.07

 

Forfeited

 

 

(50,063

)

 

$

15.41

 

Vested

 

 

(282,613

)

 

$

12.02

 

Unvested as of September 30, 2017

 

 

1,735,999

 

 

$

16.70

 

Vested and unreleased

 

 

17,484

 

 

 

 

 

Outstanding as of September 30, 2017

 

 

1,753,483

 

 

 

 

 

 

The fair value of RSUs is determined as the closing stock price on the date of grant. The weighted average grant date fair value of RSUs granted was $15.07 and $17.83 for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, there was $22.8 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted average period of 2.8 years. The aggregate intrinsic value of the RSUs outstanding as of September 30, 2017 was $29.0 million.  

 

Under our RSU net settlement procedures, we withhold shares at settlement to cover the minimum payroll withholding tax obligations. During the nine months ended September 30, 2017, we settled 290,534 RSUs, of which 51,592 RSUs were net settled by withholding 21,895 shares.  The value of the RSUs withheld was $0.4 million, based on the closing price of our common stock on the settlement date. During the nine months ended September 30, 2016, we settled 153,719 RSUs, of which 10,898 RSUs were net settled by withholding 4,251 shares.  The value of the RSUs withheld was $75,000, based on the closing price of our common stock on the settlement date. The value of RSUs withheld in each period was remitted to the appropriate taxing authorities and has been reflected as a financing activity in our condensed consolidated statements of cash flows.

 

Stock Options

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

 

 

 

Shares

 

 

Weighted Average

Exercise Price

 

 

Weighted Average

Remaining

Contractual Term

(Years)

 

 

Aggregate Intrinsic

Value

(in thousands)

 

Outstanding as of December 31, 2016

 

 

3,733,847

 

 

$

24.14

 

 

 

 

 

 

 

 

 

Granted

 

 

1,155,900

 

 

$

15.99

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Forfeited or expired

 

 

(254,298

)

 

$

25.40

 

 

 

 

 

 

 

 

 

Outstanding as of September 30, 2017

 

 

4,635,449

 

 

$

22.04

 

 

 

5.3

 

 

$

4,102

 

Vested and expected to vest as of

   September 30, 2017

 

 

4,635,449

 

 

$

22.04

 

 

 

5.3

 

 

$

4,102

 

Exercisable as of September 30, 2017

 

 

1,887,909

 

 

$

23.77

 

 

 

4.6

 

 

$

1,919

 

 

Aggregate intrinsic value represents the difference between the closing stock price of our common stock on September 30, 2017 and the exercise price of outstanding, in-the-money options. As of September 30, 2017, there was $32.6 million of unrecognized stock-based compensation expense related to stock options that is expected to be recognized over a weighted average period of 2.6 years.

Options for 18,947 shares of our common stock were exercised during the nine months ended September 30, 2016, with an intrinsic value of $0.2 million. No options were exercised during the nine months ended September 30, 2017. As we believe it is more likely than not that no stock option related tax benefits will be realized, we do not record any net tax benefits related to exercised options.

 

13


 

The fair value of each option issued was estimated at the date of grant using the Black-Scholes valuation model. The following table summarizes the weighted-average assumptions used as inputs to the Black-Scholes model, and resulting weighted-average grant date fair values of stock options granted to employees during the periods indicated:

 

 

Nine months ended

September 30, 2017

 

 

 

Nine months ended

September 30, 2016

 

Assumptions:

 

 

 

 

 

 

 

 

Expected term (years)

 

4.5

 

 

 

 

4.5

 

Expected volatility

 

69.1

%

 

 

 

69.0

%

Risk-free interest rate

 

1.8

%

 

 

 

1.3

%

Expected dividend yield

 

0.0

%

 

 

 

0.0

%

Fair Value:

 

 

 

 

 

 

 

 

Weighted-average estimated

   grant date fair value per share

$

8.88

 

 

 

$

11.23

 

Options granted

 

1,155,900

 

 

 

 

795,700

 

Total estimated grant date fair value

$

10,264,000

 

 

 

$

8,935,000

 

 

There were no options granted to consultants in the nine months ended September 30, 2017. 9,000 options were granted to consultants in the nine months ended September 30, 2016.

