asns-10q_20180630.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 June 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: 001-38295

 

ARSANIS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

27-3181608

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

890 Winter Street, Suite 230

Waltham, MA

02451

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (781) 819-5704

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Small 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 July 31, 2018, the registrant had 14,315,410 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 

 


 

Table of Contents

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

3

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

3

 

 

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

 

3

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017

 

4

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2018 and 2017

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

Item 2.

 

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

 

23

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

38

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

40

 

 

 

 

 

Item 1A.

 

Risk Factors

 

40

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

78

 

 

 

 

 

Item 5.

 

Other Information

 

78

 

 

 

 

 

Item 6.

 

Exhibits

 

81

 

 

 

 

 

Signatures

 

82

 

 

 

 

 

 

We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. Other trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this Quarterly Report on Form 10-Q are listed without the ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.

 

 

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ARSANIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

49,940

 

 

$

76,793

 

Grant and incentive receivables

 

 

2,178

 

 

 

1,608

 

Restricted cash

 

 

51

 

 

 

 

Prepaid expenses and other current assets

 

 

4,393

 

 

 

1,129

 

Total current assets

 

 

56,562

 

 

 

79,530

 

Property and equipment, net

 

 

353

 

 

 

421

 

Restricted cash

 

 

295

 

 

 

355

 

Other assets

 

 

 

 

 

948

 

Total assets

 

$

57,210

 

 

$

81,254

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,137

 

 

$

1,893

 

Accrued expenses

 

 

3,879

 

 

 

5,779

 

Unearned income

 

 

712

 

 

 

694

 

Loans payable, net of discount

 

 

3,486

 

 

 

2,314

 

Total current liabilities

 

 

10,214

 

 

 

10,680

 

Loan payable, net of discount and current portion

 

 

7,706

 

 

 

9,922

 

Unearned income

 

 

1,519

 

 

 

1,936

 

Other long-term liabilities

 

 

7

 

 

 

9

 

Total liabilities

 

 

19,446

 

 

 

22,547

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized as of June 30,

   2018 and December 31, 2017; 14,315,410 and 14,294,383 shares issued and

   outstanding as of June 30, 2018 and December 31, 2017, respectively

 

 

14

 

 

 

15

 

Additional paid-in capital

 

 

152,601

 

 

 

150,830

 

Accumulated other comprehensive income (loss)

 

 

177

 

 

 

127

 

Accumulated deficit

 

 

(115,028

)

 

 

(92,265

)

Total stockholders’ equity

 

 

37,764

 

 

 

58,707

 

Total liabilities and stockholders’ equity

 

$

57,210

 

 

$

81,254

 

 

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

3


 

ARSANIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

8,930

 

 

$

3,906

 

 

$

17,063

 

 

$

8,297

 

General and administrative

 

 

3,686

 

 

 

1,738

 

 

 

6,503

 

 

 

3,174

 

Total operating expenses

 

 

12,616

 

 

 

5,644

 

 

 

23,566

 

 

 

11,471

 

Loss from operations

 

 

(12,616

)

 

 

(5,644

)

 

 

(23,566

)

 

 

(11,471

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant and incentive income

 

 

516

 

 

 

862

 

 

 

961

 

 

 

1,562

 

Interest expense

 

 

(259

)

 

 

(444

)

 

 

(526

)

 

 

(1,463

)

Interest income

 

 

225

 

 

 

 

 

 

441

 

 

 

 

Change in fair value of warrant liability

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Change in fair value of derivative liability

 

 

 

 

 

 

 

 

 

 

 

762

 

Loss on extinguishment of debt

 

 

 

 

 

(462

)

 

 

 

 

 

(462

)

Other income (expense), net

 

 

1

 

 

 

(28

)

 

 

(73

)

 

 

(29

)

Total other income (expense), net

 

 

483

 

 

 

(61

)

 

 

803

 

 

 

381

 

Net loss

 

 

(12,133

)

 

 

(5,705

)

 

 

(22,763

)

 

 

(11,090

)

Accretion of redeemable convertible preferred stock to redemption

   value

 

 

 

 

 

(13

)

 

 

 

 

 

(20

)

Net loss attributable to common stockholders

 

$

(12,133

)

 

$

(5,718

)

 

$

(22,763

)

 

$

(11,110

)

Net loss per share attributable to common stockholders—basic and

   diluted

 

$

(0.85

)

 

$

(11.13

)

 

$

(1.59

)

 

$

(21.62

)

Weighted average common shares outstanding—basic and diluted

 

 

14,304,102

 

 

 

513,900

 

 

 

14,299,288

 

 

 

513,900

 

 

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

4


 

ARSANIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Amounts in thousands)

(Unaudited)

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

 

$

(12,133

)

 

$

(5,705

)

 

$

(22,763

)

 

$

(11,090

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

 

270

 

 

 

(297

)

 

 

50

 

 

 

(379

)

Comprehensive loss

 

 

$

(11,863

)

 

$

(6,002

)

 

$

(22,713

)

 

$

(11,469

)

 

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

5


 

ARSANIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(22,763

)

 

$

(11,090

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,618

 

 

 

354

 

Depreciation and amortization expense

 

 

85

 

 

 

96

 

Non-cash interest expense

 

 

397

 

 

 

1,377

 

Non-cash rent expense

 

 

 

 

 

(11

)

Loss on extinguishment of debt

 

 

 

 

 

462

 

Change in fair value of warrant liability

 

 

 

 

 

(11

)

Change in fair value of derivative liability

 

 

 

 

 

(762

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Grant and incentive receivables

 

 

(635

)

 

 

(547

)

Prepaid expenses and other assets

 

 

(2,394

)

 

 

(1,708

)

Accounts payable

 

 

257

 

 

 

(563

)

Accrued expenses

 

 

(1,886

)

 

 

1,434

 

Unearned income

 

 

(336

)

 

 

1,095

 

Net cash used in operating activities

 

 

(25,657

)

 

 

(9,874

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(27

)

 

 

(41

)

Net cash used in investing activities

 

 

(27

)

 

 

(41

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of redeemable convertible preferred stock

 

 

 

 

 

35,053

 

Proceeds from issuance of convertible promissory notes

 

 

 

 

 

4,935

 

Proceeds from issuance of loans under funding agreements

 

 

 

 

 

666

 

Proceeds from exercise of stock options

 

 

152

 

 

 

 

Repayments of loans payable

 

 

(1,167

)

 

 

(1,165

)

Payments of issuance costs of convertible promissory notes

 

 

 

 

 

(17

)

Payments of issuance costs of redeemable convertible preferred stock

 

 

 

 

 

(197

)

Payment of initial public offering costs

 

 

(43

)

 

 

 

Net cash provided by (used in) financing activities

 

 

(1,058

)

 

 

39,275

 

Effect of exchange rate changes on cash

 

 

(120

)

 

 

55

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(26,862

)

 

 

29,415

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

77,148

 

 

 

3,429

 

Cash, cash equivalents and restricted cash at end of period

 

$

50,286

 

 

$

32,844

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of redeemable convertible preferred stock upon extinguishment

    of convertible promissory notes

 

$

 

 

$

11,102

 

Derivative liability in connection with issuance of convertible promissory notes

 

$

 

 

$

403

 

Extinguishment of convertible promissory notes

 

$

 

 

$

8,405

 

Extinguishment of derivative liability in connection with extinguishment

    of convertible promissory notes

 

$

 

 

$

2,234

 

Accretion of redeemable convertible preferred stock to redemption value

 

$

 

 

$

20

 

 

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

6


 

 ARSANIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.

Nature of the Business and Basis of Presentation

Arsanis, Inc. (the “Company”) is a clinical-stage biopharmaceutical company focused on applying monoclonal antibody, or mAb, immunotherapies to address serious infectious diseases. The Company possesses a deep understanding of the pathogenesis of infection, paired with access to what the Company believes to be some of the most advanced mAb discovery techniques and platforms available today. The Company’s pipeline is comprised of mAbs targeting multiple serious bacterial and viral pathogens, including Staphylococcus aureus (“S. aureus”) and respiratory syncytial virus (“RSV”).

