ttph-10q_20180930.htm

 

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 September 30, 2018

or

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

For the transition period from                      to                      

Commission File Number: 001-35837

 

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 every Interactive Data File required to be submitted 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 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

 

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 November 8, 2018, there were 53,625,717 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

 


 

TETRAPHASE PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2018

TABLE OF CONTENTS

 

 

 

Page No.

 

 

PART I. FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017

3

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2018 and 2017

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

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

17

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

 

 

 

Item 4.

Controls and Procedures

27

 

 

PART II. OTHER INFORMATION

28

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

Item 1A.

Risk Factors

28

 

 

 

Item 6.

Exhibits

52

 

 

 

 

SIGNATURES

54

 

 

2


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

TETRAPHASE PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except par value amounts)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

96,959

 

 

$

136,411

 

Accounts receivable

 

 

2,597

 

 

 

4,653

 

Prepaid expenses and other current assets

 

 

5,302

 

 

 

6,382

 

Total current assets

 

 

104,858

 

 

 

147,446

 

Property and equipment, net

 

 

1,142

 

 

 

1,395

 

Restricted cash

 

 

699

 

 

 

199

 

Intangible assets, net

 

 

4,750

 

 

 

 

Total assets

 

$

111,449

 

 

$

149,040

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,203

 

 

$

5,306

 

Accrued expenses

 

 

9,188

 

 

 

12,559

 

Deferred revenue

 

 

9

 

 

 

660

 

Total current liabilities

 

 

14,400

 

 

 

18,525

 

Other long term liabilities

 

 

79

 

 

 

105

 

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; 53,545 and 51,458

   shares issued and outstanding at September 30, 2018 and December 31, 2017,

   respectively

 

 

54

 

 

 

51

 

Additional paid-in capital

 

 

609,477

 

 

 

592,243

 

Accumulated deficit

 

 

(512,561

)

 

 

(461,884

)

Total stockholders’ equity

 

 

96,970

 

 

 

130,410

 

Total liabilities and stockholders’ equity

 

$

111,449

 

 

$

149,040

 

 

See accompanying notes to unaudited 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

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License revenue

$

 

 

$

 

 

$

9,500

 

 

$

 

Government revenue

 

1,151

 

 

 

4,067

 

 

 

5,120

 

 

 

7,138

 

Total revenues

 

1,151

 

 

 

4,067

 

 

 

14,620

 

 

 

7,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

11,665

 

 

 

28,777

 

 

 

44,162

 

 

 

83,237

 

Selling, general and administrative

 

9,481

 

 

 

5,600

 

 

 

22,350

 

 

 

15,797

 

Total operating expenses

 

21,146

 

 

 

34,377

 

 

 

66,512

 

 

 

99,034

 

Loss from operations

 

(19,995

)

 

 

(30,310

)

 

 

(51,892

)

 

 

(91,896

)

Other income

 

437

 

 

 

302

 

 

 

1,215

 

 

 

620

 

Net loss

$

(19,558

)

 

$

(30,008

)

 

$

(50,677

)

 

$

(91,276

)

Net loss per share-basic and diluted

$

(0.37

)

 

$

(0.63

)

 

$

(0.97

)

 

$

(2.23

)

Weighted-average number of common shares used in net loss

   per share-basic and diluted

 

52,937

 

 

 

47,347

 

 

 

52,131

 

 

 

40,942

 

Comprehensive loss

$

(19,558

)

 

$

(30,008

)

 

$

(50,677

)

 

$

(91,276

)

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 

 

4


 

TETRAPHASE PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017 (as revised) *

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(50,677

)

 

$

(91,276

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

357

 

 

 

315

 

Stock-based compensation expense

 

 

9,880

 

 

 

9,358

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,056

 

 

 

(1,776

)

Prepaid expenses and other assets

 

 

1,081

 

 

 

1,089

 

Accounts payable

 

 

(1,852

)

 

 

6,338

 

Accrued expenses and other liabilities

 

 

(3,397

)

 

 

5,160

 

Deferred revenue

 

 

(651

)

 

 

(473

)

Net cash used in operating activities

 

 

(43,203

)

 

 

(71,265

)

Investing activities

 

 

 

 

 

 

 

 

Acquisition of intangible asset

 

 

(3,000

)

 

 

 

Purchases of property and equipment

 

 

(105

)

 

 

(685

)

Net cash used in investing activities

 

 

(3,105

)

 

 

(685

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from sale of common stock, net of issuance costs

 

 

6,985

 

 

 

90,863

 

Proceeds from issuance of stock under stock plans

 

 

371

 

 

 

366

 

Net cash provided by financing activities

 

 

7,356

 

 

 

91,229

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(38,952

)

 

 

19,279

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

136,610

 

 

 

142,285

 

Cash, cash equivalents and restricted cash at end of period

 

$

97,658

 

 

$

161,564

 

Supplemental cash flow disclosures from investing activities:

 

 

 

 

 

 

 

 

Acquisition of intangible asset included in accounts payable

 

$

1,750

 

 

$

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 

*

Cash flow presentation has been revised due to adoption of ASU 2016-18.

 

 

 

5


 

Tetraphase Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization and Operations

Tetraphase Pharmaceuticals, Inc. (the “Company”) is a biopharmaceutical company using its proprietary chemistry technology to create, develop and commercialize novel antibiotics for serious and life-threatening multidrug-resistant infections. On August 27, 2018, the United States Food and Drug Administration (“FDA”) approved the Company’s lead product candidate, XeravaTM (eravacycline), for the treatment of complicated intra-abdominal infections (“cIAI”) in adults. In October 2018, the Company announced the commercial launch of Xerava in the United States. As a result, the Company now has approximately 40 sales representatives in the field and approximately 10 medical science affairs personnel supporting Xerava. The Company also has internal sales and marketing support teams located at its headquarters in Watertown, Massachusetts.

On September 20, 2018, the European Commission (“EC”) granted marketing authorization for Xerava for injection for the treatment of cIAI in adults in all 28 countries of the European Union, Norway, Iceland and Liechtenstein

In addition to eravacycline, the Company is pursuing development of TP-271, a fully synthetic fluorocycline being developed for respiratory disease caused by bacterial biothreat pathogens, as well as bacterial pathogens associated with community-acquired bacterial pneumonia, and TP-6076, a fully synthetic fluorocycline, targeted at unmet medical needs, including multidrug-resistant, or MDR, Gram-negative bacteria such as carbapenem-resistant Enterobacteriaceae and carbapenem-resistant Acinetobacter baumanii. Both of these product candidates are in phase 1 clinical trials.