The estimated fair value of stock options that vested in the nine months ended September 30, 2017 and 2016 was $10.9 million and $10.4 million, respectively.

Employee Stock Purchase Plan

 

As of September 30, 2017, there were 827,630 shares available for purchase under the 2014 Employee Stock Purchase Plan (“2014 ESPP”). The Company recorded $0.4 million and $0.3 million of expense related to the 2014 ESPP in the nine months ended September 30, 2017 and 2016, respectively. 43,962 shares were purchased under the ESPP during the nine months ended September 30, 2017. There were no purchases of shares during the nine months ended September 30, 2016.

 

Options issued outside the 2014 EIP

 

During the three and nine months ended September 30, 2017, we granted 145,000 options and 275,000 options, respectively, at weighted average exercise prices of $13.65 per share and $13.96 per share, respectively, outside of our 2014 EIP. These options have terms similar to the options granted under the 2014 EIP. The weighted average grant date fair value of such grants were $1.2 million and $2.2 million, respectively. No options were granted outside the 2014 EIP during the three and nine months ended September 30, 2016.

Reserved Shares

The following shares of common stock were reserved for future issuance as of September 30, 2017:

 

 

Total Shares

Reserved

 

2014 Equity Incentive Plan

 

10,310,669

 

2014 Employee Stock Purchase Plan

 

827,629

 

Options issued outside the 2014 EIP

 

275,000

 

Total reserved shares of common stock

 

11,413,298

 

 

Stock-based Compensation Expense

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

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

(in thousands)

 

 

(in thousands)

 

Research and development

$

2,136

 

 

$

2,551

 

 

$

6,260

 

 

$

7,231

 

General and administrative

 

3,864

 

 

 

2,718

 

 

 

10,743

 

 

 

7,897

 

Total stock-based compensation expense

$

6,000

 

 

$

5,269

 

 

$

17,003

 

 

$

15,128

 

 

14


 

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

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017. This discussion and other parts of this Quarterly Report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a leading cell therapy company developing novel treatments for patients with cancer and multiple sclerosis, or MS. Our “off-the-shelf”, or allogeneic, T-cells are engineered from donors with healthy immune function and allow for delivery from inventory to patients in 3 to 5 days without a requirement for pretreatment. Our T-cell immunotherapies are designed to precisely recognize and eliminate cancerous or diseased cells without affecting normal, healthy cells. Our most advanced T-cell immunotherapy in development, ATA129, is being developed for the treatment of cancer patients with rituximab-refractory Epstein-Barr virus, or EBV, associated post-transplant lymphoproliferative disorder, or EBV-PTLD, as well as other EBV positive hematologic and solid tumors including nasopharyngeal carcinoma, or NPC. Phase 3 clinical trials of ATA129 in EBV-PTLD are expected to start in the fourth quarter of 2017 and a Phase 1/2 clinical trial in NPC is planned for 2018. In addition, we expect to submit an application for Conditional Marketing Authorization, or CMA, for ATA129 in the European Union, or EU, in 2018. ATA188, our allogeneic T-cell immunotherapy for autoimmune diseases, selectively targets specific EBV antigens believed to be important for the potential treatment of MS. A Phase 1 clinical trial of ATA190, an autologous, or patient-derived, version of ATA188, in progressive forms of MS is ongoing, and a Phase 1 ATA188 clinical trial commenced in Australia in October 2017. We expect the trial to expand to the U.S. in early 2018.  Our clinical pipeline also includes ATA520 targeting Wilms Tumor 1, or WT1, and ATA230 directed against cytomegalovirus, or CMV.

We licensed rights to T-cell product candidates from MSK in June 2015 and to know-how and technology from QIMR Berghofer Medical Research Institute, or QIMR Berghofer, in October 2015 and September 2016. In connection with the license from QIMR Berghofer, we also received an option to exclusively license the autologous version of product candidates intended for the potential treatment of EBV related diseases, including ATA190.

