Tetraphase Pharmaceuticals
TETRAPHASE PHARMACEUTICALS INC (Form: 10-Q, Received: 08/02/2017 16:09:04)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 June 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: 001-35837

 

TETRAPHASE PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

20-5276217

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

480 Arsenal Way

Watertown, MA

(Address of principal executive offices)

02472

(Zip Code)

 

Registrant’s telephone number, including area code: (617) 715-3600

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

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

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

    ( D o n o t c h e c k i f a s m a l l e r r e p o r t i n g c o m p a n y )

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 August 2, 2017 there were 51,053,448 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

 


 

TETRAPHASE PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2017

TABLE OF CONTENTS

 

 

 

Page No.

 

 

PART I. FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016

3

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2017 and 2016

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

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

13

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

 

 

 

Item 4.

Controls and Procedures

22

 

 

PART II. OTHER INFORMATION

24

 

 

 

Item 1.

Legal Proceedings

24

 

 

 

Item 1A.

Risk Factors

24

 

 

 

Item 6.

Exhibits

52

 

 

 

 

Signatures

51

 

 

2


 

PART I — FINANCI AL INFORMATION

Item 1. Financial Statements

TETRAPHASE PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except par value amounts)

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

118,214

 

 

$

142,086

 

Accounts receivable

 

 

2,682

 

 

 

1,789

 

Prepaid expenses and other current assets

 

 

5,117

 

 

 

6,582

 

Total current assets

 

 

126,013

 

 

 

150,457

 

Property and equipment, net

 

 

1,529

 

 

 

1,054

 

Restricted cash

 

 

199

 

 

 

199

 

Other assets

 

 

 

 

 

-

 

Total assets

 

$

127,741

 

 

$

151,710

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,918

 

 

$

2,555

 

Accrued expenses

 

 

12,124

 

 

 

7,685

 

Deferred revenue

 

 

1,548

 

 

 

1,255

 

Total current liabilities

 

 

20,590

 

 

 

11,495

 

Other long term liabilities

 

 

134

 

 

 

162

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, par value $0.001 per share; 5,000 shares authorized; no shares issued

   and outstanding

 

 

 

 

 

 

Common stock, par value $0.001 per share; 125,000 shares authorized; 40,012 and

  36,942 shares issued and outstanding at June 30, 2017 and December 31, 2016,

   respectively

 

 

40

 

 

 

37

 

Additional paid-in capital

 

 

515,378

 

 

 

487,148

 

Accumulated deficit

 

 

(408,401

)

 

 

(347,132

)

Total stockholders’ equity

 

 

107,017

 

 

 

140,053

 

Total liabilities and stockholders’ equity

 

$

127,741

 

 

$

151,710

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

3


 

TETRAPHASE PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues

$

1,586

 

 

$

1,243

 

 

$

3,071

 

 

$

3,205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

28,513

 

 

 

13,746

 

 

 

54,460

 

 

 

27,269

 

General and administrative

 

5,065

 

 

 

4,759

 

 

 

10,198

 

 

 

10,012

 

Total operating expenses

 

33,578

 

 

 

18,505

 

 

 

64,658

 

 

 

37,281

 

Loss from operations

 

(31,992

)

 

 

(17,262

)

 

 

(61,587

)

 

 

(34,076

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

181

 

 

 

94

 

 

 

318

 

 

 

167

 

Net loss

$

(31,811

)

 

$

(17,168

)

 

$

(61,269

)

 

$

(33,909

)

Net loss per share-basic and diluted

$

(0.83

)

 

$

(0.47

)

 

$

(1.63

)

 

$

(0.93

)

Weighted-average number of common shares used in net loss

   per share-basic and diluted

 

38,273

 

 

 

36,629

 

 

 

37,686

 

 

 

36,614

 

Comprehensive loss

$

(31,811

)

 

$

(17,168

)

 

$

(61,269

)

 

$

(33,909

)

 

See accompanying notes to condensed consolidated financial statements

 

 

 

4


 

TETRAPHASE PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(61,269

)

 

$

(33,909

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

201

 

 

 

136

 

Stock-based compensation expense

 

 

6,236

 

 

 

6,985

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(893

)

 

 

1,169

 

Prepaid expenses and other assets

 

 

1,465

 

 

 

(1,543

)

Accounts payable

 

 

4,363

 

 

 

(315

)

Accrued expenses and other liabilities

 

 

4,411

 

 

 

(350

)

Deferred revenue

 

 

293

 

 

 

285

 

Net cash used in operating activities

 

 

(45,193

)

 

 

(27,542

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(676

)

 

 

(175

)

Net cash used in investing activities

 

 

(676

)

 

 

(175

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from sale of common stock, net of issuance costs

 

 

21,703

 

 

 

 

Proceeds from issuance of stock under stock plans

 

 

294

 

 

 

116

 

Net cash provided by financing activities

 

 

21,997

 

 

 

116

 

Net decrease in cash and cash equivalents

 

$

(23,872

)

 

$

(27,601

)

Cash and cash equivalents at beginning of period

 

 

142,086

 

 

 

205,912

 

Cash and cash equivalents at end of period

 

$

118,214

 

 

$

178,311

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

 

5


 

Tetraphase Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization and Operations

Tetraphase Pharmaceuticals, Inc. (the “Company”) is a clinical-stage biopharmaceutical company using its proprietary chemistry technology to create novel antibiotics for serious and life-threatening multidrug-resistant infections. The Company is developing its lead product candidate, eravacycline, a fully-synthetic fluorocycline, as an intravenous, or IV, and oral antibiotic for use as a first-line empiric monotherapy for the treatment of multidrug-resistant infections, including multidrug-resistant, or MDR, Gram-negative infections. The Company is also pursuing the discovery and development of additional antibiotics that target unmet medical needs, including multidrug-resistant Gram-negative bacteria.

The Company is devoting substantially all of its efforts to product research and development, and market development. The Company is subject to a number of risks similar to those of other life science companies in a similar stage of development, including rapid technological change, dependence on key individuals, competition from other companies, compliance with government regulations, protection of proprietary technology, dependence on third parties, product liability, the need for development of commercially viable products, regulatory approval of products, uncertainty of market acceptance of products, and the need to obtain additional financing to fund the development of its product candidates. The Company has not completed development of any product candidate and has devoted substantially all of its financial resources and efforts to research and development, including preclinical and clinical development. The Company expects to continue to incur significant expenses and operating losses for at least the next several years, and expects to require additional financial resources to advance its product candidates.

The Company has incurred annual net operating losses in every year since its inception. As of June 30, 2017, the Company had incurred losses since inception of $408.4 million. The Company has not generated any product revenues and has financed its operations primarily through public offerings and private placements of its equity securities, debt financings and funding from the United States government.

There can be no assurance that the Company will be able to generate product revenue in its anticipated amounts, on a timely basis or at all, or obtain additional debt or equity financing, or generate revenues from collaborative partners on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to generate revenues or obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations and financial condition.

