Atara Biotherapeutics, Inc. — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014. Atara is a clinical-stage biopharmaceutical company developing therapeutics, initially focused on muscle wasting and oncology. It reported no revenue and operated as one segment.
Financial performance and position
Amounts below are in millions, except per-share data. The company had no product revenue, so revenue margins are not applicable.
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Research and development expense, including Amgen costs | $4.2 | $1.7 | $10.4 | $2.6 |
| General and administrative expense | $1.7 | $0.9 | $7.2 | $2.6 |
| Total operating expenses | $5.9 | $2.6 | $17.6 | $5.2 |
| Net loss | $5.9 | $2.5 | $17.5 | $5.2 |
| Basic and diluted net loss per share | $4.20 | $2.59 | $13.07 | $5.73 |
| Operating cash used | Not stated by quarter | $11.7 | $3.5 |
- At September 30, 2014, cash and cash equivalents were $25.7 million and short-term investments were $26.0 million, totaling $51.7 million. Working capital was $49.6 million; accumulated deficit was $30.4 million.
- Total liabilities were $2.6 million, primarily current liabilities; the filing reports no debt balance.
- Cash used in investing activities was $26.4 million, largely reflecting purchases of short-term investments. Financing activities provided $12.2 million, mainly from $13.5 million in Series B preferred-stock proceeds.
Changes versus prior comparable periods
- Nine-month net loss increased from $5.2 million to $17.5 million; total operating expenses rose from $5.2 million to $17.6 million. Higher development spending and stock-based compensation were major contributors.
- Research and development expense increased, including higher PINTA 745 Phase 2 costs, STM 434 manufacturing and trial-preparation costs, and a $1.0 million Amgen milestone payment. General and administrative expense rose with higher stock compensation, pre-IPO legal and accounting costs, and payroll.
- Operating cash use increased to $11.7 million from $3.5 million. Cash and cash equivalents fell from $51.6 million at year-end 2013, while the company added $26.0 million of short-term investments.
Outlook, significant events and risks
- In October 2014, after quarter-end, Atara completed its IPO of 5.75 million shares at $11 per share, receiving approximately $55.8 million in net proceeds. Preferred stock converted into 12.3 million common shares. Management expected September cash and IPO proceeds to fund its current operating plan through the first half of 2017; further capital may be needed to complete development and support commercialization.
- PINTA 745 was in a Phase 2 trial for protein-energy wasting in end-stage renal disease; STM 434 entered Phase 1 study in the second half of 2014. Five other molecules were in preclinical development. Management expected R&D and G&A spending to increase.
- The September MSK option for three clinical-stage T-cell therapies resulted in $2.0 million of Q3 R&D expense, paid through $1.25 million cash and $0.75 million of stock. Exercising and licensing the option could entail up to $630,000 in extension fees, a $4.5 million upfront payment, milestone payments of up to $33.0 million, and royalties.
- Amgen agreements include up to $86.0 million in development and regulatory milestones, additional commercial milestones, and mid-single-digit royalties on future product sales. These are contingent obligations; none was outstanding at September 30, 2014.
- The filing highlights clinical and manufacturing uncertainty, reliance on third-party clinical and manufacturing providers, competition, financing needs, and intellectual-property and regulatory risks. It also discloses a prior PINTA 745 trial randomization and inventory-distribution error that unblinded the first six patients and required a trial restart; a preclinical STM 217 report led to changes in the planned STM 434 trial; and cracked vials in some STM 434 lots.
- Management identified a material weakness in financial reporting controls and concluded disclosure controls were ineffective at September 30. Remediation was underway, including finance hires, documented policies and stronger reviews; completion was not assured. No material litigation or off-balance-sheet arrangements were reported.
Investor verification priorities
- Verify the IPO’s net proceeds, preferred-stock conversion, and resulting post-offering share count and dilution.
- Track cash burn against management’s first-half-2017 runway estimate and monitor when additional financing may be required.
- Check PINTA 745 trial progress and the impact of the earlier operational error; review STM 434 clinical and manufacturing developments.
- Assess whether the financial-reporting material weakness is fully remediated and whether controls remain effective.
- Review the timing and potential financial impact of MSK option decisions, Amgen milestones, royalties, and other contingent commitments.