The Company has incurred annual net operating losses each year since its inception. As of September 30, 2018, the Company had an accumulated deficit of $512.6 million. Through September 30, 2018, the Company had not generated any product revenues. The Company has financed its operations primarily through public offerings and private placements of its equity securities, debt financings, funding from the United States government and licenses of its product candidates.

There can be no assurance that the Company will be able to generate product revenue or revenues from collaborative partners, or be able to obtain additional debt or equity financing on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to generate sufficient cash from operations 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.

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, 2017 contained in the Company’s annual report on Form 10-K filed with the SEC on March 6, 2018 (the “2017 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 September 30, 2018 and the results of operations and comprehensive loss and cash flows for the three and nine months ended September 30, 2018 and 2017. Interim operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for future interim periods or for the fiscal year ending December 31, 2018.

The December 31, 2017 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 its going concern evaluation, clinical trial accruals,

 

6


 

stock-based compensation expense, contract, grant and license 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.

Out-Licensing Revenue Recognition

The Company has entered into an out-licensing agreement that is evaluated under Accounting Standards Codification, Topic 606 (“Topic 606”), Revenue from Contracts with Customers, through which the Company licenses certain of its product candidates’ rights to a third party. Any future out-licensing agreements entered into by the Company and additional third parties shall also be evaluated under Topic 606. Terms of these arrangements include various payment types, typically including one or more of the following: upfront license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services; and/or royalties on net sales of licensed products.

To determine the amount and timing of revenue to be recognized under each agreement, the Company evaluates the following criteria: (i) confirming the goods or services in the contract; (ii) defining the performance obligations under the agreement; (iii) determining the transaction price, including any constraint on variable consideration; (iv) allocating the transaction price to the performance obligations; and (v) defining how the revenue will be recognized for each performance obligation. In determining the accounting treatment for these arrangements, the Company develops assumptions to determine the stand-alone selling price for each performance obligation in the contract. These assumptions may include forecasted revenues, development timelines, discount rates and probabilities of technical and regulatory success.

Licenses of Intellectual Property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from upfront fees allocated to the license when the license, including any associated know-how, is transferred to the licensee and the licensee can use and benefit from the license. For licenses that are bundled with other obligations, the Company uses judgment to evaluate the combined performance obligation to determine whether it is satisfied over time or at a point in time and the appropriate method of measuring completion for purposes of recognizing revenue.  

Milestone Payments: For arrangements that include development milestone payments, the Company evaluates whether the milestones are considered probable and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.  

Manufacturing Supply: Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as options. The Company assesses if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations. If the Company is entitled to additional payments when the licensee exercises these options, the Company recognizes revenue when the licensee obtains control of the goods, which is upon delivery.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).  

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.

 

Intangible Assets

The Company maintains definite-lived intangible assets related to certain capitalized milestone payments to Harvard University (Harvard). These assets are amortized over their remaining useful lives, which are estimated based on the shorter of the remaining patent life or the estimated useful life of the underlying product. Intangible assets are amortized using the economic consumption method if anticipated future revenues can be reasonably estimated. The straight-line method is used when future revenues cannot be reasonably estimated.

 

7


 

The Company assesses its intangible assets for impairment if indicators are present or changes in circumstance suggest that impairment may exist. Events that could result in an impairment, or trigger an interim impairment assessment, include the receipt of additional clinical or nonclinical data regarding one of the Company’s drug candidates or a potentially competitive drug candidate, changes in the clinical development program for a drug candidate, or new information regarding potential sales for the drug. If impairment indicators are present or changes in circumstance suggest that impairment may exist, the Company performs a recoverability test by comparing the sum of the estimated undiscounted cash flows of each intangible asset to its carrying value on the consolidated balance sheet. If the undiscounted cash flows used in the recoverability test are less than the carrying value, the Company would determine the fair value of the intangible asset and recognize an impairment loss if the carrying value of the intangible asset exceeds its fair value.

The Company capitalized milestone payments of $4.75 million related to regulatory approval of Xerava in the US and EU, which will be amortized over their estimated useful lives of approximately 12 years. Amortization expense for each of the following 5 years is expected to be $0.4 million.

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 this analysis, the Company expects its cash to last more than one year beyond the filing date of the financial statements. In November 2018, the Company entered into a term loan with Solar Capital Ltd., with an initial draw of $30 million (see Note 10).

Recently Adopted Accounting Pronouncements

In November 2016, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The Company adopted the new standard effective January 1, 2018, using the retrospective transition approach. The reclassified restricted cash balances from operating activities to changes in cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows were not material for all periods presented.

In May 2014, the 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 has concluded that its government grants are not within the scope of Topic 606, as they do not meet the definition of a contract with a “customer”. The Company has concluded that the grants meet the definition of a contribution and are non-reciprocal transactions. The Company has further concluded that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition also does not apply, as the Company is a business entity and the grants are with governmental agencies or units. The government grant is technically to a non-profit entity that specializes in government grant administration, project management and oversight (i.e. CUBRC). However, the Company has concluded that, in effect, it is a grant from the government; as the contracting counterparty CUBRC is merely administering the agreement between the government (who is funding the work) and the Company (who is performing the work).  

 

8


 

In the absence of applicable guidance under GAAP as of January 1, 2018 for the grants, the Company has developed a policy for the recognition of revenue for the grants as follows:

 

Revenue is recognized when the right to payment is realized or is realizable

 

Revenues are realized when services are exchanged for cash or claims to cash. Revenues are not recognized until earned.

 

The Company’s revenue-earning activities involve rendering services that constitute its ongoing major or central operations, and revenues are considered to have been earned when the Company has substantially accomplished what it must do to be entitled to the benefits represented by the revenues.

The Company believes this policy is consistent with the overarching premise in Topic 606, to ensure that it recognizes revenues to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services, even though there is no “exchange” as defined in the ASC. The Company believes the recognition of revenue as costs are incurred and amounts become earned/realizable is analogous to the concept of transfer of control of a service over time under ASC 606.