On June 28, 2018, the Company announced the discontinuation of its Phase 2 clinical trial of ASN100 for the prevention of      S. aureus pneumonia in high-risk, mechanically ventilated patients following the completion of a planned interim analysis of unblinded trial data for 118 patients by an independent data review committee (“DRC”). Based on the results of this analysis, the DRC determined that the trial was futile, meaning that it was not likely to meet its primary end-point upon completion, and recommended that trial enrollment be discontinued. The Company intends to conduct follow-up visits on patients dosed in the trial per the study protocol and to evaluate the complete dataset from the 154 patients that were enrolled in the trial to better understand the basis for this result. The Company expects to complete this evaluation in the fourth quarter of 2018 and has ceased further clinical development of ASN100, pending the results of this analysis. The Company currently does not expect to incur material costs for this program beyond the fourth quarter of 2018.

In light of the discontinuation of the clinical development of ASN100, the Company is considering strategic options that may potentially result in changes to its business strategy and future operations. Pending any decision to change its strategic direction, the Company’s current operating plan provides for its ongoing review of the data from the ASN100 clinical trial, the continued development of its ASN500 program, as well as supporting its collaborators across its ASN200 and ASN300 programs, both of which were outlicensed to subsidiaries of Bravos Biosciences, LLC during the first half of 2018.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, the Company’s ability to successfully execute on its strategic plans, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Any product candidates will require significant research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

On November 3, 2017, the Company effected a one-for-3.4130 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s redeemable convertible preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.

On November 20, 2017, the Company completed an initial public offering (“IPO”) of its common stock, and issued and sold 4,000,000 common shares at a price to the public of $10.00 per share. Concurrent to the IPO, (i) the Company issued an additional 600,000 common shares at a price of $10.00 per share pursuant to the exercise of the underwriters’ over-allotment option and (ii) New Enterprise Associates 16, L.P., or NEA, purchased 2,000,000 shares of the Company’s common stock at the initial per share public offering price of $10.00 in a private placement. The aggregate net proceeds to the Company from the IPO, inclusive of the over-allotment exercise, and the private placement were $58.1 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. Upon the closing of the IPO, all of the outstanding redeemable convertible preferred stock of the Company automatically converted into 7,180,483 shares of the Company’s common stock.

The Company had an accumulated deficit of $115.0 million at June 30, 2018. During the six months ended June 30, 2018, the Company incurred a net loss of $22.8 million and used $25.7 million of cash in operations. The Company expects to continue to generate operating losses for the foreseeable future.

Based on its current operating plan, the Company expects that its cash and cash equivalents of $49.9 million as of June 30, 2018, will be sufficient to fund its operating expenses, capital expenditure requirements and debt service payments for at least 12 months from the issuance date of these condensed consolidated financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.

7


 

Arsanis is incorporated under the laws of the State of Delaware and is headquartered in Waltham, Massachusetts, with a wholly-owned subsidiary that is primarily focused on discovery research in Vienna, Austria.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiary, Arsanis Biosciences GmbH. All intercompany balances and transactions have been eliminated.

2.

Summary of Significant Accounting Policies

Unaudited Interim Financial Statements

The condensed balance sheet at December 31, 2017 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying condensed financial statements as of June 30, 2018 and for the three and six months ended June 30, 2018 and 2017 are unaudited. The accompanying unaudited interim financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 9, 2018. In the opinion of management, all adjustments, consisting only of normal recurring adjustments as necessary, for the fair statement of the Company’s condensed financial position as of June 30, 2018 and condensed results of its operations for the three and six months ended June 30, 2018 and 2017 and cash flows for the six months ended June 30, 2018 and 2017 have been made. The results of operations for the three and six months ended June 30, 2018 and 2017 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2018.

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 and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual for research and development expenses and the valuation of common stock and stock options. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Fair Value Measurements

Certain assets of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

Level 1—Quoted prices in active markets for identical assets or liabilities.

 

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The carrying values of cash equivalents, other current assets, accounts payable, and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. The carrying value of the Company’s loan and security agreement with Silicon Valley Bank (“SVB”) approximates its fair value because the debt bears interest at a market rate. The carrying value of the loans received under the funding agreements with Österreichische Forschungsförderungsgesellschaft mbH (“FFG”) approximates their fair value because the Company records imputed interest expense based on rates that approximate market rates of interest as of the issuance date of each FFG loan.

8


 

Comprehensive Gain (Loss)

Comprehensive gain (loss) includes net gain (loss) as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. Comprehensive gain (loss) included $0.3 million and $(0.3) million for the three months ended June 30, 2018 and 2017, respectively, and $0.1 million and $(0.4) million for the six months ended June 30, 2018 and 2017, respectively, of foreign currency translation gain (loss) adjustments.

Net Income (Loss) per Share

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares. For purpose of this calculation, options to purchase common stock, redeemable convertible preferred stock, warrants to purchase common stock and warrants to purchase redeemable convertible preferred stock are considered potential dilutive common shares.

The Company’s redeemable convertible preferred stock contractually entitled the holders of such shares to participate in dividends but contractually did not require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes most existing revenue recognition guidance under GAAP. The FASB also issued several amendments and updates to the new revenue standard (collectively, “Topic 606”). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The standard defines a five-step process to achieve this principle, and will require companies to use more judgment and make more estimates than under the current guidance. These judgments and estimates include identifying performance obligations in the customer contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The Company adopted this guidance, effective January 1, 2018, and its adoption had no impact on the Company’s financial position, results of operations or cash flows as the Company does not currently have any revenue-generating arrangements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted the standard retrospectively to all periods presented on the required effective date of January 1, 2018, and its adoption had no impact on the Company’s financial position, results of operations or cash flows.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory (“ASU 2016-16”), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted this guidance, effective January 1, 2018, and its adoption had no impact on the Company’s financial position, results of operations or cash flows.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. The Company adopted this standard on January 1, 2018. The adoption of ASU 2016-18 resulted in the Company's cash, cash equivalents and restricted cash being included in the beginning and ending amounts for the periods shown on the statement of cash flows and was applied retroactively and reflected in the balances presented for any prior periods. The Company believes that the adoption of this guidance did not have a significant impact on its condensed consolidated financial statements and related disclosures.

9


 

The restricted cash as of June 30, 2018 and December 31, 2017 is held as letters of credit for the benefit of the landlords in connection with the Company’s office leases.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same such amounts shown in the statement of cash flows.

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

Cash and cash equivalents

 

$

49,940

 

 

$

24,143

 

Restricted cash – current

 

 

51

 

 

 

8,361

 

Restricted cash – non-current

 

 

295

 

 

 

340

 

Total cash, cash equivalents and restricted cash shown in the statement of

   cash flows

 

$

50,286

 

 

$

32,844

 

In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The Company adopted this guidance, effective January 1, 2018, and its adoption had no impact on the Company’s financial position, results of operations or cash flows.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The Company adopted this guidance, effective January 1, 2018, and its adoption had no impact on the Company’s financial position, results of operations or cash flows.

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 ("ASU 2018-05"). This standard amends ASC 740, Income Taxes (“ASC 740”) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard was effective upon issuance. The Company will continue to assess the impact that various provisions will have on its business. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete.

Recently Issued Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The new standard specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. ASU 2018-07 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2018-07 will have on its consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. ASU 2017-11 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2017-11 will have on its consolidated financial statements.

10


 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. ASU 2016-02 (Accounting Standards Codification (“ASC”) (Topic 842) supersedes the previous leases standard, ASC 840, Leases. The standard is effective for public entities for annual periods beginning after December 15, 2018 including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

3.

Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

 

 

 

 

 

 

As of June 30, 2018

 

 

 

Level 1

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

Cash equivalents - Money Market Funds

 

$

49,576

 

 

$

49,576

 

 

 

$

49,576

 

 

$

49,576

 

 

 

 

 

 

 

 

As of December 31, 2017

 

 

 

Level 1

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

Cash equivalents - Money Market Funds

 

$

70,891

 

 

$

70,891

 

 

 

$

70,891

 

 

$

70,891

 

 

There were no changes to the valuation methods during the six months ended June 30, 2018 and the year ended December 31, 2017. There were no transfers within the fair value hierarchy during the six months ended June 30, 2018 and the year ended December 31, 2017.