The Company believes that its existing cash and cash equivalents, together with net proceeds from its underwritten public offering, will enable it to fund its operating expenses and capital expenditure requirements into at least early 2019, which it believes would allow it to submit a new drug application (“NDA”) and marketing authorization application (“MAA”) for IV eravacycline for the treatment of complicated intra-abdominal infections (“cIAI”), obtain top-line complicated urinary tract infection (“cUTI”) data from its IGNITE3 clinical study, to submit a supplemental new drug application (“sNDA”) to the United States Food and Drug Administration (“FDA”) for the treatment of cUTI if warranted, and to perform pre-commercialization activities and commercially launch eravacycline for the treatment of cIAI if approved. The Company may never be profitable even if it is successful in launching eravacycline for one or more indications. Until such time as the Company is profitable, if ever, the Company will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.

2.  Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles (“GAAP”) for complete financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2016 contained in the Company’s annual report on Form 10-K filed with the SEC on March 13, 2017 (the “2016 Form 10-K”). The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position as of June 30, 2017 and the results of operations and comprehensive loss and cash flows for the three and six months ended June 30, 2017 and 2016. Interim operating results for the three and sixth months ended June 30, 2017 are not necessarily indicative of the results that may be expected for future interim periods or for the fiscal year ending December 31, 2017.

 

6


 

The December 31, 2016 condensed consolidated balance sheet included herein was derived from audited consolidated financial statements, but does not include all disclosures including notes required by GAAP for complete financial statements.   

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. On an ongoing basis, the Company’s management evaluates its estimates, including estimates related to clinical trial accruals, stock-based compensation expense, contract and grant revenues, and expenses. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Going Concern Assessment

Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements - Going Concern, requires management to evaluate the company’s ability to continue as a going concern one year beyond the filing date of the given financial statements. This evaluation requires management to perform two steps. First, management must evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern. Second, if management concludes that substantial doubt is raised, management is required to consider whether it has plans in place to alleviate that doubt. Disclosures in the notes to the financial statements are required if management concludes that substantial doubt exists or that its plans alleviate the substantial doubt that was raised. Based on a detailed cash forecast incorporating current development activities and related spending plans, the Company expects its cash to last more than one year beyond the date that the financial statements were issued. Based on this analysis, no additional disclosures are required.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standard Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The FASB has subsequently issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing ; ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients ; and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers . The Company is currently evaluating the potential impact that these updates may have on its financial position, results of operations and cash flows, specifically the impact on its revenue produced via its contracts with the Biomedical Advanced Research and Development Authority (“BARDA”), the National Institute of Allergy and Infectious Diseases (“NIAID”) and CARB-X, an international public-private partnership focused on advancing new antimicrobial products to address the threat of antibiotic resistance. The Company is currently completing contract reviews and evaluating whether these contracts are subject to Topic 606. The Company expects these contract reviews to be completed in the third quarter. The Company plans to use the modified retrospective method of adoption, to be effective January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for the Company on January 1, 2019. The Company is currently evaluating the potential impact that this standard may have on its financial position, results of operations and cash flows.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) . This new standard provides guidance to ensure consistency in how transactions are reflected in the statement of cash flows. ASU 2016-15 will be effective for the Company for annual periods beginning after December 15, 2017. The Company is currently evaluating the potential impact that this standard may have on its statements of cash flows.

 

7


 

In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash (“ASU 2016-18”) . ASU 20 16-18 clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. The guidance will be applied retrospectively and will be effective for the Company for annual and interim periods beginning after De cember 15, 2017. The Company is currently evaluating the potential impact that this standard may have on its financial position, statements of operations and cash flows.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). The new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The new standard will be effective for the Company on January 1, 2018. The Company is currently evaluating the potential impact that this standard may have on its financial position, statements of operations and cash flows.

Recently Adopted Accounting Standards

In March 2016, the FASB issued ASU No. 2016-09,  Improvements to Employee Share-Based Payment Accounting   (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, forfeiture rates, and classification on the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those annual reporting periods. The Company adopted ASU No. 2016-09 as of January 1, 2017. As a result of adopting ASU No. 2016-09, the Company elected to recognize share-based award forfeitures only as they occur rather than by applying an estimated forfeiture rate as previously required. ASU No. 2016-09 requires that this change be applied using a modified-retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is adopted. The Company did not make an adjustment to retained earnings as the amount was immaterial to the financial statements.

3.  Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities. Fair value measurements are classified and disclosed in one of the following three categories:

 

 

 

 

Level 1

Quoted prices in active markets for identical assets or liabilities.

 

 

 

Level 2

Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

 

 

Level 3

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

Financial instruments measured at fair value as of June 30, 2017 and December 31, 2016 are classified below based on the three fair value hierarchy tiers described above (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

Balance

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

118,214

 

 

$

118,214

 

 

$

 

 

$

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

142,086

 

 

$

142,086

 

 

$

 

 

$

 

 

The Company measures cash equivalents at fair value on a recurring basis. The fair value of cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets.

4.  Net Loss per Common Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of Common Stock outstanding for the period, without consideration for common stock equivalents. The Company’s potentially dilutive shares, which include outstanding stock options, unvested restricted stock units and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

 

8


 

The amounts in the table below were excluded from the calculation of net loss per share, due to their anti-dilutive effect:

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

Warrants

 

 

1,103

 

 

 

1,103

 

Unvested restricted stock units

 

 

340,616

 

 

 

475,100

 

Outstanding stock options

 

 

6,087,428

 

 

 

4,221,517

 

Totals

 

 

6,429,147

 

 

 

4,697,720

 

 

5.  Significant Agreements and Contracts

License Agreement

In August 2006, the Company entered into a license agreement for certain intellectual property with Harvard University (“Harvard”). Under the license agreement, as of June 30, 2017, the Company has paid Harvard an aggregate of $4.4 million in upfront license fees and development milestone payments, and has issued 31,379 shares of common stock to Harvard. For each product covered by the license agreement, the Company is obligated to make certain payments totaling up to approximately $15.1 million upon achievement of certain development and regulatory milestones and to pay additional royalties on net sales of such product.

Government Grant and Contracts

BARDA Contract for Eravacycline

The Company has received funding for its lead product candidate, eravacycline, under an award from BARDA, an agency of the U.S. Department of Health and Human Services. In January 2012, BARDA awarded an initial five-year contract, which has since been extended, that provides for up to a total of $67.3 million in funding for the development, manufacturing and clinical evaluation of eravacycline for the treatment of disease caused by bacterial biothreat pathogens (“BARDA Contract”). The funding under the BARDA Contract is also being used for the development, manufacturing and clinical evaluation of eravacycline to treat certain infections caused by life-threatening multidrug-resistant bacteria.