Prior to January 1, 2018, the Company recognized revenue as it performed services under the grants so long as an agreement had been executed and the fees for these services were fixed or determinable, legally billable and reasonably assured of collection. Recognized amounts reflected the Company’s partial performance under the grants and equal direct and indirect costs incurred plus fixed fees, where applicable. Revenues and expenses under these arrangements were presented gross. Revenue recognition under this new policy is not materially different than would have been calculated under the old guidance. As a result of the adoption of this policy, there was no change to the amounts the Company has historically recorded to its financial statements.

There have been no other significant changes to the Company’s significant accounting policies since the beginning of this fiscal year.

Recently Issued Accounting Pronouncements

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 FASB subsequently issued the following amendments to ASU 2016-02, which have the same effective date and transition date of January 1, 2019: ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which amends certain narrow aspects of the guidance issued in ASU 2016-02 and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which allows for a transition approach to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption as well as an additional practical expedient for lessors to not separate non-lease components from the associated lease component. Currently, the Company is gathering information, reviewing its portfolio of existing leases, and continuing to evaluate the potential changes to the Company’s future financial reporting and disclosures that may result from adopting this ASU. The Company plans to elect the practical expedient which will allow it to not apply the amended lease accounting guidance to comparative periods that will be presented. The Company expects that all of its lease commitments will be subject to the new standard with the cumulative effect of adoption recognized to retained earnings on January 1, 2019.

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.

 

9


 

Financial instruments measured at fair value as of September 30, 2018 and December 31, 2017 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

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

96,959

 

 

$

96,959

 

 

$

 

 

$

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

136,411

 

 

$

136,411

 

 

$

 

 

$

 

 

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.

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

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

Warrants

 

 

 

 

 

1,103

 

Unvested restricted stock units

 

 

1,088,273

 

 

 

338,700

 

Outstanding stock options

 

 

7,173,359

 

 

 

6,116,217

 

Totals

 

 

8,261,632

 

 

 

6,456,020

 

 

5. Inventories

The Company began capitalizing inventory costs associated with Xerava following Food and Drug Administration, or FDA, approval at the end of August 2018, when future commercialization was considered probable and the future economic benefit was expected to be realized. During the three months ended September 30, 2018, no inventory amounts were capitalized, as no raw materials were purchased and no components of inventory were completed. In the future, inventories will be stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis. Prior to FDA approval, costs to manufacture the Company’s product candidates were expensed to research and development. Costs related to the validation of additional manufacturing locations will continue to be expensed when it is determined the commercial salability of the resulting finished goods or other inventory components is not probable.

6.  Significant Agreements and Contracts

Harvard 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 September 30, 2018, the Company has paid Harvard an aggregate of $12.1 million and accrued $1.8 million in upfront license fees and regulatory development milestone payments. 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. The Company is also obligated to make certain payments to Harvard based on amounts received under its license agreement with Everest Medicines Limited. During the nine months ended September 30, 2018 the Company paid Harvard $1.9 million related to amounts received under the Everest Medicines license agreement.

Harvard milestones paid in advance of regulatory approval have been recorded as research and development expense. Milestone payments due to Harvard based upon regulatory approval will be capitalized and amortized over the remaining product patent life (see Note 2, Summary of Significant Accounting Policies – Intangible Assets).

 

10


 

Other Material Agreements

Everest Medicines License Agreement

In February 2018, the Company entered into a license agreement (the “Everest License Agreement”) with Everest Medicines Limited (“Everest Medicines”), whereby the Company granted Everest Medicines an exclusive license to develop and commercialize eravacycline, for the treatment of complicated intra-abdominal infections and other indications, in mainland China, Taiwan, Hong Kong, Macau, South Korea and Singapore (the “Territory”).

Under the terms of the Everest License Agreement, the Company received from Everest Medicines an upfront cash payment of $7.0 million in the first quarter of 2018 and a cash payment of $2.5 million related to Everest Medicines’ submission of an Investigational New Drug Application, or IND, with the Chinese Food and Drug Administration in June 2018. The Company is also eligible to receive up to an aggregate of $14.0 million in future clinical development milestone payments and up to an aggregate of $20.0 million in sales milestone payments. There can be no guarantee that any such milestones or sales thresholds will in fact be met. The Company is obligated to make certain payments to Harvard based on amounts received from Everest Medicines under the Everest License Agreement pursuant to the existing license agreement by and between Harvard and the Company.

The Company will also be entitled to receive low double-digit tiered royalties on sales in the Territory, if any, of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Territory until the latest to occur of: (i) the last-to-expire of specified patent rights in such jurisdiction in the Territory; (ii) expiration of marketing or regulatory exclusivity in such jurisdiction in the Territory; or (iii) ten (10) years after the first commercial sale of a product in such jurisdiction in the Territory. In addition, royalties payable under the Everest License Agreement will be subject to reduction on account of generic competition and after patent expiry in a jurisdiction if required by applicable law, with any such reductions capped at certain percentages of the amounts otherwise payable during the applicable royalty payment period.

Under the terms and conditions of the Everest License Agreement, Everest Medicines will be solely responsible for the development and commercialization of licensed products in the Territory. The Company agreed to manufacture clinical material, which will be paid by Everest at the Company’s cost, as well as commercial supply, which will be paid by Everest at cost plus a reasonable margin.

In evaluating the recognition of revenue under the Agreement, the Company identified the following three performance obligations under the Agreement: (i) exclusive license to develop and commercialize eravacycline for the treatment of complicated intra-abdominal infections and other potential, future indications, in the Territory, (ii) provision of information and technical assistance related to the know-how transfer for the development of eravacycline; and (iii) provision of clinical supply to Everest Medicines.

The Company evaluated the Everest License Agreement under Topic 606 at the time of execution of the arrangement. Based on that evaluation, the upfront fee of $7.0 million represented the amount of the consideration to be included in the transaction price, which will be allocated to the identified performance obligations. Subsequent to execution, the Company deemed a $2.5 million milestone payment to the Chinese IND as probable and included the amount in the transaction price.  