Our relationship with QIMR Berghofer provides rights to know-how and a technology that is complementary to that which we licensed from MSK. This know-how and technology is enabling the development of EBV and other virally-targeted CTLs for other indications, such as MS. We are working with QIMR Berghofer on the development of product candidates for these new indications.

ATA129 for EBV-PTLD after HCT or SOT

Our most advanced T-cell product candidate, ATA129, is currently being investigated for the treatment of EBV-PTLD. In immunocompromised patients, EBV causes lymphomas and other lymphoproliferative disorders, collectively called EBV-PTLD. EBV-PTLD most commonly affects patients after HCT or after SOT. In December 2016, we announced that we had reached agreement with the U.S. Food and Drug Administration, or FDA, on the designs of two Phase 3 trials for ATA129 intended to support approval in two separate indications: the treatment of rituximab-refractory EBV-PTLD after HCT and after SOT.

The MATCH trial (EBV-PTLD after HCT) is designed to be a multicenter, open label, single arm trial designed to enroll approximately 35 patients with rituximab-refractory EBV-PTLD after HCT. The ALLELE trial (EBV-PTLD after SOT) is designed to be a multicenter, open label trial with two non-comparative cohorts. Each cohort is designed to enroll approximately 35 patients. The first cohort will include patients who previously received rituximab monotherapy, and the second cohort will include patients who previously received rituximab plus chemotherapy. Both cohorts are planned to enroll concurrently.

The primary endpoint of both the MATCH and ALLELE trials is objective response rate, defined as the percent of patients achieving either a complete or partial response to treatment with ATA129. Secondary endpoints for both trials include duration of response, overall survival, safety, quality of life metrics, and other data in support of potential health economic benefits. The trials are expected to open initially in the United States and later expand to include ex-U.S. sites.

In addition, in June 2016, we opened a multicenter expanded access protocol, or EAP, trial to provide access to ATA129 treatment and collect additional safety data while the medication is not commercially available or available to patients through another protocol. The trial is open to patients with EBV-associated viremia or certain malignancies for whom there are no appropriate alternative treatment options.  Interim results from the EAP will be presented at the 59th American Society of Hematology Annual

15


 

Meeting in Atlanta, GA in December 2017.  These interim results include that, at the time of abstract submission in August 2017, all five patients with EBV-PTLD after SOT and four of the five patients with EBV-PTLD after HCT responded to treatment. An additional two EBV-PTLD patients received ATA129 and were too early in the follow-up period to assess. An additional ten patients with other EBV-associated cancers received ATA129 and were included in the safety population. ATA129 was generally well-tolerated. Treatment-related, treatment-emergent serious adverse events were reported in five of the 22 treated patients (two in EBV-PTLD and three in other EBV associated cancers patients). A tumor flare was observed in one patient.

Manufacture of ATA129 to support Phase 3 clinical trials is ongoing and continuing as planned. We have generated comparability data using our refined assays and cell lines produced by our contract manufacturing organization, which data we believe supports the demonstration of comparability, and are in discussions with FDA regarding comparability and Phase 3 clinical trial initiation. We expect to initiate two Phase 3 clinical trials with ATA129 in EBV-PTLD in the fourth quarter of 2017 following these discussions with FDA.

In clinical trials that enrolled patients with EBV-PTLD following HCT or SOT, efficacy following treatment with ATA129 compared favorably with historical data in these patient populations. In rituximab-refractory patients with EBV-PTLD after HCT, treatment with ATA129 resulted in one-year overall survival of approximately 60% in two separate clinical trials in comparison with historical data where median survival, or the time by which 50% of patients had died, was 16-56 days. In the setting of rituximab-refractory EBV-PTLD after SOT, similar results were observed, with one-year overall survival of approximately 60% in ATA129-treated patients in comparison with an expected historical one-year survival of 36% in patients with high risk disease similar to the patients treated in the trials. In February 2015, the FDA granted breakthrough therapy designation for ATA129 in the treatment of rituximab-refractory EBV-PTLD after HCT. Breakthrough therapy designation is an FDA process designed to accelerate the development and review of drugs intended to treat a serious condition when early trials show that the drug may be substantially better than current treatment. In February 2016, the FDA granted orphan drug designation for ATA129 for the treatment of patients with EBV-PTLD after HCT or SOT.