In connection with the BARDA Contract, in February 2012, the Company entered into a cost-plus-fixed-fee subcontract with CUBRC Inc. (“CUBRC”), an independent, not for profit, research corporation that specializes in U.S. government-based contracts, which is also the direct recipient of the BARDA Contract. This subcontract, which currently expires in May 2018, granted the Company initial funding of up to $41.6 million, reflecting the portion of the BARDA Contract funding that may be paid to the Company for its activities. The total committed funding under the BARDA subcontract has increased since the initial award in 2012 due to BARDA’s exercise of options to continue to fund specific work performed by the Company related to eravacycline.

Although the BARDA Contract and the Company’s subcontract with CUBRC under the BARDA Contract have terms which currently expire in May 2018, BARDA is entitled to terminate the project for convenience at any time, and is not obligated to provide continued funding beyond current-year amounts from congressionally approved annual appropriations. To the extent that BARDA ceases to provide funding of the program to CUBRC, CUBRC has the right to cease providing funding to the Company. Committed funding from CUBRC under the Company’s BARDA subcontract is for up to $41.6 million through May 10, 2018, the current contract end date, as a result of the exercise of several options by BARDA under the BARDA Contract. Total funds of $33.7 million had been received by the Company through June 30, 2017 under this contract. During the three months ended June 30, 2017 and 2016, the Company recognized revenue of $1.0 million and $0.5 million, respectively, from the Company’s subcontract under the BARDA Contract. During the six months ended June 30, 2017 and 2016, the Company recognized revenue of $1.5 million and $1.6 million, respectively, from the Company’s subcontract under the BARDA Contract.

NIAID Grant and Contract for TP-271

The Company has received funding for its phase 1 compound TP-271 under two awards from NIAID for the development, manufacturing and clinical evaluation of TP-271 for respiratory diseases caused by biothreat and antibiotic-resistant public health pathogens, as well as bacterial pathogens associated with community-acquired bacterial pneumonia:

 

the NIAID Grant awarded in July 2011 that provides up to a total of approximately $2.9 million over five years; and

 

the NIAID Contract awarded in September 2011 that provides up to a total of approximately $35.8 million over five years.

In connection with the NIAID Grant, in November 2011, CUBRC, the direct recipient of the NIAID Grant, awarded the Company a no-fee subaward of approximately $0.9 million, reflecting the portion of the NIAID Grant funding that may be paid to the Company for its activities.

 

9


 

In connection with the NIAID Contract, in October 2011, the Company entered into a cost-plus-fixed-fee subcontract with CUBRC, the direct recipient of the NIAID Contract, which subcontract currently expires i n December 2018 under which the Company may receive funding of up to approximately $15.1 million, reflecting the portion of the NIAID Contract funding that may be paid to the Company for its activities. The total potential committed funding under the NIAID subcontract has increased since the initial award in 2011 due to NIAID’s exercise of options to continue to fund specific work performed by the Company related to TP-271.

Although the NIAID Contract and the Company’s subcontract with CUBRC under the NIAID Contract have terms which currently expire on December 31, 2018, NIAID is entitled to terminate the project for convenience at any time, and is not obligated to provide continued funding beyond the respective expiration dates. To the extent that NIAID ceases to provide funding of the programs to CUBRC, CUBRC has the right to cease providing funding to the Company. As of June 30, 2017, committed funding from CUBRC under the Company’s subcontract with respect to the NIAID Contract is $15.1 million, of which $11.5 million had been received through June 30, 2017. In addition, the NIAID Grant and the company’s subaward from CUBRC expired on May 31, 2017. Committed funding from CUBRC under the Company’s subaward with respect to the NIAID Grant is $0.9 million, of which $0.9 million had been received through June 30, 2017.

During the three months ended June 30, 2017 and 2016, the Company recognized revenue of $0.2 million and $0.7 million, respectively, from the Company’s subcontract under the NIAID Contract. During the three months ended June 30, 2017 and 2016, the Company recognized revenue of $3,000 and $43,000, respectively, from the Company’s subaward under the NIAID Grant. During the six months ended June 30, 2017 and 2016, the Company recognized revenue of $1.2 million and $1.6 million, respectively, from the Company’s subcontract under the NIAID Contract. During the six months ended June 30, 2017 and 2016, the Company recognized revenue of $9,000 and $63,000, respectively, from the Company’s subaward under the NIAID Grant.

CARB-X Award for TP-6076

In March 2017, CARB-X, an international public-private partnership focused on advancing new antimicrobial products to address the threat of antibiotic resistance, selected the Company to receive up to $4.0 million in research funding over eighteen months for TP-6076. In connection with this funding, the Company entered into a cost reimbursement Sub-Award Agreement (the “Sub-award Agreement”) with the Trustees of Boston University, the administrator of the program. The Company began recognizing revenue from the Sub-Award Agreement in April 2017. During the three months ended June 30, 2017, the Company recognized revenue of $0.4 million under this Sub-Award Agreement. This Sub-Award Agreement will fund certain activities through the end of 2018. This Sub-Award Agreement can be terminated for convenience at any time, subject to 30 days written notice.

 

6.  Accrued Expenses

Accrued expenses at June 30, 2017 and December 31, 2016 consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Clinical trial related

 

$

5,941

 

 

$

1,129

 

Drug supply and development

 

 

2,412

 

 

 

2,698

 

Salaries and benefits

 

 

1,986

 

 

 

2,498

 

Professional fees

 

 

1,104

 

 

 

965

 

Preclinical

 

 

216

 

 

 

163

 

Other

 

 

465

 

 

 

232

 

Total

 

$

12,124

 

 

$

7,685

 

 

7.  Stock-Based Compensation

In January 2017, the number of shares available for issuance under the Tetraphase Pharmaceuticals, Inc. Stock Incentive Plan (the “2006 Plan”) and the amended 2013 Stock Incentive Plan (“2013 Plan”) was increased by approximately 1.5 million shares as a result of the automatic increase provision of the 2013 Plan. As of June 30, 2017, the total number of shares of common stock available for issuance under the 2013 Plan was approximately 0.6 million.

 

10


 

Stock-Based Compensation Expense

During the three and six months ended June 30, 2017, and 2016, the Company recognized the following stock-based compensation expense (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Research and development

 

$

1,596

 

 

$

1,089

 

 

$

3,174

 

 

$

3,480

 

General and administrative

 

 

1,564

 

 

 

1,720

 

 

 

3,062

 

 

 

3,505

 

Total

 

$

3,160

 

 

$

2,809

 

 

$

6,236

 

 

$

6,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Stock options

 

$

2,946

 

 

$

2,482

 

 

$

5,815

 

 

$

5,887

 

Restricted stock units

 

 

185

 

 

 

285

 

 

 

368

 

 

 

991

 

Employee stock purchase plan

 

 

29

 

 

 

42

 

 

 

53

 

 

 

107

 

Total

 

$

3,160

 

 

$

2,809

 

 

$

6,236

 

 

$

6,985

 

 

Stock Options

The following table summarizes the stock option activity for the six months ended June 30, 2017 :

 

 

 

Shares

 

 

Weighted-

Average

Exercise

Price

 

Outstanding at December 31, 2016

 

 

4,066,411

 

 

$

18.42

 

Granted

 

 

2,172,750

 

 

$

4.18

 

Exercised

 

 

(46,502

)

 

$

3.03

 

Forfeited

 

 

(105,231

)

 

$

16.34

 

Outstanding at June 30, 2017

 

 

6,087,428

 

 

$

13.49

 

Exercisable at June 30, 2017

 

 

2,584,305

 

 

$

16.80

 

As of June 30, 2017, there was $21.8 million of total unrecognized stock-based compensation cost related to employee unvested stock options granted under the 2006 Plan and the 2013 Plan. The Company expects to recognize that cost over a remaining weighted-average period of 2.7 years.