 

4.

Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Accrued clinical trial costs

 

$

1,335

 

 

$

2,317

 

Accrued compensation and benefits

 

 

1,539

 

 

 

2,454

 

Accrued professional fees

 

 

563

 

 

 

510

 

Accrued other

 

 

442

 

 

 

498

 

 

 

$

3,879

 

 

$

5,779

 

 

11


 

5.

Collaboration, License and Funding Arrangements

Adimab Option and License Agreement

In February 2017, the Company entered into an option and license agreement with Adimab, LLC (“Adimab”), a related party (see Note 11) (the “Adimab Option Agreement”). Under the Adimab Option Agreement, Adimab has provided to the Company certain proprietary antibodies against RSV (“RSV antibodies”) for its evaluation during a specified option period and has granted the Company an exclusive, non-sublicensable license in a specified field under certain Adimab patent rights and know-how during the option period. Under the Adimab Option Agreement, the Company has an exclusive option, exercisable during the option period upon payment of an option fee to Adimab, to require Adimab to assign to the Company all rights in up to a specified number of RSV antibodies selected by the Company and certain patent rights owned by Adimab that cover these antibodies, and to obtain from Adimab a non-exclusive license in a specified field, with the right to grant sublicenses, under certain other patent rights and know-how owned by Adimab.

In February 2017, the Company entered into a grant agreement with the Bill & Melinda Gates Foundation (the “Gates Foundation”) pursuant to which the Company has no payment obligations under the Adimab Option Agreement with respect to sales of products based on licensed RSV antibodies to the extent they are sold at cost in developing countries. However, if such products are sold in developing countries for an amount that exceeds cost, then the amount of such excess will be subject to certain royalty payment obligations described in the agreement.

The Company recognized research and development expenses of $14,000 and $58,000 during the three months ended June 30, 2018 and 2017, respectively, and $0.1 million and $0.1 million during the six months ended June 30, 2018 and 2017, respectively, in connection with the Adimab Option Agreement, which consisted of reimbursement for services performed by Adimab.

February 2017 and August 2018 Amended and Restated Gates Foundation Grant Agreement

In February 2017, the Company entered into the above-referenced grant agreement with the Gates Foundation, under which the Gates Foundation agreed to provide the Company up to $9.3 million to conduct preclinical development of mAbs for the prevention of RSV infection in newborns (the “RSV project”).  

In March 2017, the Company received a payment of $1.6 million from the Gates Foundation under the grant agreement. The funds received from the Gates Foundation were incurred on qualifying expenses attributable to the RSV project, and the Company recognized grant income of $1.6 million under the grant agreement during the year ended December 31, 2017.

In August 2018, the Company entered into an amended and restated grant agreement which replaces the February 2017 grant agreement in its entirety. The amended and restated grant agreement includes amendments to conform to current Gates Foundation audit, reporting, and other administrative requirements, as well as to make the perpetual Gates Foundation license grant described below irrevocable.  

The Company recognized grant income of $0 during the three and six months ended June 30, 2018, and $0.6 million during the three and six months ended June 30, 2017, under the grant agreement with the Gates Foundation upon incurring qualifying expenses. As of June 30, 2018 and December 31, 2017, unearned income under the grant agreement with the Gates Foundation was $0.

August 2018 Gates Foundation Grant Agreement  

In August 2018, the Company entered into an additional grant agreement with the Gates Foundation pursuant to which the Gates Foundation granted to the Company up to $1.1 million to conduct preclinical development activities for the RSV project that were not included in the February 2017 grant agreement, as amended and restated in August 2018. In return, the Company has agreed to conduct the RSV project in a manner that ensures that the knowledge and information gained from the project will be promptly and broadly disseminated, and that the products, technologies, materials, processes and other intellectual property resulting from the RSV project (collectively referred to as the funded developments) will be made available and accessible at an affordable price to people most in need within developing countries. These obligations survive any expiration or termination of the grant agreement.

To this end, the Company has granted to the Gates Foundation a non-exclusive, perpetual, irrevocable, royalty-free, fully paid up, sublicensable license to make, use, sell, offer to sell, import, distribute, copy, modify, create derivative works, publicly perform and display the funded developments and, to the extent incorporated into a funded development or required to use a funded development, any other technology created outside of the RSV project that was used as part of the RSV project, for the benefit of people in developing countries. The Company has also agreed to seek prompt publication of data and results developed under the RSV project under “open access” terms and conditions. This license and these publication obligations survive any expiration or termination of the grant agreements.

12


 

The August 2018 grant agreement expires on August 31, 2018. The Gates Foundation can modify, suspend or discontinue any payment under the grant agreement, or terminate the grant agreement, if it is not reasonably satisfied with the Company’s progress on the RSV project; if there are significant changes to the Company’s leadership or other factors that the Gates Foundation reasonably believes may threaten the RSV project’s success; if the Company undergoes a change in control; if there is a change in the Company’s tax status; or if the Company fails to comply with the grant agreement. Any grant funds that have not been used for, or committed to, the RSV project upon the expiration or termination of the agreement must be returned to the Gates Foundation or otherwise used as directed by the Gates Foundation.

The Company did not recognize grant income or record any unearned income under the August 2018 grant agreement with the Gates Foundation in any periods presented.

Gates Foundation Letter Agreement and Investment  

In April 2017, the Company entered into a letter agreement with the Gates Foundation. In connection with the letter agreement, the Gates Foundation purchased 2,464,799 shares of the Company’s Series D preferred stock, which converted into 722,179 shares of our common stock in connection with our November 2017 initial public offering after giving effect to a one-for-3.4130 reverse-stock-split. The Company committed to use the proceeds of $8.0 million from the investment by the Gates Foundation solely to advance the development of a specified monoclonal antibody program that involves the monoclonal antibodies ASN-1, ASN-2 and ASN-3 and the Company’s product candidate, ASN100. Under the letter agreement, in addition to the initial project funded by the Gates Foundation with its initial investment, the Company also agreed to conduct up to four additional projects to be proposed and to be funded by the Gates Foundation.

The letter agreement contains certain global access obligations as well as requirements relating to the Company’s use of the funds received from the Gates Foundation investment. In the event that the Company fails to comply with these obligations or requirements or any related U.S. legal obligations set forth in the letter agreement, the Gates Foundation will have the right, after expiration of a specified cure period, to require the Company to redeem all of the shares owned by the Gates Foundation or to locate a third party that will purchase such shares. For any redemption or purchase resulting from such default, the shares of the Company’s stock held by the Gates Foundation will be redeemed at an amount equal to the greater of the original purchase price (plus specified interest) or the fair market value of such stock on the date of such redemption. The term of the letter agreement continues in perpetuity.

In connection with this letter agreement, the Company has granted to the Gates Foundation and/or Gates Foundation-supported entities certain licenses, including a non-exclusive, non-terminable, royalty-free (except as required under the Adimab Collaboration Agreement), sublicensable license to products, technologies, materials, processes and other intellectual property developed using funds provided by the Gates Foundation or a Gates Foundation-supported entity, or developed in connection with the Company’s conduct of any funded project or additional funded project, as well as all of the Company’s background intellectual property, to utilize and exploit products and services directed at pathogens or other targets subject to any funded project or additional funded project.

The proceeds received from the Gates Foundation in connection with the Company’s sale and issuance of Series D preferred stock were incurred on qualifying expenses under the letter agreement during the year ended December 31, 2017.

The Company incurred qualifying expenses of $0 during the three and six months ended June 30, 2018, and $0.7 million during the three and six months ended June 30, 2017, under the letter agreement with the Gates Foundation.

Funding Agreements with FFG

Between September 2011 and March 2017, the Company entered into a series of funding agreements with FFG that provided for loans and grants to fund between 50% and 70% of qualifying research and development expenditures of the Company’s subsidiary in Austria on a project-by-project basis, as approved by FFG.

FFG Grants

For grants under the funding agreements with FFG, the Company recognized grant income of $0 and $0.2 million during the three months ended June 30, 2018 and 2017, respectively, and $0 and $0.3 million during the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018 and December 31, 2017, the Company recorded grant receivables from FFG of $0.1 million and $0.1 million, respectively, for qualifying expenses incurred that were reimbursable under the funding agreements. As of June 30, 2018 and December 31, 2017, there were no amounts recorded as unearned income in connection with the FFG grants.