We are also pursuing marketing approval of ATA129 in the EU. In March 2016, the EMA issued a positive opinion for orphan drug designation for ATA129 for the treatment of patients with EBV-PTLD. In October 2016, the EMA Committee for Medicinal Products for Human Use, or CHMP, and Committee for Advanced Therapies, or CAT, granted access to the EMA’s newly established Priority Medicines, or PRIME, regulatory initiative for ATA129 for the treatment of patients with rituximab-refractory EBV-PTLD following HCT. PRIME provides early enhanced regulatory support to facilitate regulatory applications and accelerate the review of medicines that address a high unmet need. In January 2017, we announced that pursuant to parallel scientific advice from the EMA’s Scientific Advice Working Group and several national Health Technology Assessment, or HTA, agencies in the EU, in 2018 we plan to submit an application for CMA of ATA129 in the treatment of patients with rituximab-refractory EBV-PTLD following HCT. The CMA will be based on clinical data from Phase 1 and 2 trials conducted at MSK and dependent on certain available data from our Phase 3 trials in rituximab-refractory EBV-PTLD after HCT and SOT. The Phase 3 data that will be submitted as support for the CMA will require a certain number of patients to be enrolled and evaluated in the ongoing trial prior to the time of filing.

ATA129 for Nasopharyngeal Carcinoma

In April 2017, we entered into an agreement where Merck (known as Merck Sharp & Dohme or MSD outside the United States and Canada) will provide drug supply for a trial sponsored and conducted by Atara to evaluate ATA129 in combination with Merck’s anti-PD-1 (programmed death receptor-1) therapy, KEYTRUDA® (pembrolizumab), in patients with platinum resistant or recurrent EBV-associated NPC. The Phase 1/2 trial will evaluate the safety, pharmacokinetics, pharmacodynamics, and preliminary efficacy of the combination and is planned for initiation in 2018.

Other T-Cell Programs

ATA188 and ATA190 for Multiple Sclerosis

ATA188 and ATA190 selectively target specific EBV antigens we believe to be important for the potential treatment of MS. ATA188, the allogeneic version, and ATA190, the autologous version, have the potential to precisely recognize and eliminate EBV-infected B-cells and plasma cells in the central nervous system that may catalyze autoimmune responses and MS pathophysiology.

Our collaborator, QIMR Berghofer, is currently conducting a Phase 1 trial utilizing ATA190 for the treatment of patients with either primary or secondary MS. We have an exclusive option to license this program from QIMR Berghofer.

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The Phase 1 trial is designed to enroll ten patients, including five with primary progressive MS, or PPMS, and five with secondary progressive MS, or SPMS. In this trial, patients receive four escalating doses of ATA190 over six weeks and are followed for an additional 20 weeks after the last dose.  The objectives of the trial are first, to assess the safety and tolerability of ATA190 in patients with progressive MS; second, to document preliminary evidence of efficacy through the evaluation of both clinically measured and patient reported changes in MS symptoms during and following treatment; and third, to generate ATA190 at clinical scale from the blood of patients with progressive MS.

Our collaborating investigators at QIMR Berghofer and the University of Queensland reported updated results from the clinical trial, as well as new results characterizing the molecular signature of EBV in MS brain lesions, at MSParis2017 Congress, the 7th Joint Meeting of the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS) and the Americas Committee for Treatment and Research in Multiple Sclerosis (ACTRIMS) in Paris, France. These updated results showed that six of ten progressive MS patients in the Phase 1 trial experienced clinical improvements, which were first observed 2-14 weeks after the initial infusion. Clinical improvements were reported in primary and secondary progressive MS patients from an established level of disability. Reduction in fatigue was a consistent observation in responding patients. Autologous ATA190 was well-tolerated, and no significant treatment-related adverse events were observed in the study. A correlation between clinical improvement and the reactivity of autologous ATA190 against target EBV antigens (EBV reactivity) was also observed. Five of the six patients who showed clinical improvements received autologous ATA190 with 7% or greater EBV reactivity, including three patients who improved their Expanded Disability Status Scale (EDSS) scores. Of the four patients who received autologous ATA190 with 3% or lower EBV reactivity, one had a mild clinical improvement, one had EDSS worsening, and two reported no change. Clinical improvement also correlated with other mechanistic markers of ATA190 T-cell function in response to EBV. We believe that the clinical improvements observed in six of ten progressive MS patients treated with autologous ATA190, including three patients who improved their EDSS score, highlights the potential that targeting EBV positive B-cells and plasma cells is a potential new treatment modality that could offer a novel alternative to available MS therapies.