No other clinical milestones, regulatory milestones, sales-based milestones or sales royalties have been included in the transaction price, as these milestones are not considered probable given Everest Medicines relatively short operating history, the uncertainty of regulatory processes in China and that commercial sales have not commenced. The Company determined that the license and related know-how were a combined performance obligation as the license is not distinct without the provision of the related know-how transfer. The Company’s requirement to manufacture clinical supply for Everest Medicines is dependent on Everest Medicines’ future purchases, the payment for which was determined to be at cost and therefore potentially represents a material right. However, based on the amount of clinical supply expected to be ordered by Everest Medicines, the Company has estimated that the value of this right would be immaterial.

The Company satisfied the combined performance obligation and recognized the $7.0 million upfront payment as revenue during the nine months ended September 30, 2018. The Company also recognized the $2.5 million Chinese IND milestone payment as revenue during the nine months ended September 30, 2018.

Patheon UK Limited Master Manufacturing Services Agreement

In June 2017, the Company and Patheon UK Limited and certain of its affiliates (“Patheon”) entered into a master manufacturing services agreement. Under the Patheon agreement, the Company is responsible for supplying the active pharmaceutical ingredient for eravacycline to Patheon, and Patheon is responsible for manufacturing eravacycline, conducting quality control, quality

 

11


 

assurance, analytical testing and stability testing and packaging. The Company and Patheon entered into two related product agreements pursuant to the Patheon agreement that govern the terms and conditions of Patheon’s manufacture of commercial supplies of eravacycline at Patheon’s Greenville, North Carolina and Ferentino, Italy manufacturing sites. Pursuant to the Patheon agreement, the Company has agreed to order from Patheon at least a certain percentage of its annual commercial requirements for eravacycline in the United States and European Union each year for the term of the Patheon agreement. The Patheon agreement has an initial term ending December 31, 2022, and will automatically renew after the initial term for successive terms of two years each, unless either party gives notice of its intention to terminate at least 18 months prior to the end of the then current term. The Company may terminate a product agreement upon 30 days’ prior written notice under certain circumstances.

Finorga SAS Commercial Supply Agreement

In October 2017, the Company and Finorga SAS (“Novasep”) entered into a commercial supply agreement. Under the agreement, Novasep will, pursuant to accepted purchase orders entered into under the agreement, manufacture for commercial supply the active pharmaceutical ingredient for eravacycline. This agreement has an initial term ending October 16, 2022, and will automatically renew after the initial term, unless either party gives notice of its intention to terminate at least 18 months prior to the end of the then current term. The Company may terminate the Novasep agreement upon 30 days’ prior written notice under certain circumstances.

Government Grant and Contracts

BARDA Contract for Eravacycline

The Company has received funding for its lead product Xerava, 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 a 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 MDR 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 on December 31, 2018, granted the Company initial funding of up to approximately $41.8 million, reflecting the portion of the BARDA Contract funding that may be paid to the Company for its activities.

Although the BARDA Contract and the Company’s subcontract with CUBRC under the BARDA Contract have terms which currently expire on December 31, 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 approximately $41.8 million through December 31, 2018, the current contract end date, as a result of the exercise of several options by BARDA under the BARDA Contract. Total funds of $39.5 million had been received by the Company through September 30, 2018 under this contract. During the three months ended September 30, 2018 and 2017, the Company recognized revenue of $0.2 million and $2.1 million, respectively, from the Company’s subcontract under the BARDA Contract. During the nine months ended September 30, 2018 and 2017, the Company recognized revenue of $1.2 million and $3.6 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 the National Institute of Allergy and Infectious Diseases, or 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.

 

12


 

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. Through September 30, 2018, the Company had received all committed funding of $0.9 million from CUBRC under the Company’s subaward with respect to the NIAID Grant.

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 on March 31, 2019 under which the Company may receive funding of up to approximately $16.9 million, reflecting the portion of the NIAID Contract funding that may be paid to the Company for its activities.

Although the NIAID Contract and the Company’s subcontract with CUBRC under the NIAID Contract have terms which currently expire on March 31, 2019, 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 September 30, 2018, committed funding from CUBRC under the Company’s subcontract with respect to the NIAID Contract is $16.9 million, of which $15.1 million had been received through September 30, 2018.

During the three months ended September 30, 2018 and 2017, the Company recognized revenue of $0.7 million and $1.5 million, respectively, from the Company’s subcontract under the NIAID Contract. During the three months ended September 30, 2018 and 2017 the Company recognized no revenue from its subaward under the NIAID Grant, as the grant expired in May 2017. During the nine months ended September 30, 2018 and 2017, the Company recognized revenue of $2.3 million and $2.7 million, respectively, from the Company’s subcontract under the NIAID Contract. During the nine months ended September 30, 2018, the Company recognized no revenue from its subaward under the NIAID Grant compared to revenue of $9,000 for the nine months ended September 30, 2017, as the grant expired in May 2017.

CARB-X Award for TP-6076

In March 2017, Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (CARB-X) 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 September 30, 2018 and 2017, the Company recognized revenue of $0.2 million and $0.4 million, respectively, under this Sub-Award Agreement. During the nine months ended September 30, 2018 and 2017, the Company recognized revenue of $1.6 million and $0.9 million, respectively and has received $0.8 million from its inception through September 30, 2018. 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 prior written notice.

 

7.  Accrued Expenses

Accrued expenses at September 30, 2018 and December 31, 2017 consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Salaries and benefits

 

$

2,389

 

 

$

4,137

 

Drug supply and development

 

 

3,067

 

 

 

2,298

 

Clinical trial and related

 

 

591

 

 

 

3,401

 

Preclinical

 

 

605

 

 

 

188

 

Professional fees

 

 

1,213

 

 

 

1,911

 

Commercial

 

 

941

 

 

 

213

 

Other

 

 

382

 

 

 

411

 

Total

 

$

9,188

 

 

$

12,559

 

 

8.  Stock-Based Compensation

In January 2018, the number of shares available for issuance under the Tetraphase Pharmaceuticals, Inc. 2013 Stock Incentive Plan, as amended (“2013 Plan”) was increased by approximately 2.1 million shares as a result of the automatic increase provision of the 2013 Plan. As of September 30, 2018, the total number of shares of common stock available for issuance under the 2013 Plan was approximately 1.3 million.