13


 

FFG Loans

Loans under the funding agreements with FFG bear interest at rates that are below market rates of interest. The Company accounts for the imputed benefit arising from the difference between a market rate of interest and the rate of interest charged by FFG as additional grant funding from FFG. On the date that FFG loan proceeds are received, the Company recognizes the portion of the loan proceeds allocated to grant funding as a discount to the carrying value of the loan and as unearned income, which is recognized as additional grant income over the term of the funding agreement.

The Company recognized grant income of $0.1 million and $0.2 million during the three months ended June 30, 2018 and 2017, respectively, and $0.3 million and $0.3 million during the six months ended June 30, 2018 and 2017, respectively, related to the recognition of the unearned income recorded for the imputed benefit of FFG loans at below-market interest rates. Unearned income (current) related to the imputed benefit of FFG loans at below-market interest rates was $0.7 million and $0.7 million as of June 30, 2018 and December 31, 2017, respectively, and unearned income (non-current) related to such benefit was $1.5 million and $1.9 million as of June 30, 2018 and December 31, 2017, respectively.

Research and Development Incentive

The Company participates in a research and development incentive program provided by the Austrian government whereby the Company is entitled to reimbursement by the Austrian government for a percentage of qualifying research and development expenses incurred by the Company’s subsidiary in Austria. Under the program, the reimbursement rate for qualifying research and development expenses incurred by the Company through its subsidiary in Austria was 12% for the year ended December 31, 2017, and is 14% for the year ended December 31, 2018.

The Company recognizes incentive income from Austrian research and development incentives when qualifying expenses have been incurred, there is reasonable assurance that the payment will be received, and the consideration can be reliably measured. Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the research and development incentive program described above. At each reporting date, management estimates the reimbursable incentive income available to the Company based on available information at the time.

The Company recognized incentive income of $0.3 million and $0.1 million during the three months ended June 30, 2018 and 2017, respectively, and $0.6 million and $0.5 million during the six months ended June 30, 2018 and 2017, respectively, in connection with the Austrian research and development incentive program. As of June 30, 2018 and December 31, 2017, the Company recorded receivables for amounts due under the program of $2.1 million and $1.5 million, respectively, which amounts were included in grant and incentive receivables in the condensed consolidated balance sheet.

6.

Loans Payable

The aggregate principal amount of debt outstanding as of June 30, 2018 and December 31, 2017 consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Term loans under 2012 Loan Agreement

 

$

3,500

 

 

$

4,667

 

FFG loans

 

 

9,937

 

 

 

10,225

 

 

 

$

13,437

 

 

$

14,892

 

 

14


 

Current and non-current debt obligations reflected in the condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017 consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Current liabilities:

 

 

 

 

 

 

 

 

Term loans under 2012 Loan Agreement

 

$

3,500

 

 

$

2,333

 

FFG loans

 

 

 

 

 

 

Unamortized debt discount

 

 

(14

)

 

 

(19

)

Loans payable, net of discount

 

 

3,486

 

 

 

2,314

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Term loans under 2012 Loan Agreement

 

$

 

 

$

2,334

 

FFG loans

 

 

9,937

 

 

 

10,225

 

Unamortized debt discount

 

 

(2,231

)

 

 

(2,637

)

Loans payable, net of discount and current portion

 

 

7,706

 

 

 

9,922

 

Total loans payable, net of discount

 

$

11,192

 

 

$

12,236

 

 

2012 Loan Agreement

On December 7, 2012, the Company entered into a loan and security agreement (the “2012 Loan Agreement”) with SVB, and borrowed an aggregate of $2.5 million in two separate tranches: $0.5 million in December 2012 (the “2012 Term Loan A Advance”), and $2.0 million in February 2013 (the “2012 Term Loan B Advance”).

In connection with the 2012 Loan Agreement, the Company issued a Series A-2 warrant to SVB, which became exercisable with respect to 2,202 shares of Series A-2 preferred stock on December 12, 2012 in connection with the 2012 Term Loan A Advance, and with respect to 8,811 shares of Series A-2 preferred stock on February 25, 2013 in connection with the 2012 Term Loan B Advance. At the time of grant, the Series A-2 warrant was exercisable at a price of $4.54 per share. The Series A-2 warrant expires on December 6, 2022.

On February 19, 2016, the Company entered into the First Amendment to the 2012 Loan Agreement (the “First Amendment”). The First Amendment provided for an additional borrowing of $3.5 million (“2016 Term Loan A Advance”), with a requirement that a portion of the proceeds be used to pay in full, all amounts then outstanding, under the 2012 Term Loan A Advance and the 2012 Term Loan B Advance.

The First Amendment provided for two additional advances not to exceed, in the aggregate, $3.5 million, with each advance being for a minimum of $0.5 million (collectively the “2016 Term Loan B Advance”), and total borrowings under the 2012 Loan Agreement not to exceed $7.0 million. The Company borrowed the full $7.0 million available in two separate tranches: $3.5 million under the 2016 Term Loan A Advance, which was borrowed on February 29, 2016, and $3.5 million under the 2016 Term Loan B Advance, which was borrowed on August 23, 2016. Following these borrowings in February and August 2016, no additional amounts were available to be borrowed under the 2012 Loan Agreement.

In connection with the First Amendment to the 2012 Loan Agreement, the Company issued a Series B warrant to SVB which became exercisable with respect to 7,251 shares of Series B preferred stock on February 29, 2016 in connection with the 2016 Term Loan A Advance, and with respect to 7,251 shares of Series B preferred stock on August 23, 2016 in connection with the 2016 Term Loan B Advance. At the time of grant, the Series B warrant was exercisable at a price of $7.24 per share. The Series B warrant expires on February 18, 2026.

Upon the closing of the IPO in November 2017, the Series A-2 warrant converted into a common stock warrant to purchase up to 3,940 shares of common stock at an exercise price of $12.70 per share. The Series B warrant converted into a common stock warrant to purchase up to 6,474 shares of common stock at an exercise price of $16.22 per share. At June 30, 2018, these warrants to purchase up to 3,940 shares of common stock at an exercise price of $12.70 and 6,474 shares of common stock at an exercise price of $16.22 remained outstanding.

Borrowings under the 2016 Term Loan A Advance and 2016 Term Loan B Advance (collectively, the “2016 Term Loan Advance”) bear interest at a rate per annum equal to the greater of 3.25% and The Wall Street Journal prime rate, in each case minus 0.25%; provided, however, that in an event of default, as defined in the 2012 Loan Agreement, the interest rate applicable to borrowings under the First Amendment will be increased by 4.0%. As of June 30, 2018 and December 31, 2017, the interest rate applicable to borrowings under the 2016 Term Loan Advance was 4.75% and 4.25%, respectively.

15


 

The Company is required to make equal monthly payments of principal as well as accrued interest beginning January 1, 2017 through December 1, 2019 (the “First Amendment Maturity Date”), when all unpaid principal and interest become due and payable. The First Amendment also provided that the Company could voluntarily prepay all (but not less than all) of the outstanding principal at any time prior to the maturity date, subject to a prepayment fee, which ranges from 0% to 2% of the outstanding principal if paid prior to the First Amendment Maturity Date. The Company has not accrued for this prepayment fee as it had not intended to prepay the outstanding balance and the prepayment fee is 0% as of June 30, 2018. A final payment of 5.0% multiplied by the principal amount of the borrowings under the 2016 Term Loan Advance is due upon the earlier to occur of the First Amendment Maturity Date or prepayment of all outstanding principal. The final payment is being accreted to interest expense through the First Amendment Maturity Date. In connection with the First Amendment, the Company paid an arrangement fee of $20,000 to SVB and incurred legal costs of $7,000, both of which were recorded as a debt discount. The debt discount is reflected as a reduction of the carrying value of the loan payable on the Company’s consolidated balance sheet and is being amortized to interest expense over the term of the loan using the effective interest method.