Restricted Stock Units

In January 2016, the Company granted additional restricted stock units to employees. These restricted stock units vest in annual increments over three years, subject to continued employment with the Company and had a grant date fair value of $8.47 per share, which was the closing price of the Company’s common stock on the date of grant.  

In January 2017, the Company issued 175,000 restricted stock units with service and performance conditions to certain employees, none of which vested during the six months ended June 30, 2017. Vesting of these awards is contingent on the occurrence of certain milestone events and fulfillment of any remaining service condition. As a result, the related compensation cost is recognized as an expense when achievement of the milestone is considered probable.

 

11


 

The following table summarizes the restricted stock activity for the six months ended June 30, 2017:

  

 

 

Shares

 

 

Weighted-

Average

Grant Date Fair Value

 

Unvested at December 31, 2016

 

 

254,378

 

 

$

8.47

 

Granted

 

 

175,000

 

 

$

3.83

 

Forfeited

 

 

(3,990

)

 

$

8.47

 

Vested/Released

 

 

(84,772

)

 

$

8.47

 

Unvested at June 30, 2017

 

 

340,616

 

 

$

6.09

 

As of June 30, 2017, there was $1.7 million of total unrecognized stock-based compensation expense related to restricted stock units granted under the 2013 Plan. The expense is expected to be recognized over a weighted-average period of 2.1 years.    

Employee stock purchase plan

Under the Company’s 2014 ESPP, an aggregate of 300,000 shares of common stock have been reserved for issuance pursuant to purchase rights granted to the Company’s employees. As of June 30, 2017, 171,697 shares remained available for issuance. During the six months ended June 30, 2017 and 2016, 44,785 shares and 21,178 shares of common stock were issued under the 2014 ESPP, respectively.

8.  Equity

On January 17, 2017, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”), with Cantor Fitzgerald & Co. as sales agent (“Cantor”). On July 7, 2017, the Company entered into an amendment to the Sales Agreement to increase the maximum aggregate offering price of the shares of common stock that it may issue and sell from time to time under the Sales Agreement from $40,000,000 to $80,000,000.

Under the Sales Agreement, as amended (the “Amended Sales Agreement”), Cantor may sell shares of the Company’s common stock by methods deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including sales made directly on The NASDAQ Global Select Market or on any other existing trading market for the Company’s common stock.

 

The Company is not obligated to make any sales of shares of its common stock under the Amended Sales Agreement. The Company or Cantor may suspend or terminate the offering of shares of the Company’s common stock upon notice to the other party and subject to other conditions. The Company will pay Cantor a commission rate equal to 3.0% of the gross proceeds per share sold.

As of June 30, 2017, the Company had sold an aggregate of 2,894,156 shares of common stock under the Sales Agreement, at an average selling price of approximately $7.81 per share for aggregate gross proceeds of $22.6 million and net proceeds of $21.7 million after deducting the sales commissions and offering expenses. As of August 1, 2017, an additional 1,041,294 shares were sold under the original and amended Sales Agreements subsequent to June 30, 2017, for aggregate gross proceeds of $8.0 million and net proceeds of $7.8 million after deducting sales commissions and offering expenses, which will be recognized during the third quarter of 2017. As of August 1, 2017, $49.4 million of common stock remained available to be sold under the amended Sales Agreement, subject to certain conditions specified therein.

 

9.  Subsequent Events

On August 2, 2017, the Company sold 10,000,000 shares of common stock in an underwritten public offering at an offering price to the public of $6.50 per share, resulting in net proceeds to the Company of $60.9 million after deducting underwriting discounts and commissions of $3.9 million and offering costs of $0.2 million. In connection with the offering, the Company granted the underwriters an option to purchase 1,500,000 additional shares on the same terms and conditions as the offering.

 

 

12


 

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

The interim financial statements included in this quarterly report on Form 10-Q and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2016, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our annual report on Form 10-K filed with the United States Securities and Exchange Commission, or the SEC, on March 13, 2017, which we refer to as our annual report. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are subject to risks and uncertainties, including those set forth in Part II — Other Information, Item 1A. Risk Factors below and elsewhere in this report that could cause actual results to differ materially from historical results or anticipated results.

Overview

We are a clinical-stage biopharmaceutical company using our proprietary chemistry technology to create novel antibiotics for serious and life-threatening multidrug-resistant infections. We are developing our lead product candidate, eravacycline, a fully-synthetic fluorocycline, as an intravenous, or IV, and oral antibiotic for use as a first-line empiric monotherapy for the treatment of multidrug-resistant infections, including multidrug-resistant, or MDR, Gram-negative infections. We are also pursuing the discovery and development of additional antibiotics that target unmet medical needs, including multidrug-resistant Gram-negative bacteria.

We are conducting a global phase 3 clinical program for eravacycline called IGNITE ( I nvestigating  G ram -N egative I nfections  T reated with  E ravacycline). On July 25, 2017, we announced top-line data from our IGNITE4 trial, a global phase 3 randomized, double-blind, double-dummy, multicenter, prospective study assessing the efficacy, safety and pharmacokinetics of twice-daily IV eravacycline (1.0 mg/kg every 12 hours) compared with meropenem (1g every 8 hours) for the treatment of complicated intra-abdominal infections, or cIAI that we conducted in 500 patients. In the trial, eravacycline met the primary endpoint of statistical non-inferiority of clinical response at the test-of-cure, or TOC, visit, under the guidance set by the United States Food and Drug Administration, or FDA, and the European Medicines Agency, or EMA . Prior to IGNITE 4, we conducted IGNITE1, a phase 3 clinical trial of twice daily IV eravacycline (1.0 mg/kg every 12 hours) compared with ertapenem (1.0g IV every 24 hours) for the treatment of cIAI. In IGNITE1, eravacycline met the primary endpoint of statistical non-inferiority of clinical response. 