We commenced a Phase 1 trial utilizing ATA188 in 60 patients with progressive or relapsing-remitting MS in October 2017. The primary objective of the Phase 1 trial is to assess the safety of allogeneic ATA188 in subjects observed for at least one year after the first dose. Key secondary endpoints in the study include measures of clinical improvement such as expanded disability status scale and annualized relapse rate as well as MRI imaging. We look forward to additional development with both ATA188 and ATA190 to further evaluate the potential therapeutic utility of targeting EBV in the treatment of MS.  

ATA520 for Hematologic Malignancies

Our third T-cell product candidate, ATA520, targets cancers expressing the antigen Wilms Tumor 1, or WT1, and is currently in Phase 1 clinical trials. WT1 is an intracellular protein that is overexpressed in a number of cancers, including multiple myeloma, or MM.  MSK has two ongoing Phase 1 clinical trials evaluating ATA520. The first trial is a dose escalation trial of ATA520 for residual or relapsed leukemia after HCT. The second trial is a dose escalation trial of ATA520 following T-cell depleted HCT for patients with relapsed or refractory MM, including plasma cell leukemia, or PCL. Given the advances of our EBV-related pipeline programs in NPC and MS, as well as the opportunity to pursue a conditional marketing authorization in the EU for ATA129, we expect to initiate an additional clinical trial with ATA520 following the further process development of ATA520 as well as the clinical and regulatory advancement of ATA129 and ATA188.

ATA230 for CMV Viremia

Our fourth T-cell product candidate, ATA230, which is a third-party derived cytomegalovirus, or CMV, CTL, is in Phase 2 clinical trials for refractory CMV infection that occurs in some patients who have received an HCT or SOT or are otherwise immunocompromised. We met with the FDA for an end of Phase 2 meeting to discuss late stage development of ATA230 for the treatment of anti-viral refractory or resistant CMV infection following either HCT or SOT. Atara's collaborating investigators will present updated ATA230 results from 50 post-transplant patients with refractory CMV viremia and disease, including those with disease in the central nervous system, at the 59th American Society of Hematology Annual Meeting in Atlanta, GA in December 2017. Results to be presented include that the reported response rate of 64% in all patients was similar in those with CMV viremia and disease. Patients who responded to ATA230 showed improved 6 and 12-month survival of 81.3% and 62.1%, respectively, versus those patients who did not respond to treatment.  One of the 32 patients who responded died of CMV disease.  ATA230 was generally well-tolerated. Five patients experienced grade 3 or higher adverse events deemed possibility related to ATA230.

Recently, the FDA granted orphan drug designation for ATA230 for the treatment of CMV viremia and disease in immunocompromised patients as well as Rare Pediatric Disease Designation for the treatment of congenital CMV infection. EMA has also granted us orphan status for ATA230 for CMV infection in patients with impaired cell-mediated immunity. Given the opportunity to pursue a CMA in the EU for ATA129, we have decided to prioritize our EBV related programs ahead of ATA230 at this time, and plan to further evaluate ATA230 Phase 3 trial designs following the initiation of our ATA129 Phase 3 trials.

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Financial Overview

We have a limited operating history. Since our inception in 2012, we have devoted substantially all of our resources to identify, acquire and develop our product candidates, including conducting preclinical studies and clinical trials and providing general and administrative support for these operations.

We have never generated revenues and have incurred losses since inception. We do not expect to receive any revenues from any product candidates that we develop until we obtain regulatory approval and commercialize our products or enter into collaborative agreements with third parties.