The Company was in compliance with all covenants under the 2012 Loan Agreement as of December 31, 2017. In March 2018, the Company entered into an Option and License Agreement with BB100, LLC, a subsidiary of Bravos Biosciences, LLC, under which BB100, LLC secured an exclusive, worldwide preclinical development license, and an option to a clinical development and commercialization license, to mAbs targeting E. coli that were discovered by the Company in its ASN200 program. In June 2018, the Company entered into an Option and License Agreement with BB200, LLC, a portfolio company of Bravos Biosciences, LLC, under which BB200, LLC secured an exclusive, worldwide preclinical development license, and an option to a clinical development and commercialization license to selected mAbs targeting K. pneumoniae that were discovered by the Company in its ASN300 program, including lead preclinical development candidate, ASN-5. As a result of entering into such Option and License Agreements without obtaining prior written consent of SVB, and subsequently delivering compliance certificates under the 2012 Loan Agreement that did not disclose these violations, the Company is currently in default under the 2012 Loan Agreement. On August 8, 2018, the Company and SVB entered into a Forbearance Agreement (the “Forbearance Agreement”), pursuant to which SVB has agreed to forbear from exercising its rights and remedies with respect to such default until the earlier to occur of (i) another event of default under the 2012 Loan Agreement or (ii) October 31, 2018.

In addition to the default in connection with the Option and License Agreements, the Company has discussed with SVB whether its decision to discontinue its Phase 2 clinical trial of ASN100 may be considered a material adverse change in the business, operations or condition (financial or otherwise) of the Company and, accordingly, an event of default under the terms of the 2012 Loan Agreement. To date, SVB has not agreed that the discontinuation of the trial does not constitute an event of default. If the trial discontinuation does constitute a material adverse change in the Company’s business, operations or condition, SVB will have the right to accelerate the Company's outstanding obligations under the 2012 Loan Agreement.

Because the Company’s obligations under the 2012 Loan Agreement may be accelerated at the election of SVB upon the expiration of the Forbearance Agreement, or earlier if another event of default occurs, including but not limited to if the ASN100 Phase 2 clinical trial discontinuation constitutes a material adverse change in the Company’s business, operations or condition, the Company has presented the SVB loan payable as current on the consolidated balance sheet as of June 30, 2018.

The Company recognized interest expense under the 2012 Loan Agreement, as amended, of $0.1 million and $0.1 million during the three months ended June 30, 2018 and 2017, respectively, and $0.1 million and $0.3 million during the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018 and December 31, 2017, the unamortized debt discount was $14,000 and $26,000, respectively.

The Company made aggregate principal payments in connection with the 2012 Loan Agreement of $0.6 million and $0.6 million during the three months ended June 30, 2018 and 2017, respectively, and $1.2 million and $1.2 million during the six months ended June 30, 2018 and 2017, respectively.

FFG Loans

In connection with the funding agreements with FFG (see Note 5), the Company received loans from FFG. Loans from FFG were made on a project-by-project basis and had an aggregate principal amount outstanding of $9.9 million and $10.2 million as of June 30, 2018 and December 31, 2017, respectively. Amounts due under the FFG loans bear interest at rates ranging from 0.75% to 2.0% per annum and mature at various dates between June 2020 and March 2023. Interest on amounts due under the loans is payable semi-annually in arrears, with all principal and remaining accrued interest due upon maturity.

16


 

In addition, the Company has recorded a discount to the carrying value of each FFG loan for the portion of the loan proceeds allocated to grant funding, which is being amortized to interest expense over the term of the loan using the effective interest method. As of June 30, 2018 and December 31, 2017, the unamortized debt discount related to FFG loans was $2.2 million and $2.6 million, respectively.

The Company recognized interest expense of $0.2 million and $0.2 million during the three months ended June 30, 2018 and 2017, respectively, and $0.4 million and $0.3 million during the six months ended June 30, 2018 and 2017, respectively, related to the FFG loans. There were no principal payments due or paid under the FFG loans during the three and six months ended June 30, 2018 and 2017.

The Company may be required to return all or a portion of the FFG loans and/or grants (see Note 5) if it does not comply with the terms of the related FFG funding agreements and related guidelines, including specified requirements as to continued operations with respect to certain locations and funded projects. To date, FFG has not requested the return of any amounts received by the Company under the funding agreements.

7.

Common Stock

As of June 30, 2018 and December 31, 2017, the Company had reserved 2,738,039 shares and 2,187,252 shares of common stock, respectively, for the exercise of outstanding stock options, the number of shares remaining available for grant under the Company’s 2017 Equity Incentive Plan and 2017 Employee Stock Purchase Plan and the exercise of outstanding warrants to purchase shares of common stock.

8.

Stock-Based Compensation

The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) provides for the grant by the Company of incentive stock options, non-qualified options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. Incentive stock options may be granted only to the Company’s employees, including officers and directors who are also employees. Awards other than incentive stock options may be granted to employees, officers, members of the board of directors, advisors and consultants of the Company. Following the adoption of the 2017 Plan, no further grants will be made under the Company’s 2010 Special Stock Incentive Plan (“Special Plan”) and 2011 Stock Incentive Plan (“2011 Plan”).

Upon its adoption, the number of shares of the Company’s common stock initially reserved for issuance under the 2017 Plan was the sum of 585,994 shares, plus the number of shares of the Company’s common stock available for issuance under the Special Plan and the 2011 Plan immediately prior to the effectiveness of the 2017 Plan. In addition, the number of shares of the Company’s common stock subject to outstanding awards under the Special Plan and 2011 Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right will be available for future grant under the 2017 Plan. The number of shares of common stock reserved for issuance under this plan will automatically increase on January 1 of each year, through January 1, 2027, in an amount equal to the lowest of 1,025,490 shares of the Company’s common stock, 4% of the number of shares of the Company’s common stock outstanding on January 1 of each year and an amount determined by the Company’s board of directors.

Shares that are expired, terminated, surrendered or canceled under the 2017 Plan without having been fully exercised will be available for future awards. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.

Stock-based compensation expense was classified in the condensed consolidated statements of operations as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Research and development expenses

 

$

439

 

 

$

62

 

 

$

616

 

 

$

124

 

General and administrative expenses

 

 

614

 

 

 

110

 

 

 

1,002

 

 

 

230

 

 

 

$

1,053

 

 

$

172

 

 

$

1,618

 

 

$

354

 

As of June 30, 2018 and December 31, 2017, total unrecognized compensation cost related to the unvested stock-based awards was $11.4 million and $4.0 million, respectively, which is expected to be recognized over weighted average periods of 3.07 and 2.76 years, respectively.

17


 

The following table summarizes the Company’s stock option activity since December 31, 2017 (in thousands, except share and per share amounts):

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

(in years)

 

 

 

 

 

Outstanding as of December 31, 2017

 

 

1,403,119

 

 

$

6.26

 

 

 

8.81

 

 

$

9,128

 

Granted

 

 

829,500

 

 

 

17.19

 

 

 

 

 

 

 

 

 

Exercised

 

 

(21,027

)

 

 

7.25

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(111,977

)

 

 

11.06

 

 

 

 

 

 

 

 

 

Outstanding as of June 30, 2018

 

 

2,099,615

 

 

$

10.31

 

 

 

8.83

 

 

$

185

 

Options exercisable as of June 30, 2018

 

 

540,178

 

 

$

6.06

 

 

 

7.47

 

 

$

185

 

Options unvested as of June 30, 2018

 

 

1,559,437

 

 

$

11.79

 

 

 

9.30

 

 

$

 

 

The weighted average grant-date fair value per share of stock options granted during the three and six months ended June 30, 2018 was $11.66 and $11.77, respectively.

 

9.