 

13


 

Stock-Based Compensation Expense

During the three and nine months ended September 30, 2018 and 2017, the Company recognized the following stock-based compensation expense (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Research and development

 

$

1,639

 

 

$

1,545

 

 

$

4,585

 

 

$

4,719

 

General and administrative

 

 

1,877

 

 

 

1,577

 

 

 

5,295

 

 

 

4,639

 

Total

 

$

3,516

 

 

$

3,122

 

 

$

9,880

 

 

$

9,358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Stock options

 

$

2,820

 

 

$

2,880

 

 

$

8,406

 

 

$

8,695

 

Restricted stock units

 

 

661

 

 

 

211

 

 

 

1,387

 

 

 

579

 

Employee stock purchase plan

 

 

35

 

 

 

31

 

 

 

87

 

 

 

84

 

Total

 

$

3,516

 

 

$

3,122

 

 

$

9,880

 

 

$

9,358

 

Stock Options

The following table summarizes the stock option activity for the nine months ended September 30, 2018:

 

 

 

Shares

 

 

Weighted-

Average

Exercise

Price

 

Outstanding at December 31, 2017

 

 

5,997,794

 

 

$

13.33

 

Granted

 

 

2,343,475

 

 

$

5.80

 

Exercised

 

 

(115,064

)

 

$

2.35

 

Forfeited

 

 

(1,052,846

)

 

$

10.69

 

Outstanding at September 30, 2018

 

 

7,173,359

 

 

$

11.44

 

Exercisable at September 30, 2018

 

 

3,524,635

 

 

$

15.93

 

 

As of September 30, 2018, there was $15.8 million of total unrecognized stock-based compensation cost related to employee unvested stock options granted under the 2013 Plan. The Company expects to recognize that cost over a remaining weighted-average period of 2.5 years.

Restricted Stock Units

In April 2018, the Company granted restricted stock units to employees. These restricted stock units vest in quarterly increments over one to two years, subject to continued employment with the Company and had a grant date fair value of $3.04 per share, which was the closing price of the Company’s common stock on the date of grant.  

In January 2018 and 2017, the Company issued 284,000 and 175,000 restricted stock units, respectively, with service and performance conditions to certain employees, none of which vested during the nine months ended September 30, 2018. 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 over the remaining requisite service period.

 

14


 

The following table summarizes the restricted stock unit activity for the nine months ended September 30, 2018:

 

 

 

Shares

 

 

Weighted-

Average

Grant Date Fair Value

 

Unvested at December 31, 2017

 

 

282,034

 

 

$

6.09

 

Granted

 

 

937,460

 

 

$

4.02

 

Forfeited

 

 

(62,693

)

 

$

5.30

 

Vested/Released

 

 

(68,528

)

 

$

8.47

 

Unvested at September 30, 2018

 

 

1,088,273

 

 

$

4.20

 

 

As of September 30, 2018, there was $1.8 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 1.2 years.    

Employee stock purchase plan

Under the Company’s 2014 Employee Stock Purchase Plan (“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 September 30, 2018, 106,833 shares remained available for issuance. During the nine months ended September 30, 2018 and 2017 the Company issued 32,045 shares and 44,785 shares of common stock under the 2014 ESPP and recognized approximately $87,000 and $84,000 in related stock-based compensation expense, respectively. 

9.  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 September 30, 2018, the Company had sold an aggregate of 6,090,044 shares of common stock under the Sales Agreement, at an average selling price of approximately $6.50 per share for aggregate gross proceeds of $39.6 million and net proceeds of $38.1 million after deducting sales commissions and offering expenses. An additional 20,402 shares were sold under the Amended Sales Agreement between October 1, 2018 and November 8, 2018, for net proceeds of $54,000 after deducting sales commissions. As of November 8, 2018, $40.4 million of common stock remained available to be sold under the Amended Sales Agreement.

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 $60.7 million after deducting underwriting discounts and commissions of $3.9 million and offering costs of $0.4 million. In connection with the offering, the Company granted the underwriters an option to purchase up to an additional 1,500,000 shares on the same terms and conditions as the offering, pursuant to which the underwriters exercised an option to purchase 107,000 additional shares on August 25, 2017, resulting in additional net proceeds to the Company of approximately $0.7 million after deducting underwriting discounts and commissions.

10. Subsequent Events

On November 2, 2018, the Company entered into a loan and security agreement (the “Loan Agreement”) with Solar Capital Ltd., as collateral agent and lender, and the other lenders named therein (Solar Capital Ltd. and the other lenders collectively, the

 

15


 

“Lenders”). The Lenders have agreed to make available to the Company term loans in an aggregate principal amount of up to $75.0 million under the Loan Agreement. The Company plans to use the proceeds of the term loans to support commercial launch of Xerava as well as for working capital and general corporate purposes. The Loan Agreement provides a term loan commitment of $50.0 million in two potential tranches: (i) a $30.0 million Term A loan facility funded on November 2, 2018 and (ii) a $20.0 million Term B loan facility to be funded at the request of the Company no later than October 31, 2020, subject to (A) the Company having unrestricted net cash proceeds of not less than $50 million from the issuance and sale of common stock and/or from other business activities and (B) the Company having product revenue greater than or equal to $14.0 million on a six month trailing basis prior to September 30, 2020. Both of these term loans have a maturity date of May 2, 2023. The Loan Agreement also provides access to an additional Term C loan facility in the amount of $25.0 million, to be funded at the Lenders’ sole discretion.

Borrowings under all three loan facilities bear interest at a floating per annum rate equal to the 1 Month LIBOR Rate + 7.25%. The Company is permitted to make interest-only payments on the initial $30.0 million Term A loan for the fifteen (15) months following the funding date. The interest-only period can be extended by an additional nine (9) months subject to certain conditions being met, including a 12-month trailing revenue milestone of $8.5 million by December 31, 2019; and by an additional six (6) months if the Company has met certain other conditions, including a 6-month trailing revenue milestone of $14.0 million by September 30, 2020 and raising $50.0 million in new capital. The term of the combined facility will be 54 months, with repayment paid in equal monthly installments commencing at the end of the resulting interest-only period as outlined above through the end of the 54-month term.