We designed IGNITE4 as a non-inferiority study, and to be responsive to guidance from both the FDA and the EMA. Under FDA guidance, the primary endpoint of the trial was clinical response at the TOC visit in the microbiological intent-to-treat, or micro-ITT, population, which consisted of randomized patients in the trial who had baseline bacterial pathogens that cause cIAI and against which eravacycline has antibacterial activity. Under EMA guidance, the primary endpoint of the trial was clinical response at the TOC visit in the modified intent-to-treat, or MITT, population, which consisted of patients in the trial who received at least one dose of study drug, and in the clinically evaluable, or CE, patient population, which consisted of patients in the trial who met key inclusion/exclusion criteria and followed other important components of the trial. Secondary endpoints included clinical response at the end-of-treatment, TOC and follow-up visits in the intent-to-treat population, the CE population, the micro-ITT population and the microbiologically evaluable, or ME, population. The ME population consisted of all micro-ITT patients who met key inclusion/exclusion criteria and followed other important components of the trial. In the trial, we also studied microbiologic response at the end-of-treatment and TOC visits in the micro-ITT and ME populations, the safety and tolerability of eravacycline in the safety population and pharmacokinetic parameters after eravacycline administration.

Eravacycline achieved high clinical cure rates in patients with cIAI, comparable to cure rates in the patients in the meropenem group. The primary efficacy analysis under the FDA guidance was conducted using a 12.5% non-inferiority margin in the micro-ITT population. Clinical cure rates in the micro-ITT population were 90.8% and 91.2% for eravacycline (n=195) and meropenem (n=205), respectively (95% CI: -6.3%,5.3%). Under the EMA guidance, the primary analysis was conducted using a 12.5% non-inferiority margin of the MITT and CE patient populations. Clinical cure rates in the MITT population were 92.4% and 91.6% for eravacycline (n=250) and meropenem (n=249), respectively (95% CI: -4.1%,5.8%). Clinical cure rates in the CE population were 96.9% and 96.1% for eravacycline (n=225) and meropenem (n=231), respectively (95% CI: -2.9%,4.5%). The secondary analyses were consistent with, and supportive of, the primary outcome.

 

There were no treatment-related serious adverse events in the trial. Treatment-emergent adverse event rates were similar in both treatment groups. The most commonly reported drug-related adverse events for eravacycline were infusion site reactions, nausea and vomiting, each occurring at a rate of less than 5%. The safety profile for IV eravacycline in IGNITE4 was consistent with that seen in the previously completed phase 3 IGNITE1 and phase 2 clinical trials in cIAI. In addition, the spectrum of pathogens in this trial was similar to that seen in previously completed clinical trials of third party products in this patient population. The most common Gram-negative pathogens in the study included Escherichia coli, Klebsiella pneumonia, Pseudomonas and Bacteroides .

 

13


 

Consistent with draft guidance issued by the FDA with respect to the development of antibiotics for cIAI and our discussions with the FDA, we believe that the positive results observed in both IGNITE1 and IGNITE4 are sufficient to support submission of a new drug application, or NDA, for eravacycline for the treatment of cIAI with the FDA . We anticipate submitting an NDA by the end of the first quarter of 2018 . Consistent with discussions with the EMA, we are also planning to submit a marketing authorizat ion application, or MAA, to the EMA for IV eravacycline for the treatment of cIAI in the third quarter of 2017 primarily based upon the results of IGNITE1.

We are also developing eravacycline for the treatment of complicated urinary tract infections, or cUTI. In January 2017, we initiated IGNITE3, a randomized, multi-center , double-blind, phase 3 clinical trial evaluating the efficacy and safety of once-daily IV eravacycline (1.5mg/kg every 24 hours) compared to ertapenem (1g every 24 hours), the control therapy in this trial, for the treatment of cUTI. IGNITE3 is expected to enroll approxi mately 1,000 adult patients, who will be randomized 1:1 to receive eravacycline or ertapenem for a minim um of five days, and will then be eligible to switch to an oral antibiotic . The co-primary endpoints of responder rate (a combination of clinical cure rate and microbiological success) in the micro-ITT population at the end-of-IV treatment visit and at the TOC visit (Day 14-17 after randomization) will be evaluated using a 10% non-inferiority margin. We expect to complete enrollment in IGNITE3 early in the fourth quarter of 2017. If IGNITE3 is successful, we plan to use the results from IGNITE3 to support submission of a supplemental new drug application, or sNDA, for IV eravacycline for the treatment of cUTI, assuming approval first of IV eravacycline for the treatment of cIAI.

In parallel with the clinical trials using IV eravacycline, we are continuing our development program for an oral formulation of eravacycline. We recently completed a phase 1 clinical trial in which the administration of oral eravacycline to patients in the fasted state resulted in increased drug exposure. Further clinical tests designed to evaluate other important variables are currently ongoing, with the goal of optimizing the oral eravacycline dosing regimen.

The FDA has granted Qualified Infectious Disease Product (QIDP) and Fast Track designations for IV and oral eravacycline for cIAI and cUTI.

In June 2017, we announced positive results from a phase 1 single-ascending dose clinical trial of the IV formulation of TP-271, a fully-synthetic fluorocycline being developed for respiratory disease caused by bacterial biothreat pathogens, in healthy volunteers. In the study, TP-271 was well tolerated at single doses that resulted in high plasma exposures. There were no clinically significant changes in lab values, ECG parameters, or physical exam findings. There were no serious or severe adverse events, or discontinuations due to an adverse event during the study. We plan to initiate a multiple-ascending dose trial for TP-271 in the third quarter of 2017. We are also conducting a single-ascending dose phase 1 study for the oral formulation of TP-271. In February 2017, we received Qualified Infectious Disease Product and Fast Track designations from the FDA .

In addition, we are developing TP-6076, a fully-synthetic fluorocycline derivative, as a lead candidate under our second-generation program to target unmet medical needs, including multidrug-resistant Gram-negative bacteria. In June 2017, we announced positive results from a phase 1 randomized, placebo-controlled, double-blind, single-ascending dose study evaluating the safety, tolerability and pharmacokinetics of IV TP-6076. In the study, TP-6076 was well tolerated, and there were no serious or severe adverse events, or discontinuations due to an adverse event. There were no clinically significant safety findings in any laboratory assessments, vital signs, ECGs or physical examinations. We also are conducting a multiple-ascending study in healthy volunteers of the IV formulation of TP-6076. 

We commenced business operations in July 2006. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our proprietary chemistry technology, identifying potential product candidates and undertaking preclinical studies and clinical trials of our product candidates. To date, we have not generated any product revenue and have primarily financed our operations through public offerings and private placements of our equity securities, debt financings and funding from the United States government. As of June 30, 2017, we had received an aggregate of $482.2 million in net proceeds from the issuance of equity securities and borrowings under debt facilities and an aggregate of $46.1 million from government grants and contracts. As of June 30, 2017, our principal source of liquidity was cash and cash equivalents, which totaled $118.2 million.