Net Loss per Share

Net Loss per Share Attributable to Common Stockholders

Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(12,133

)

 

$

(5,705

)

 

$

(22,763

)

 

$

(11,090

)

Accretion of redeemable convertible preferred stock to

   redemption value

 

 

 

 

 

(13

)

 

 

 

 

 

(20

)

Net loss attributable to common stockholders

 

$

(12,133

)

 

$

(5,718

)

 

$

(22,763

)

 

$

(11,110

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares

   outstanding—basic and diluted

 

 

14,304,102

 

 

 

513,900

 

 

 

14,299,288

 

 

 

513,900

 

Net loss per share attributable to common

   stockholders — basic and diluted

 

$

(0.85

)

 

$

(11.13

)

 

$

(1.59

)

 

$

(21.62

)

 

18


 

The Company’s potentially dilutive securities, which include options to purchase common stock, redeemable convertible preferred stock, warrants to purchase common stock and warrants to purchase redeemable convertible preferred stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

For the Three and Six

Months Ended June 30,

 

 

 

2018

 

 

2017

 

Options to purchase common stock

 

 

2,099,615

 

 

 

1,198,291

 

Redeemable convertible preferred stock (as converted to

   common stock)

 

 

 

 

 

6,729,121

 

Warrants to purchase common stock

 

 

10,414

 

 

 

 

Warrants to purchase redeemable convertible preferred

   stock (as converted to common stock)

 

 

 

 

 

10,414

 

 

 

 

2,110,029

 

 

 

7,937,826

 

 

10.

Commitments and Contingencies

Lease Agreements

In November 2010, the Company entered into a lease agreement for office, laboratory, parking and storage space in Vienna, Austria (“Vienna Lease”), which expires on April 30, 2021. The Company has the option to extend the lease agreement for an additional year. The Vienna Lease includes a rent escalation clause based on an inflation index.

In July 2015, the Company entered into a lease agreement for an animal-use facility in Vienna, Austria (“Animal-use Lease”). The lease initially had a one-year noncancelable term, which expired in June 2016, after which the lease became cancelable by either party upon six months’ prior written notice. Base rent for the Animal-use Lease is approximately $0.4 million annually, accordingly, rent expense is being recognized on a straight-line basis over the lease term.  

In November 2015, the Company entered into a lease agreement for office and laboratory space in Waltham, MA (“Waltham Lease”), which expires on January 31, 2019. The Waltham Lease includes a rent escalation clause, and accordingly, rent expense is being recognized on a straight-line basis over the lease term.

In June 2018, the Company entered into a lease agreement for office space in Waltham, MA (“Lease Agreement”). The term of the Lease Agreement commences on the earlier of (a) the later to occur of (x) the date on which the premises are ready for occupancy and (y) December 1, 2018, or (b) the date on which the Company commences occupancy (the “Commencement Date”) and expires approximately five years from the Commencement Date. The Company currently anticipates that the term will begin on December 1, 2018. The Lease Agreement includes a rent escalation clause, and accordingly, rent expense will be recognized on a straight-line basis over the lease term.

The Company recognizes rent expense over the respective lease period and has recorded deferred rent for rent expense incurred but not yet paid.

The Company recorded rent expense of $0.3 million and $0.3 million during the three months ended June 30, 2018 and 2017, respectively, and $0.6 million and $0.6 million during the six months ended June 30, 2018 and 2017.

19


 

The following table summarizes the future minimum lease payments due under the Company’s operating leases as of June 30, 2018 (in thousands):

 

Year Ending December 31,

 

 

 

 

2018

 

$

662

 

2019

 

 

881

 

2020

 

 

996

 

2021

 

 

648

 

2022

 

 

479

 

Thereafter

 

 

448

 

 

 

$

4,114

 

On August 10, 2018, the Company entered into an amendment to the Lease Agreement (“Amended Lease Agreement”) with BP Bay Colony LLC (the “Lessor”). Under the terms of the Amended Lease Agreement, the Company will relocate its Waltham, MA premises to a new premises with 5,711 square feet of office space as compared to the 10,290 square feet premises in the original Lease Agreement. The annual base rent obligation is approximately $0.3 million, with a total cash obligation for the base rent over the initial five-year term of the Amended Lease Agreement is approximately $1.3 million. In addition to the base rent, the Company is also responsible for its share of operating expenses, electricity and real estate taxes, in accordance with the terms of the Amended Lease Agreement. The Company will provide a security deposit in the amount of $0.3 million as well as a relocation payment of $0.1 million to the Lessor. The entry into this Amended Lease Agreement reduces the minimum lease payments presented in the table above from $4.1 million to approximately $3.2 million.

License Agreements

The Company entered into the Adimab Option Agreement in February 2017 under which it is obligated to make contingent and non-contingent payments should the Company exercise its option to obtain rights to certain RSV antibodies (see Note 5). If the Company chose to exercise its option, it would be obligated to pay Adimab an option fee of $0.3 million and make clinical and regulatory milestone payments of up to $24.4 million, as well as royalty payments on a product-by-product and country-by-country basis of a mid single-digit percentage based on net sales by the Company, its affiliates, licensees or sublicensees of products based on certain RSV antibodies during the applicable term for such product in that country. The Company may choose to exercise its option under the terms of the Adimab Option Agreement at any time on or before August 31, 2019. As of June 30, 2018 and December 31, 2017, the Company had not exercise its option under the Adimab Option Agreement.

Manufacturing Commitments

In July 2016, the Company entered into an agreement with Boehringer Ingelheim International GmbH (“BI”), a contract manufacturing organization, for the manufacture and supply of ASN100 drug product for the Company’s completed Phase 1 and discontinued Phase 2 clinical trials. In March 2016, the Company entered into an agreement with Cytovance Biologics, Inc. (“Cytovance”) for process development and the manufacture and supply of ASN100 drug product. Under such agreements, the Company is obligated to pay BI and Cytovance development and manufacturing milestones, in addition to reimbursement of certain material production-related costs. Additionally, the Company is required to make prepayments for process development services and manufacture and delivery of ASN100 material. The terms of these agreements require future delivery and formal acceptance of the clinical material upon delivery from BI and Cytovance. Formal acceptance includes validation of the clinical material and that established specifications and good manufacturing practices, or GMP, standards have been followed during the manufacture. It is only after acceptance that title and risks and rewards of ownership pass to the Company and at that time advance payments will be applied to the purchase of clinical materials required to be produced under the agreements. The purchase of the clinical material will, at the point of delivery, be charged to research and development expense. The Company’s policy is to expense research and development costs as incurred (i.e., as services are provided by the Company’s vendors or as qualifying materials are delivered).

The Company did not terminate the agreements with BI and Cytovance following its decision to discontinue the Phase 2 clinical trial for ASN100. Amounts recorded as of June 30, 2018 represent advance payments to BI and Cytovance for the development and manufacturing of ASN100 drug product that is expected to be completed in the second half of 2018. As of June 30, 2018 and December 31, 2017, the Company had committed to minimum payments under this agreement totaling $3.2 million and $4.7 million, respectively. As of June 30, 2018 and December 31, 2017, prepaid clinical manufacturing expenses totaled $2.4 million $0, respectively.

 

20


 

11.

Related Party Transactions

Agreements with Adimab, LLC

The Company made payments to Adimab of $0.1 million and $0 during the three months ended June 30, 2018 and 2017, respectively, and $0.1 million and $0 during the six months ended June 30, 2018 and 2017, respectively, under the Adimab Option Agreement. The Company recognized $14,000 and $58,000 during the three months ended June 30, 2018 and 2017, respectively, and $0.1 million and $0.1 million during the six months ended June 30, 2018 and 2017, respectively, of research and development expense under the Adimab Option Agreement. As of June 30, 2018 and December 31, 2017, the Company owed $14,000 and $21,000, respectively, to Adimab under the Adimab Option Agreement. The chairman of the Company’s board of directors is a co-founder of Adimab and currently serves as Adimab’s Chief Executive Officer.

Services and Facilities Agreement with EveliQure Biotechnologies GmbH

The Company’s wholly owned subsidiary, Arsanis Biosciences GmbH, leases office and lab space in Vienna, Austria from a third party. In February 2015, Arsanis Biosciences GmbH entered into a services and facilities agreement with EveliQure Biotechnologies GmbH (“EveliQure”) under which the Company provides certain laboratory services and sublets office and lab space to EveliQure. Tamas Henics, the husband of Eszter Nagy, the Company’s former Chief Scientific Officer, serves as Chief Scientific Officer at EveliQure.

On June 28, 2018 and in accordance with the terms of this agreement with EveliQure, the Company provided EveliQure with written notice that the services and facilities agreement will terminate and EveliQure will vacate the sublet space no later than December 31, 2018.