The Company is obligated to pay a final fee equal to 4.00% of the aggregate amount of the term loans funded, to occur upon the earliest of (i) the maturity date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans. The Company has the option to prepay all, but not less than all of the outstanding principal balance of the term loans under the Loan Agreement. If the Company prepays all or a portion of the term loans prior to the maturity date, it will pay the Lenders a prepayment penalty fee based on a percentage of the outstanding principal balance, equal to 3% if the payment occurs on or before 12 months after the initial funding date, 2% if the prepayment occurs more than 12 months after, but on or before 24 months after, the initial funding date, or 1% if the prepayment occurs more than 24 months after the initial funding date.

In connection with the Loan Agreement and the funding of the Term A loan facility, the Company issued to the Lenders warrants to purchase an aggregate of 414,365 shares of the Company’s common stock, equal to 3.00% of the term loan funded divided by the exercise price of $2.172. The Company is obligated to issue additional warrants to the Lenders in the event the Term B loan facility and/or the Term C loan facility is funded. Those warrants shall also be equal to 3.00% of the term loan funded. The warrants are exercisable at the option of the holder and the exercise price will be the lesser of (a) the 10-day trailing average of the Company’s common stock price, as determined as of the close of business day immediately prior to the funding date of the respective term loan, and (b) the Company’s common stock price, as determined as of the close of business day immediately prior to the funding date of the respective term loan. Each warrant will terminate 10 years from the date of its original issuance.

The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets. The Loan Agreement contains customary representations, warranties and covenants and also includes customary events of default, including payment defaults, breaches of covenants, change of control and a material adverse change default. The Company has agreed to maintain cash on hand at all times equal to $10.0 million plus an amount equal to 90 days aged accounts payable subject to certain exceptions.

Upon the occurrence of an event of default, a default interest rate of an additional 4.00% per annum may be applied to the outstanding loan balances, and the Lenders may declare all outstanding obligations immediately due and payable and exercise all of its rights and remedies as set forth in the Loan Agreement and under applicable law.

 

 

 

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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, 2017, 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 6, 2018, 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 biopharmaceutical company using our proprietary chemistry technology to create, develop and commercialize novel antibiotics for serious and life-threatening multidrug-resistant, or MDR, infections. On August 27, 2018, the United States Food and Drug Administration, or FDA, approved our lead product candidate, Xerava (eravacycline), for the treatment of complicated intra-abdominal infections, or cIAI, in adults. In October 2018, we announced the commercial launch of Xerava in the United States. As a result, we now have approximately 40 sales representatives in the field and approximately 10 medical science affairs personnel supporting Xerava. We also have internal sales and marketing support teams located at our headquarters in Watertown, Massachusetts.

Approval of Xerava was based on our IGNITE (Investigating Gram-Negative Infections Treated with Eravacycline) phase 3 program. In the first pivotal phase 3 trial in the IGNITE program in patients with cIAI, twice-daily intravenous (IV) eravacycline met the primary endpoint by demonstrating statistical non-inferiority of clinical response compared to ertapenem and was well-tolerated. We refer to this trial as IGNITE1. In the second pivotal phase 3 clinical trial in patients with cIAI, twice-daily IV eravacycline met the primary endpoint by demonstrating statistical non-inferiority of clinical response compared to meropenem and was well-tolerated. We refer to this trial as IGNITE4. In both IGNITE1 and IGNITE4, Xerava achieved high cure rates in patients with Gram-negative pathogens, including resistant isolates.

On September 20, 2018, the European Commission (“EC”) granted marketing authorization for Xerava for injection for the treatment of cIAI in adults in all 28 countries of the European Union, Norway, Iceland and Liechtenstein. This approval was primarily based on the results of IGNITE1.

Eravacycline is designed to treat a broad range of infections, including infections due to MDR bacteria. We believe that the ability of eravacycline to cover MDR Gram-negative bacteria, as well as MDR Gram-positive, anaerobic and atypical bacteria, may enable eravacycline to become the drug of choice for first-line empiric treatment of patients with cIAI. In in vitro experiments, eravacycline has demonstrated the ability to cover a wide variety of multidrug-resistant Gram-negative, Gram-positive, anaerobic and atypical bacteria, including multidrug-resistant Klebsiella pneumoniae and multi-drug resistant Acinetobacter. Multidrug-resistant Klebsiella pneumoniae is one of the carbapenem-resistant Enterobacteriaceae (or CREs) listed as an urgent threat and multi-drug resistant Acinetobacter is listed as a serious threat by the Centers for Disease Control and Prevention in a September 2013 report. They are also listed as “Priority 1; Critical Pathogens” in the World Health Organization’s priority pathogens list for R&D, published in February 2017. CREs were a confirmed area of great concern by the World Health Organization in an April 2014 global surveillance report. Gram-negative bacteria that are resistant to multiple available antibiotics are increasingly common and a growing threat to public health.

In June 2017, we announced positive results from a phase 1 single-ascending dose clinical trial of the IV formulation of TP-271 in healthy volunteers. TP-271 is a fully-synthetic fluorocycline being developed for respiratory disease caused by bacterial biothreat and antibiotic-resistant public health pathogens, as well as bacterial pathogens associated with community-acquired bacterial pneumonia. 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 are also completing a single-ascending dose trial for the oral formulation of TP-271, and multiple-ascending dose trials for the IV and oral formulations of TP-271; we expect to report results of these studies at a future scientific meeting. In February 2017, we received Qualified Infectious Disease Product and Fast Track designations from the FDA for TP-271.

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 MDR Gram-negative bacteria such as carbapenem-resistant Enterobacteriaceae and carbapenem-resistant Acinetobacter baumanii. 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

 

17


 

an adverse event. In October 2018, we announced results of a phase 1 study of the safety, tolerability, and pharmacokinetics of multiple doses of IV TP-6076 in healthy volunteers. In this study, multiple does of TP-6076 were generally well tolerated with no serious or severe adverse events and no clinically significant findings in any laboratory assessments, vital signs, ECGs, or physical examinations. 

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. Through September 30, 2018, 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 September 30, 2018, we had received an aggregate of $560.0 million in net proceeds from the issuance of equity securities and borrowings under debt facilities and an aggregate of $56.4 million from government grants and contracts. As of September 30, 2018, our principal source of liquidity was cash and cash equivalents, which totaled $97.0 million.