 

14


 

As of June 30, 2017, we had an accumulated deficit of $408.4 million. Our net losses were $31.8 million and $17.2 million for the three months ended June 30, 2017 and 2016, respectively. Our net losses were $61.3 million and $33.9 million for the six months ended June 30, 2017 and 2016, respectively. We expect that our expenses will increase as we continue development of eravacycline, seek marketing approval for eravacycline, conduct pre-commercialization activities for eravacycline , pursue development of eravacycline for additional indications, manufacture drug product for our clinical and pre-clinical trials, conduct our phase 1 clinical trial of TP-271 in healthy volunteers, and our phase 1 clinical trial of TP-6076 in healthy vol unteers and satisfy our obligations under our license agreement with Harvard University, or Harvard. If we obtain marketing approval of eravacycline, we also expect to incur significant sales, marketing, distribution and manufacturing expenses. Furthermore , we expect to incur ongoing research and development expenses relating to our product candidates other than eravacycline and that our general and administrative costs will increase as we grow and continue to operate as a public company, and comply with in creased disclosure requirements since we are no longer an emerging growth company.

On August 2, 2017, the Company sold 10,000,000 shares of common stock in an underwritten public offering at an offering price to the public of $6.50 per share, resulting in net proceeds to the Company of $60.9 million after deducting underwriting discounts and commissions of $3.9 million and offering costs of $0.2 million. In connection with the offering, the Company granted the underwriters an option to purchase 1,500,000 additional shares on the same terms and conditions as the offering.

We believe that our cash and cash equivalents, together with the net proceeds from our underwritten public offering, will enable us to fund our operating expenses and capital expenditure requirements at least into at least early 2019, which we believe will allow us to obtain top-line data from IGNITE3 and submit the NDA and MAA for IV eravacycline for the treatment of cIAI, to submit an sNDA to the FDA for the treatment of cUTI if warranted, and to perform pre-commercialization activities and commercially launch eravacycline for the treatment of cIAI if approved. It is also possible that we will not achieve the progress that we expect with respect to eravacycline because the actual costs and timing of clinical development activities are difficult to predict and are subject to substantial risks and delays. We will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. Moreover, we will need to generate significant revenue to achieve profitability, and we may never do so.

Financial overview

Contract and Grant Revenue

We have derived all of our revenue to date from funding provided under three U.S. government awards for the development of our compounds as potential counter measures for the treatment of disease caused by bacterial biothreat pathogens through our collaborator CUBRC Inc., or CUBRC, an independent, not-for-profit, research corporation that specializes in U.S. government-based contracts:

 

We have received funding for our lead product candidate, eravacycline, under an award from the Biomedical Advanced Research and Development Authority, or BARDA, an agency of the U.S. Department of Health and Human Services. In January 2012, BARDA awarded CUBRC an initial five-year contract, which has been extended, that provides for up to a total of $67.3 million in funding for the development, manufacturing and clinical evaluation of eravacycline for the treatment of disease caused by bacterial biothreat pathogens. We refer to this contract as the BARDA Contract. The funding under the BARDA Contract is also being used for the development, manufacturing and clinical evaluation of eravacycline to treat certain infections caused by life-threatening multidrug-resistant bacteria. We refer to this contract as the BARDA Contract.

 

We have received funding for our phase 1 compound TP-271 under two awards from the National Institute of Allergy and Infectious Diseases, or NIAID, a division of National Institutes of Health, for the development, manufacturing and clinical evaluation of TP-271 for respiratory diseases caused by biothreat and antibiotic-resistant public health pathogens, as well as bacterial pathogens associated with community-acquired bacterial pneumonia:

 

-

a grant awarded to CUBRC in July 2011 that provided up to a total of approximately $2.9 million through May 31, 2017, which we refer to as the NIAID Grant; and

 

-

a contract awarded to CUBRC in September 2011 that provides up to a total of approximately $35.8 million in funding through December 31, 2018, which we refer to as the NIAID Contract.

We are collaborating with CUBRC on these grants and contracts, because when we initially decided to seek government funding, we recognized that we did not have any expertise in bidding for, administrating or managing government-funded contracts. CUBRC serves as the prime contractor under the BARDA Contract, the NIAID Grant and the NIAID Contract, primarily carrying out

 

15


 

a program management and administrative role with additional responsibility for the management of preclinical studies. We serve as lead tech nical expert on all aspects of these awards and also serve as a subcontractor responsible for management of chemistry, manufacturing and control activities and clinical studies. We derive all of our revenue under these collaborations through subcontracts w ith, and a subaward from, CUBRC, with the flow of funds following the respective activities being conducted by us and by CUBRC.

 

In connection with the BARDA Contract, in February 2012, we entered into a cost-plus-fixed-fee subcontract with CUBRC which currently expires on May 10, 2018 under which we may receive funding of up to approximately $41.6 million, reflecting the portion of the BARDA Contract funding that may be paid to us for our activities.

 

In connection with the NIAID Contract, in October 2011, we entered into a cost-plus-fixed-fee subcontract with CUBRC which currently expires on December 31, 2018 under which we may receive funding of up to approximately $15.1 million, reflecting the portion of the NIAID Contract funding that may be paid to us for our activities.

 

In connection with the NIAID Grant, in November 2011, CUBRC awarded us an initial 55-month, no-fee subaward which was extended and expired on May 31, 2017 under which we received funding of up to approximately $0.9 million, reflecting the portion of the NIAID Grant funding that was paid to us for our activities.

Although the BARDA Contract and our subcontract with CUBRC under the BARDA Contract have terms which currently expire on May 10, 2018, BARDA is entitled to terminate the project for convenience at any time, and is not obligated to provide continued funding beyond current-year amounts from congressionally approved annual appropriations. To the extent that BARDA ceases to provide funding of the program to CUBRC, CUBRC has the right to cease providing funding to us. Committed funding from CUBRC under our BARDA subcontract is up to $41.6 million from the initial contract date through May 10, 2018, of which $33.7 million had been received through June 30, 2017.

Similarly, although the NIAID Contract and our subcontract with CUBRC under the NIAID Contract have terms which currently expire on December 31, 2018, NIAID is entitled to terminate the project for convenience at any time, and is not obligated to provide continued funding beyond December 31, 2018. To the extent NIAID ceases to provide funding of the programs to CUBRC, CUBRC has the right to cease providing funding to us. Committed funding from CUBRC under our subcontract with respect to the NIAID Contract is for up to $15.1 million, from the initial contract date through December 31, 2018, of which $11.5 million had been received through June 30, 2017.

In March 2017, CARB-X, an international public-private partnership focused on advancing new antimicrobial products to address the threat of antibiotic resistance, selected us to receive up to $4.0 million in research funding over 18 months for TP-6076. In connection with this funding, the Company entered into a cost reimbursement Sub-Award Agreement with the Trustees of Boston University, the administrator of the program. The Company began recognizing revenue from the Sub-Award Agreement in April 2017. Of the $4.0 million in committed funding none had been received through June 30, 2017. Although the Sub-Award Agreement has a term which currently expires on December 31, 2018, the project can be terminated for convenience at any time.  