During the three and six months ended June 30, 2018, the Company received payments from EveliQure under the agreement of $0 and $0.1 million, respectively, and less than $0.1 million and $0.1 million during the three and six months ended June 30, 2017, respectively. During the three and six months ended June 30, 2018 and 2017, the Company recognized other income under the agreement of less than $0.1 million in each period. As of June 30, 2018 and December 31, 2017, amounts due from EveliQure totaled less than $0.1 million and $0.1 million, respectively.

 

12.

Subsequent Events

August 2018 Amended and Restated Gates Foundation Grant Agreement

On August 8, 2018, the Company entered into an amended and restated grant agreement with the Gates Foundation which replaces the February 2017 grant agreement in its entirety. The amended and restated grant agreement includes amendments to conform to current Gates Foundation audit, reporting, and other administrative requirements, as well as to make the Company’s grant of a perpetual license to the Gates Foundation irrevocable. See Note 5 for further discussion.

August 2018 Gates Foundation Grant Agreement  

On August 8, 2018, the Company entered into an additional grant agreement with the Gates Foundation pursuant to which the Gates Foundation granted to the Company up to $1.1 million to conduct preclinical development activities for the RSV project that were not included in the February 2017 grant agreement, as amended and restated in August 2018. In return, the Company has agreed to conduct the RSV project in a manner that ensures that the knowledge and information gained from the project will be promptly and broadly disseminated, and that the products, technologies, materials, processes and other intellectual property resulting from the RSV project will be made available and accessible at an affordable price to people most in need within developing countries. These obligations survive any expiration or termination of the grant agreement. See Note 5 for further discussion.

August 2018 Forbearance Agreement with Silicon Valley Bank  

On August 8, 2018, the Company and SVB entered into a Forbearance Agreement to address the Company’s ongoing default under the 2012 Loan Agreement as a result of the Company’s failure to obtain SVB’s written consent prior to entering into certain Option and License Agreements. Under the terms of the Forbearance Agreement, SVB has agreed to forbear from exercising its rights and remedies with respect to such defaults until the earlier to occur of (i) another event of default under the 2012 Loan Agreement or (ii) October 31, 2018. See Note 6 for further discussion.

21


 

August 2018 Lease Amendment

On August 10, 2018, the Company entered into an amendment to its Lease Agreement (“Amended Lease Agreement”) with BP Bay Colony LLC (the “Lessor”). Under the terms of the Amended Lease Agreement, the Company will relocate its premises in Waltham, MA to a new premises with 5,711 square feet of office space as compared to the 10,290 square feet premises in the original Lease Agreement. The term of the Amended Lease Agreement commences on January 1, 2019 and expires December 31, 2023. The Company has the option to extend the term for one additional five-year period upon the Company’s written notice to the Lessor at least nine months and no more than 12 months in advance of the extension. The Amended Lease Agreement terminates the Company’s one-time right of first offer, subject to certain terms and conditions, for additional space containing approximately 4,000 square feet specified in the Lease Agreement.

The annual base rent obligation is approximately $0.3 million, with a total cash obligation for the base rent over the initial five-year term of the Amended Lease Agreement is approximately $1.3 million. In addition to the base rent, the Company is also responsible for its share of operating expenses, electricity and real estate taxes, in accordance with the terms of the Amended Lease Agreement. The Company will provide a security deposit in the amount of $0.3 million as well as a relocation payment of $0.1 million to the Lessor. See Note 10 for further discussion.

August 2018 Reduction in Force

On August 10, 2018, the Company’s board of directors approved a reduction in workforce to reduce operating costs and better align the company’s workforce with the needs of its business following the Company’s discontinuation of the clinical development of ASN100. As part of this reduction in workforce, the Company plans to eliminate 19 positions across the company, representing approximately 44% of its workforce. The Company anticipates that it will substantially complete the implementation of the reduction in workforce by the fourth quarter of 2018.

The Company currently estimates that it will incur total expenses relating to the reduction in workforce of approximately $0.6 million, which is comprised of notice and severance payments. The Company expects to record these charges in the third and fourth quarters of 2018.

22


 

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

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the Securities and Exchange Commission on March 9, 2018.

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. The words “anticipate,” “believe,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the section entitled “Risk Factors” in Part II, Item 1A that could cause actual results or events to differ materially from the forward-looking statements that we make.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Overview

We are a clinical-stage biopharmaceutical company focused on applying monoclonal antibody, or mAb, immunotherapies to address serious infectious diseases. We possess a deep understanding of the pathogenesis of infection, paired with access to what we believe to be some of the most advanced mAb discovery techniques and platforms available today.

On June 28, 2018, we announced the discontinuation of our Phase 2 clinical trial of ASN100 for the prevention of S. aureus pneumonia in high-risk, mechanically ventilated patients following the completion of a planned interim analysis of unblinded trial data for 118 patients by an independent data review committee, or DRC. Based on the results of this analysis, the DRC determined that the trial was futile, meaning that it was not likely to meet its primary end-point upon completion, and recommended that trial enrollment be discontinued. We intend to conduct follow-up visits on patients dosed in the trial per the study protocol and to evaluate the complete dataset from the 154 patients that were enrolled in the trial to better understand the basis for this result. We expect to complete this evaluation in the fourth quarter of 2018 and have ceased further clinical development of ASN100, pending the results of this analysis. We do not expect to incur material costs for this program beyond the fourth quarter of 2018.

On August 10, 2018, our board of directors approved a reduction in workforce to reduce operating costs and better align our workforce with the needs of our business following our discontinuation of the clinical development of ASN100 pending the completion of our evaluation of the complete dataset from our Phase 2 trial. As part of this reduction in workforce, we plan to eliminate 19 positions across our company, representing approximately 44% of our workforce. We anticipate that we will substantially complete the implementation of the reduction in workforce by the fourth quarter of 2018.

In light of the discontinuation of the clinical development of ASN100, we are considering strategic options that may potentially result in changes to our business strategy and future operations.

Pending any decision to change our strategic direction, our current operating plan provides for our ongoing review of the data from the ASN100 clinical trial, the continued development of our ASN500 program, as well as supporting our collaborators across our ASN200 and ASN300 programs, both of which were outlicensed to subsidiaries of Bravos Biosciences, LLC during the first half of 2018.

Since our inception in 2010, we have devoted substantially all of our resources to building our business to support discovery, research and development activities for our programs. We do not have any products approved for sale and have not generated any revenue from product sales.

23


 

Since our inception, we have received significant proceeds from outside sources to fund our operations. We have funded our operations through June 30, 2018 primarily with proceeds from the following sources:

 

net cash proceeds of $75.1 million from sales of our preferred stock;

 

net cash proceeds of $39.5 million from sales of our common stock in our initial public offering;

 

net cash proceeds of $18.6 million from sales of our common stock in our private placement to New Enterprise Associates 16, L.P., or NEA;

 

gross proceeds of $14.4 million from borrowings under convertible promissory notes;

 

proceeds of $9.5 million from borrowings under a loan and security agreement with Silicon Valley Bank, or SVB, which, as amended, we refer to as the 2012 Loan Agreement;

 

proceeds of $9.2 million and $9.9 million of grant and loan proceeds, respectively, from our funding agreements with Österreichische Forschungsförderungsgesellschaft mbH, or FFG;

 

proceeds of $4.9 million of research and development incentive payments received from the Austrian government; and

 

proceeds of $1.6 million from a grant agreement with the Bill & Melinda Gates Foundation, or the Gates Foundation.

On November 20, 2017, we closed an initial public offering of our common shares, in which we issued and sold 4,000,000 common shares at a price to the public of $10.00 per share. Concurrent with the initial public offering, (i) we issued an additional 600,000 common shares at a price of $10.00 per share pursuant to the exercise of the underwriters’ over-allotment option and (ii) NEA purchased 2,000,000 shares of our common stock at the initial per share public offering price of $10.00 in a private placement. The aggregate net proceeds to us from the initial public offering, inclusive of the over-allotment exercise, and the private placement were $58.1 million after deducting underwriting discounts and commissions and offering expenses payable by us.

Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates and programs. Our net losses were $12.1 million and $5.7 million for the three months ended June 30, 2018 and 2017, respectively, and $22.8 million and $11.1 million for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018, we had an accumulated deficit of $115.0 million.