As of September 30, 2018, we had an accumulated deficit of $512.6 million. Our net losses were $19.6 million and $30.0 million for the three months ended September 30, 2018 and 2017, respectively, and $50.7 million and $91.3 million for the nine months ended September 30, 2018 and 2017, respectively. We expect that our expenses will decrease in 2018 compared with 2017, as the completion of the IGNITE clinical program will offset cost increases associated with conducting pre-commercialization and launch activities for eravacycline. We also expect to incur significant sales, marketing, distribution and outsourced manufacturing expenses to support the commercial launch of Xerava.

We believe that our available funds, including the $30 million first tranche received via our debt financing in November 2018 with Solar Capital, will be sufficient to support our operations into the second quarter of 2020, which we believe will allow us to fund the initial launch of IV Xerava for the treatment of cIAI. We will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to fund our operations including ongoing spending to commercialize eravacycline. Our failure to generate sufficient cash from operations or to raise additional capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

Financial overview

Revenue

We have derived all of our revenue through September 30, 2018 from our license agreement with Everest Medicines and from funding provided under three U.S. government awards for the development of our compounds.

Other than Xerava product revenue and the license agreement and government awards described above, we do not expect to receive any revenue from any product candidates that we develop until we obtain regulatory approval and commercialize such products or enter into additional ex-US outlicensing agreements. We continue to pursue government funding for other preclinical and clinical programs.

We expect that our revenue will be less than our expenses for the foreseeable future and that we will experience increasing losses as we begin to commercialize Xerava and continue our development of, and seek regulatory approvals for, our other product candidates. 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;

 

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

 

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

 

18


 

 

costs associated with preclinical, regulatory and medical affairs activities; and

 

fees and costs related to regulatory filings and operations.

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 nine months ended September 30, 2018 and 2017:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

 

(in thousands)

 

Eravacycline

 

$

5,463

 

 

$

21,179

 

 

$

26,218

 

 

$

63,971

 

NIAID Contract and NIAID Grant

 

 

693

 

 

 

1,394

 

 

 

2,097

 

 

 

2,353

 

CARB-X Award

 

 

253

 

 

 

434

 

 

 

1,613

 

 

 

832

 

BARDA Contract

 

 

213

 

 

 

2,076

 

 

 

1,229

 

 

 

3,420

 

TP-6076

 

 

562

 

 

 

266

 

 

 

1,471

 

 

 

1,915

 

Other development programs

 

 

837

 

 

 

291

 

 

 

1,849

 

 

 

1,272

 

Other research and development

 

 

3,644

 

 

 

3,137

 

 

 

9,685

 

 

 

9,474

 

Total research and development expenses

 

$

11,665

 

 

$

28,777

 

 

$

44,162

 

 

$

83,237

 

 

Research and development expense allocations by program for the first and second quarter of 2018 in the table above have been updated to conform to reporting methodology employed during the third quarter of 2018. This update resulted in $0.9 million and $1.6 million in the first and second quarter of 2018, respectively, being reclassified from other research and development to eravacycline.

 

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 September 30, 2018, we had incurred an aggregate of $282.5 million in research and development expenses related to the development of eravacycline, and $37.5 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 decrease as we complete the IGNITE program for eravacycline.

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 our pipeline product candidates. We may never succeed in achieving regulatory approval for any of these 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, as of September 30, 2018, we have paid Harvard an aggregate of $12.1 million and accrued $1.8 million in upfront license fees, and development and regulatory 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 ($10.8 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.

 

19


 

Selling, General and Administrative Expenses

Selling, 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 selling, general and administrative expenses will increase for a number of reasons, including:

 

support of our anticipated 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

 

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 Xerava.

Other Income

Other income consists primarily of interest income earned on our cash and cash equivalents.

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 these estimates 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.

In May 2014, the Financial Accounting Standard Board, or FASB, issued Accounting Standards Update, or 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.

We have concluded that our grants are not within the scope of Topic 606, as they do not meet the definition of a contract with a “customer”. We have concluded that the Grants meet the definition of a contribution and are non-reciprocal transactions. We have further concluded that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition also does not apply, as we are a business entity and the grants are with governmental agencies or units. The government grants are technically to a non-profit entity that specializes in government grant administration, project management and oversight (i.e. CUBRC). However, we have concluded that, in effect, it is a grant from the government; as the contracting counterparty CUBRC is merely administering the agreement between the government (who is funding the work) and us (who are performing the work).  

In the absence of applicable guidance under GAAP as of January 1, 2018 for the grants, we have developed a policy for the recognition of revenue for the grants as follows:

 

Revenue is recognized when the right to payment is realized or is realizable,

 

Revenues are realized when services are exchanged for cash or claims to cash. Revenues are not recognized until earned, and

 

20


 

 

Our revenue-earning activities involve rendering services that constitute our ongoing major or central operations, and revenues are considered to have been earned when we have substantially accomplished what we must do to be entitled to the benefits represented by the revenues.

We believe this policy is consistent with the overarching premise in Topic 606, to ensure that we recognize revenues to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services, even though there is no “exchange” as defined in the ASC. We believe the recognition of revenue as costs are incurred and amounts become earned/realizable is analogous to the concept of transfer of control of a service over time under ASC 606.

Prior to January 1, 2018, we recognized revenue as we performed services under the grants so long as an agreement had been executed and the fees for these services were fixed or determinable, legally billable and reasonably assured of collection. Recognized amounts reflected our partial performance under the grants and equal direct and indirect costs incurred plus fixed fees, where applicable. Revenues and expenses under these arrangements were presented gross. Revenue recognition under this new policy is not materially different than would have been calculated under the old guidance. As a result of adoption of this policy, there was no change to the amounts we have historically recorded to our financial statements.

Out-Licensing Revenue Recognition

We entered into an out-licensing agreement that is evaluated under Topic 606, through which we license certain of our product candidates’ rights to a third party. Any future out-license agreement entered into by us and additional third parties shall also be evaluated under Topic 606. Terms of these arrangements include various payment types, typically including one or more of the following: upfront license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services; and/or royalties on net sales of licensed products.