We have no products approved for sale. Other than the government funding described above, we do not expect to receive any revenue from any product candidates that we develop, including eravacycline, until we obtain regulatory approval and commercialize such products or until we potentially enter into collaborative agreements with third parties for the development and commercialization of such product candidates. We continue to pursue government funding for other preclinical and clinical programs. If our development efforts for any of our product candidates result in clinical success and regulatory approval, or collaboration agreements with third parties, we may generate revenue from those product candidates.

We expect that our revenue will be less than our expenses for the foreseeable future and that we will experience increasing losses as we continue our development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. Even if we are able to generate revenue from the sale of one or more products, we may not become profitable.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical candidates, and include:

 

personnel-related expenses, including salaries, benefits and stock-based compensation expense;

 

expenses incurred under agreements with contract research organizations, contract manufacturing organizations, and consultants that provide preclinical, clinical, regulatory and manufacturing services;

 

payments made under our license agreement with Harvard University;

 

the cost of acquiring, developing and manufacturing clinical trial materials and lab supplies;

 

16


 

 

f acility, depreciation and other expenses, which include direct and allocated expenses for rent, maintenance of our facilities, insurance and other supplies; and

 

costs associated with preclinical, regulatory and medical affairs activities.

We expense research and development costs to operations as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors.

We track external development expenses and personnel expense on a program-by-program basis and allocate common expenses, such as scientific consultants and laboratory supplies, to each program based on the personnel resources allocated to such program. Expenses related to facilities, consulting, travel, conferences, stock-based compensation and depreciation are not allocated to a program and are separately classified as other research and development expenses. The following table summarizes our research and development expenses on a program-specific basis for the three and six months ended June 30, 2017 and 2016:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Eravacycline

 

$

22,361

 

 

$

6,970

 

 

$

42,792

 

 

$

12,860

 

TP-6076

 

 

920

 

 

 

1,967

 

 

 

1,650

 

 

 

3,121

 

BARDA Contract

 

 

925

 

 

 

653

 

 

 

1,344

 

 

 

1,321

 

CARB-X Award

 

 

398

 

 

 

-

 

 

 

398

 

 

 

-

 

NIAID Contract and NIAID Grant

 

 

58

 

 

 

197

 

 

 

959

 

 

 

1,202

 

Other development programs

 

 

706

 

 

 

489

 

 

 

981

 

 

 

1,100

 

Other research and development

 

 

3,145

 

 

 

3,470

 

 

 

6,336

 

 

 

7,665

 

Total research and development expenses

 

$

28,513

 

 

$

13,746

 

 

$

54,460

 

 

$

27,269

 

 

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

As of June 30, 2017, we had incurred an aggregate of $223.6 million in research and development expenses related to the development of eravacycline, and $32.4 million in research and development expenses related to the development of eravacycline that were funded under the BARDA Contract. We expect that our research and development expenses will increase in 2017 compared to 2016 as we conduct IGNITE3 and complete IGNITE4 , incur nonclinical, regulatory and drug manufacturing costs in support of NDA-related activities, pursue development of eravacycline for additional indications, advance our other product candidates and satisfy our obligations under our license agreement with Harvard.

Because of the numerous risks and uncertainties associated with product development, however, we cannot determine with certainty the duration and completion costs of current or future clinical trials of eravacycline or our other product candidates. We may never succeed in achieving regulatory approval for eravacycline or any of our other product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rate and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability.

We have licensed our proprietary chemistry technology from Harvard on an exclusive worldwide basis under a license agreement that we entered into in August 2006. Under our license agreement, we have paid Harvard an aggregate of $4.4 million in upfront license fees and development milestone payments. We have also issued 31,379 shares of our common stock to Harvard under the license agreement. In addition, we have agreed to make payments to Harvard upon the achievement of specified future development and regulatory milestones totaling up to $15.1 million for each licensed product candidate ($3.1 million of which has already been paid with respect to eravacycline), and to pay tiered royalties in the single digits based on annual worldwide net sales, if any, of licensed products, our affiliates and our sublicensees. We are also obligated to pay Harvard a specified share of non-royalty sublicensing revenues that we receive from sublicensees for the grant of sublicenses under the license and to reimburse Harvard for specified patent prosecution and maintenance costs. The next milestone payment due under the license agreement with respect to eravacycline would be a $3.0 million payment upon acceptance of an NDA filing to the FDA.

 

17


 

General and Administrative Expense s

General and administrative expenses consist principally of personnel-related costs, including salaries and related costs such as benefits and stock-based compensation for personnel in executive, finance, legal, operational, corporate communications, marketing and human resource functions. Other significant general and administrative expenses include professional fees for legal, patent, auditing and tax services, consulting, and facility costs not otherwise included in research and development expenses.

We anticipate that our general and administrative expenses will increase for a number of reasons, including:

 

support of the anticipated expansion of our research and development activities as we continue the development of our product candidates;

 

expansion of infrastructure, including increases in personnel-related costs, consulting, legal, accounting and investor relations costs, and directors and officers insurance premiums; and

 

if and when we believe a regulatory approval of our first product candidate appears likely, anticipated increases in our personnel-related and consulting costs as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents. The primary objective of our investment policy is capital preservation.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued clinical expenses, and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that we and our management 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.

There have been no significant changes to our critical accounting policies since the beginning of this fiscal year. Our critical accounting policies are described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report, filed on form 10-K with the SEC on March 13, 2017 for the year ended December 31, 2016.

Results of Operations

Comparison of the Three Months Ended June 30, 2017 and 2016

The following table summarizes the results of our operations for the three months ended June 30, 2017 and 2016, together with the changes in those items in dollars and as a percentage:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

Increase/

 

 

 

 

 

 

 

2017

 

 

2016

 

 

(decrease)

 

 

%

 

 

 

(in thousands)

 

Revenues

 

$

1,586

 

 

$

1,243

 

 

$

343

 

 

 

28

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

28,513

 

 

 

13,746

 

 

 

14,767

 

 

 

107

%

General and administrative

 

 

5,065

 

 

 

4,759

 

 

 

306

 

 

 

6

%

Total operating expenses

 

 

33,578

 

 

 

18,505

 

 

 

15,073

 

 

 

81

%

Loss from operations

 

 

(31,992

)

 

 

(17,262

)

 

 

(14,730

)

 

 

85

%

Other income

 

 

181

 

 

 

94

 

 

 

87

 

 

 

93

%

Net loss

 

$

(31,811

)

 

$

(17,168

)

 

$

(14,643

)

 

 

85

%

 

 

18


 

Revenue from U.S. Government Contracts and Grants

The following table sets forth our contract and grant revenue for the three months ended June 30, 2017 and 2016:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

Increase/

 

 

 

 

 

 

 

2017

 

 

2016

 

 

(decrease)

 

 

%

 

 

 

(in thousands)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BARDA Contract

 

$

988

 

 

$

483

 

 

$

505

 

 

 

105

%

NIAID Contract

 

 

178

 

 

 

718

 

 

 

(540

)

 

 

(75

)%

CARB-X Award

 

 

417

 

 

 

 

 

 

417

 

 

n/a

 

NIAID Grant

 

 

3

 

 

 

42

 

 

 

(39

)

 

 

(93

)%

 

 

$

1,586

 

 

$

1,243

 

 

$

343

 

 

 

28

%

Contract and grant revenue was $1.6 million for the three months ended June 30, 2017 compared to $1.2 million for the three months ended June 30, 2016, an increase of $0.3 million, or 28%. This increase was due to the scope and timing of activities conducted under our subcontract with respect to the BARDA Contract and the start of activities under the CARB-X Award, offset in part by a decrease in clinical development activities with respect to TP-271 under our subcontract with respect to the NIAID Contract.