Over the next several quarters we expect that our research and development expenses related to ASN100 will be reduced due to the discontinuation of our clinical development of ASN100. Pending any change in our strategic direction, we expect to continue to incur significant expenses to advance our ASN500 program. We also expect to continue to incur additional costs associated with operating as a public company. As a result, we will need substantial additional funding to support our continuing operations and pursue our business strategy, until such time as we can generate significant revenue from product sales, if ever. We expect to finance our operations with proceeds from outside sources, with a majority of such proceeds to be derived from the sale of equity. We also plan to pursue additional funding from outside sources, including proceeds from our existing grant and potential future grant agreements with the Gates Foundation; our expansion of, or our entry into, new borrowing arrangements; grants and loans under our existing funding agreements with FFG; research and development incentive payments from the Austrian government; and our entry into potential future collaboration agreements for one or more of our programs. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, as well as the uncertainties regarding the outcomes from our ongoing review of strategic alternatives, if any, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of June 30, 2018, we had cash and cash equivalents of $49.9 million. We believe our existing cash and cash equivalents will enable us to fund our operating expenses, capital expenditure requirements and debt service payments into the first quarter of 2020. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources.”

24


 

Recent Developments

 

February 2017 and August 2018 Amended and Restated Gates Foundation Grant Agreement

In February 2017, we entered into a grant agreement with the Gates Foundation, under which the Gates Foundation agreed to provide us with up to $9.3 million to conduct preclinical development of mAbs for the prevention of RSV infection in newborns, which we refer to as the RSV project.  

In August 2018, we entered into an amended and restated grant agreement which replaces the February 2017 grant agreement in its entirety. The amended and restated grant agreement includes amendments to conform to current Gates Foundation audit, reporting, and other administrative requirements as well as to make the perpetual Gates Foundation license grant described below irrevocable.

August 2018 Gates Foundation Grant Agreement  

In August 2018, we entered into a grant agreement with the Gates Foundation pursuant to which the Gates Foundation granted us up to $1.1 million to conduct preclinical development activities for the RSV project that were not included in the February 2017 grant agreement, as amended and restated in August 2018. In return, we have agreed to conduct the RSV project in a manner that ensures that the knowledge and information gained from the project will be promptly and broadly disseminated, and that the products, technologies, materials, processes and other intellectual property resulting from the RSV project (which we collectively refer to as the funded developments) will be made available and accessible at an affordable price to people most in need within developing countries. These obligations survive any expiration or termination of the grant agreement.

To this end, we have granted the Gates Foundation a non-exclusive, perpetual, irrevocable, royalty-free, fully paid up, sublicensable license to make, use, sell, offer to sell, import, distribute, copy, modify, create derivative works, publicly perform and display the funded developments and, to the extent incorporated into a funded development or required to use a funded development, any other technology created outside of the RSV project that was used as part of the RSV project, for the benefit of people in developing countries. We have also agreed to seek prompt publication of data and results developed under the RSV project under “open access” terms and conditions. This license and these publication obligations survive any expiration or termination of the grant agreements.

The August 2018 grant agreement expires on August 31, 2018. The Gates Foundation can modify, suspend or discontinue any payment under the grant agreement, or terminate the grant agreement, if it is not reasonably satisfied with our progress on the RSV project; if there are significant changes to our leadership or other factors that the Gates Foundation reasonably believes may threaten the RSV project’s success; if we undergo a change in control; if there is a change in our tax status; or if we fail to comply with the grant agreement. Any grant funds that have not been used for, or committed to, the RSV project upon the expiration or termination of the agreement must be returned to the Gates Foundation or otherwise used as directed by the Gates Foundation.

August 2018 Forbearance Agreement with Silicon Valley Bank  

On December 7, 2012, we entered into a loan and security agreement with Silicon Valley Bank, or SVB, which we refer to as the 2012 Loan Agreement. We entered into the First Amendment to the 2012 Loan Agreement on February 29, 2016.

We were in compliance with all covenants under the 2012 Loan Agreement as of December 31, 2017. During the six months ended June 30, 2018, we failed to comply with the covenants under the 2012 Loan Agreement when we entered into separate option and license agreements for our ASN200 and ASN300 programs with subsidiaries of Bravos Biosciences, LLC without obtaining prior written consent of SVB, and then delivered compliance certificates to SVB that did not disclose these violations. As a result, we are currently in default under the 2012 Loan Agreement and SVB may, at its option, declare all of our obligations under the 2012 Loan Agreement to be immediately due and payable. On August 8, 2018, we and SVB entered into a Forbearance Agreement pursuant to which SVB has agreed to forbear from exercising its rights and remedies with respect to such defaults until the earlier to occur of (i) another event of default under the 2012 Loan Agreement or (ii) October 31, 2018.

In addition to the default in connection with the option and license agreements, we have also discussed with SVB whether our decision to discontinue our Phase 2 clinical trial of ASN100 may be considered a material adverse change in our business, operations or condition (financial or otherwise) and, accordingly, an event of default under the terms of the 2012 Loan Agreement. To date, SVB has not agreed that the discontinuation of the trial does not constitute an event of default. If the trial discontinuation does constitute a material adverse change in our business, operations or condition, SVB will have the right to accelerate our outstanding obligations under the 2012 Loan Agreement.

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August 2018 Lease Amendment  

On August 10, 2018, we entered into an amendment to our June 2018 lease agreement with BP Bay Colony LLC, or Lessor, which we refer to as the Amended Lease Agreement. Under the terms of the Amended Lease Agreement, we will relocate our premises in Waltham, MA to a new premises with 5,711 square feet of office space as compared to the 10,290 square feet premises in the original lease agreement. The term of the Amended Lease Agreement commences on January 1, 2019 and expires December 31, 2023. We have the option to extend the term for one additional five-year period upon our written notice to the Lessor at least nine months and no more than 12 months in advance of the extension. The Amended Lease Agreement terminates our one-time right of first offer, subject to certain terms and conditions, for additional space containing approximately 4,000 square feet specified in the original lease agreement.

The annual base rent obligation is approximately $0.3 million, with a total cash obligation for the base rent over the initial five-year term of the Amended Lease Agreement is approximately $1.3 million. In addition to the base rent, we are also responsible for our share of operating expenses, electricity and real estate taxes, in accordance with the terms of the Amended Lease Agreement. We will provide a security deposit in the amount of $0.3 million as well as a relocation payment of $0.1 million to the Lessor.

August 2018 Reduction in Force

On August 10, 2018, our board of directors approved a reduction in workforce to reduce operating costs and better align our workforce with the needs of our business following our discontinuation of the clinical development of ASN100 pending the completion of our evaluation of the complete dataset from our Phase 2 trial. As part of this reduction in workforce, we plan to eliminate 19 positions across our company, representing approximately 44% of our workforce. We anticipate that we will substantially complete the implementation of the reduction in workforce by the fourth quarter of 2018.

We currently estimate that we will incur total expenses relating to the reduction in workforce of approximately $0.6 million, which is comprised of notice and severance payments. We expect to record these charges in the third and fourth quarters of 2018.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the near future. If our development efforts for any product candidates are successful and result in regulatory approval or license agreements with third parties, we may generate revenue in the future from product sales.

We recognize proceeds received from grants under our funding agreements with FFG, our research and development incentives from the Austrian government and our grant agreement with the Gates Foundation as other income, rather than as revenue.

Operating Expenses

Research and Development Expenses.    Research and development expenses consist primarily of costs incurred in connection with the discovery and development of product candidates. These expenses include:

 

expenses incurred under agreements with contract research organizations, or CROs, that are primarily engaged in the oversight and conduct of our clinical trials, if any; contract manufacturing organizations, or CMOs, that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs, as well as investigative sites and consultants that conduct any clinical trials, preclinical studies and other scientific development services;

 

the cost of acquiring and manufacturing preclinical and clinical trial materials, including manufacturing validation batches;

 

employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions;

 

costs related to compliance with regulatory requirements;

 

facilities-related expenses, which include direct depreciation costs and allocated rent and maintenance of facilities and other operating costs; and

 

payments made under third-party licensing or option agreements.

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We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and programs and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under license or option agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery as well as for managing our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track their costs by program.

The table below summarizes our research and development expenses incurred by program:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017