To determine the amount and timing of revenue to be recognized under each agreement, we evaluate the following criteria: (i) confirming the goods or services in the contract; (ii) defining the performance obligations under the agreement; (iii) determining the transaction price, including any constraint on variable consideration; (iv) allocating the transaction price to the performance obligations; and (v) defining how the revenue will be recognized for each performance obligation. In determining the accounting treatment for these arrangements, we develop assumptions to determine the stand-alone selling price for each performance obligation in the contract. These assumptions may include forecasted revenues, development timelines, discount rates and probabilities of technical and regulatory success.

Licenses of Intellectual Property: If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from upfront fees allocated to the license when the license is transferred to the licensee, including any associated know-how and the licensee can use and benefit from the license. For licenses that are bundled with other obligations, we use judgment to evaluate the combined performance obligation to determine whether it is satisfied over time or at a point in time and the appropriate method of measuring completion for purposes of recognizing revenue.  

Milestone Payments: For arrangements that include development milestone payments, we evaluate whether the milestones are considered probable and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.  

Manufacturing Supply: Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as options. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations. If we are entitled to additional payments when the licensee exercises these options, we recognize revenue when the licensee obtains control of the goods, which is upon delivery.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).  

 

21


 

There have been no other 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 6, 2018 for the year ended December 31, 2017.

Results of Operations

Comparison of the Three Months Ended September 30, 2018 and 2017

The following table summarizes the results of our operations for the three months ended September 30, 2018 and 2017, together with the changes in those items in dollars and as a percentage:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

Increase/

 

 

 

 

 

 

 

2018

 

 

2017

 

 

(decrease)

 

 

%

 

 

 

(in thousands)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License revenue

 

$

 

 

$

 

 

$

 

 

n/a

 

Government revenue

 

 

1,151

 

 

 

4,067

 

 

 

(2,916

)

 

 

(72

)%

Total revenues

 

 

1,151

 

 

 

4,067

 

 

 

(2,916

)

 

 

(72

)%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

11,665

 

 

 

28,777

 

 

 

(17,112

)

 

 

(59

)%

Selling, general and administrative

 

 

9,481

 

 

 

5,600

 

 

 

3,881

 

 

 

69

%

Total operating expenses

 

 

21,146

 

 

 

34,377

 

 

 

(13,231

)

 

 

(38

)%

Loss from operations

 

 

(19,995

)

 

 

(30,310

)

 

 

10,315

 

 

 

(34

)%

Other income

 

 

437

 

 

 

302

 

 

 

135

 

 

 

45

%

Net loss

 

$

(19,558

)

 

$

(30,008

)

 

$

10,450

 

 

 

(35

)%

Government revenue was $1.2 million for the three months ended September 30, 2018 compared to $4.1 million for the three months ended September 30, 2017, a decrease of $2.9 million, or 72%. This decrease was due to the scope and timing of activities conducted under our subcontract with respect to the CARB-X Award and the BARDA and NIAID Contracts. Based on current expected duration of these agreements, we expect government revenue to continue to decline.

The following table sets forth our government contract and grant revenue for the three months ended September 30, 2018 and 2017:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

Increase/

 

 

 

 

 

 

 

2018

 

 

2017

 

 

(decrease)

 

 

%

 

 

 

(in thousands)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NIAID Contract

 

$

689

 

 

$

1,485

 

 

$

(796

)

 

 

(54

)%

CARB-X Award

 

 

246

 

 

 

441

 

 

 

(195

)

 

 

(44

)%

BARDA Contract

 

 

216

 

 

 

2,141

 

 

 

(1,925

)

 

 

(90

)%

 

 

$

1,151

 

 

$

4,067

 

 

$

(2,916

)

 

 

(72

)%

 

Research and Development Expenses

Research and development expenses for the three months ended September 30, 2018 were $11.7 million compared to $28.8 million for the three months ended September 30, 2017, a decrease of $17.1 million, or 59%. This decrease was primarily due to lower clinical trial costs associated with conducting our IGNITE phase 3 clinical trials during the three months ended September 30, 2018 as compared to the three months ended September 30, 2017.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2018 were $9.5 million compared to $5.6 million for the three months ended September 30, 2017, an increase of $3.9 million, or 69%. This increase was primarily due to an increase in pre-commercialization expenses and launch expenses offset partially by a decrease in legal expenses.

 

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Other Income

The increase in other income for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 was driven by improved overall yields on our money market funds.

Comparison of the Nine Months Ended September 30, 2018 and 2017

The following table summarizes the results of our operations for the nine months ended September 30, 2018 and 2017, together with the changes in those items in dollars and as a percentage:

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

Increase/

 

 

 

 

 

 

 

2018

 

 

2017

 

 

(decrease)

 

 

%

 

 

 

(in thousands)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License revenue

 

$

9,500

 

 

$

 

 

$

9,500

 

 

n/a

 

Government revenue

 

 

5,120

 

 

 

7,138

 

 

 

(2,018

)

 

 

(28

)%

Total revenues

 

 

14,620

 

 

 

7,138

 

 

 

7,482

 

 

 

105

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

44,162

 

 

 

83,237

 

 

 

(39,075

)

 

 

(47

)%

Selling, general and administrative

 

 

22,350

 

 

 

15,797

 

 

 

6,553

 

 

 

41

%

Total operating expenses

 

 

66,512

 

 

 

99,034

 

 

 

(32,522

)

 

 

(33

)%

Loss from operations

 

 

(51,892

)

 

 

(91,896

)

 

 

40,004

 

 

 

(44

)%

Other income

 

 

1,215

 

 

 

620

 

 

 

595

 

 

 

96

%

Net loss

 

$

(50,677

)

 

$

(91,276

)

 

$

40,599

 

 

 

(44

)%

License revenue was $9.5 million for the nine months ended September 30, 2018 related to our license agreement with Everest Medicines. Contract and grant revenue was $5.1 million for the nine months ended September 30, 2018 compared to $7.1 million for the nine months ended September 30, 2017, a decrease of $2.0 million, or 28%. This decrease was due to the scope and timing of activities conducted under our subcontract with respect to the CARB-X Award and the BARDA and NIAID Contracts. Based on current expected duration of these agreements, we expect government revenue to continue to decline.

The following table sets forth our contract and grant revenue for the nine months ended September 30, 2018 and 2017:

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

Increase/

 

 

 

 

 

 

 

2018

 

 

2017

 

 

(decrease)