Research and Development Expenses

Research and development expenses for the three months ended June 30, 2017 were $28.5 million compared to $13.7 million for the three months ended June 30, 2016, an increase of $14.8 million, or 107%. This increase was primarily due to costs associated with conducting IGNITE3 and IGNITE4 during the three months ended June 30, 2017.

General and Administrative Expenses

General and administrative expenses for the three months ended June 30, 2017 were $5.1 million compared to $4.8 million for the three months ended June 30, 2016, an increase of $0.3 million, or 6%. This increase was primarily due to an increase in legal and patent costs offset in part by a decrease in stock-based compensation expense.

Other Income

The increase in other income was driven by implementation of a new cash sweep account and improved overall yields on our money market funds for the three months ended June 30, 2017 as compared to the same period in 2016.

Comparison of the Six Months Ended June 30, 2017 and 2016

The following table summarizes the results of our operations for the six months ended June 30, 2017 and 2016, together with the changes in those items in dollars and as a percentage:

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

Increase/

 

 

 

 

 

 

 

2017

 

 

2016

 

 

(decrease)

 

 

%

 

 

 

(in thousands)

 

Revenues

 

$

3,071

 

 

$

3,205

 

 

$

(134

)

 

 

(4

)%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

54,460

 

 

 

27,269

 

 

 

27,191

 

 

 

100

%

General and administrative

 

 

10,198

 

 

 

10,012

 

 

 

186

 

 

 

2

%

Total operating expenses

 

 

64,658

 

 

 

37,281

 

 

 

27,377

 

 

 

73

%

Loss from operations

 

 

(61,587

)

 

 

(34,076

)

 

 

(27,511

)

 

 

81

%

Other income

 

 

318

 

 

 

167

 

 

 

151

 

 

 

90

%

Net loss

 

$

(61,269

)

 

$

(33,909

)

 

$

(27,360

)

 

 

81

%

 

19


 

Revenue from U.S. Government Contracts and Grants

The following table sets forth our contract and grant revenue for the six months ended June 30, 2017 and 2016:

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

Increase/

 

 

 

 

 

 

 

2017

 

 

2016

 

 

(decrease)

 

 

%

 

 

 

(in thousands)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BARDA Contract

 

$

1,452

 

 

$

1,574

 

 

$

(122

)

 

 

(8

)%

NIAID Contract

 

 

1,193

 

 

 

1,568

 

 

 

(375

)

 

 

(24

)%

CARB-X Award

 

 

417

 

 

 

 

 

 

417

 

 

n/a

 

NIAID Grant

 

 

9

 

 

 

63

 

 

 

(54

)

 

 

(86

)%

 

 

$

3,071

 

 

$

3,205

 

 

$

(134

)

 

 

(4

)%

Contract and grant revenue was $3.1 million for the six months ended June 30, 2017 compared to $3.2 million for the six months ended June 30, 2016, a decrease of $0.1 million, or 4%. This decrease was primarily due to the scope and timing of activities conducted under our subcontracts with respect to the BARDA and NIAID offset by an increase in activities related to our award with CARB-X during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016.

Research and Development Expenses

Research and development expenses for the six months ended June 30, 2017 were $54.5 million compared to $27.3 million for the six months ended June 30, 2016, an increase of $27.2 million, or 100%. This increase was primarily due to costs associated with conducting IGNITE3 and IGNITE4 during the six months ended June 30, 2017.

General and Administrative Expenses

General and administrative expenses for the six months ended June 30, 2017 were $10.2 million compared to $10.0 million for the six months ended June 30, 2016, an increase of $0.2 million, or 2%. This increase was primarily due to an increase in legal and patent costs offset in part by a decrease in stock-based compensation expense.

Other Income

The increase in other income was driven by implementation of a new cash sweep account and improved overall yields on our money market funds for the six months ended June 30, 2017 as compared to the same period in 2016.

Liquidity and Capital Resources

We have incurred losses since our inception and anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may obtain from additional financings, research funding, collaborations, contract and grant revenue or other sources.

Since our inception, we have funded our operations principally through the receipt of funds from public offerings and private placements of equity securities, debt financings and contract research funding and research grants from the United States government.

As of June 30, 2017, we had cash and cash equivalents of approximately $118.2 million. We invest cash in excess of immediate requirements in accordance with our investment policy, primarily with a view to liquidity and capital preservation. As of June 30, 2017, our funds were held in cash and money market funds.

On January 17, 2017, we entered into a Controlled Equity Offering Sales Agreement, or sales agreement, with Cantor Fitzgerald & Co., as sales agent, or Cantor. On July 7, 2017, we entered into an amendment to the sales agreement, or the amended sales agreement. In accordance with the terms of the sale agreement, we may offer and sell through Cantor, from time to time, shares of our common stock up to an aggregate offering price of $80,000,000 through an “at-the-market” offering program. As of June 30, 2017, we had sold 2,894,156 shares under the Agreement at an average price of $7.81 per share and we had received aggregate cash proceeds of $21.7 million, after deducting the sales commissions and offering expenses.

As of August 1, 2017, an additional 1,041,294 shares were sold under the original and amended Sales Agreements subsequent to June 30, 2017, for aggregate gross proceeds of $8.0 million and net proceeds of $7.8 million after deducting sales commissions and offering expenses, which will be recognized during the third quarter of 2017. 

 

20


 

On  August 2 , 2017, we sold 10,000,000 shares of common stock in a n underwritten public offering at a n offering price to the public of $6.50 per share, resulting in net proceeds to the Company of $60.9 million after deducting underwriting discounts and commissions of $3.9 million and offering costs of $0.2 million. In connection with the offering, we granted the underwriters an option to purch ase 1,500,000 additional shares on the same terms and conditions as the offering.

The following table summarizes our sources and uses of cash for each of the periods set forth below (in thousands):

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

Cash Flows from Operations:

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(45,193

)

 

$

(27,542

)

Net cash used in investing activities

 

 

(676

)

 

 

(175

)