Our net loss was $84.2 million for the nine months ended September 30, 2017, and as of September 30, 2017, we had an accumulated deficit of $261.3 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative expenses associated with our operations. As of September 30, 2017, our cash, cash equivalents and short-term investments totaled $200.2 million, which we intend to use to fund our operations.

Research and Development Expenses

The largest component of our total operating expenses since inception has been our investment in research and development activities, including the preclinical and clinical development of our product candidates. Research and development expenses consist primarily of compensation and benefits for research and development employees, including stock-based compensation; expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical trials and preclinical studies; the costs of acquiring and manufacturing clinical trial materials and other supplies; payments under licensing and research and development agreements; other outside services and consulting costs; and an allocation of facilities, information technology and overhead expenses. Research and development costs are expensed as incurred.

We plan to increase our research and development expenses as we continue the development of our product candidates. Our current planned research and development activities include the following:

 

initiating and enrolling patients in ATA129 Phase 3 clinical trials for the treatment of EBV-PTLD after HCT and SOT;

 

process development, testing and manufacturing of drug supply to support clinical trials and IND-enabling studies;

 

continuing development of ATA190 and enrolling patients to the Phase 1 trial of ATA188 in MS;

 

continuing development of ATA520 for the treatment of hematologic malignancies, including PCL;

 

continuing to develop other product candidates; and

 

leveraging our relationships and experience to in-license or acquire additional product candidates or technologies.

In addition, we believe it is important to invest in the development of new product candidates to continue to build the value of our product candidate pipeline and our business. We plan to continue to advance our most promising early product candidates into preclinical development with the objective to advance these early-stage programs to human clinical trials over the next several years.

Our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

 

the availability of qualified drug supply for use in our planned Phase 3 or other clinical trials;

 

the scope, rate of progress, and expenses of our ongoing as well as any additional clinical trials and other research and development activities;

 

future clinical trial results;

 

uncertainties in clinical trial enrollment rates or discontinuation rates of patients;

 

potential additional safety monitoring or other studies requested by regulatory agencies;

 

significant and changing government regulation; and

 

the timing and receipt of any regulatory approvals.

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The process of conducting the necessary clinical research to obtain FDA approval is costly and time consuming and the successful development of our product candidates is highly uncertain. The risks and uncertainties associated with our research and development projects are discussed more fully in the section of this report titled “1A.  Risk Factors.” As a result of these risks and uncertainties, we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects, or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and benefits for general and administrative employees, including stock-based compensation; outside professional service costs, including legal, patent, human resources, audit and accounting services; other outside services and consulting costs; and allocated information technology and facilities costs. We anticipate that our general and administrative expenses will continue to increase in the future as we increase our headcount to support our continued research and development and the potential commercialization of one or more of our product candidates.

Interest and Other Income, net

Interest and other income, net consists primarily of interest earned on our cash, cash equivalents and short-term investments.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no significant changes during the nine months ended September 30, 2017 to our critical accounting policies and significant judgments and estimates as disclosed in our management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2016.

Emerging Growth Company Status

We are an “emerging growth company” as defined in the JOBS Act, and therefore we may take advantage of certain exemptions from various public company reporting requirements. As an “emerging growth company”,

 

we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;

 

we will provide less extensive disclosure about our executive compensation arrangements; and

 

we will not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.

However, we are choosing to irrevocably opt out of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards. We will remain an “emerging growth company” for up to five years from the date of our initial public offering, although we will cease to be an “emerging growth company” upon the earliest of: (1) December 31, 2019; (2) the last day of the first fiscal year in which our annual gross revenues are $1 billion or more; (3) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and (4) the date on which we are deemed to be a “large accelerated filer” as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2017 and 2016

Research and development expenses

Research and development expenses consisted of the following costs, by program, in the periods presented:

 

 

 

Three months ended September 30,

 

 

Increase

 

 

Nine months ended September 30,

 

 

Increase

 

 

 

2017

 

 

2016

 

 

(Decrease)

 

 

2017

 

 

2016

 

 

(Decrease)

 

 

 

(in thousands)

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

ATA129

 

$

3,882

 

 

$

2,500

 

 

$

1,382

 

 

$

11,632

 

 

$