Atara Biotherapeutics, Inc. — 2017 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2017. Atara is a clinical-stage T-cell immunotherapy company with no approved products and no revenue. Its lead candidate, tabelecleucel, is in Phase 3 development for rituximab-refractory EBV-positive post-transplant lymphoproliferative disorder (PTLD).
Financial performance and position
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $81.2 million | $56.5 million |
| General and administrative expense | $40.3 million | $24.7 million |
| Total operating expenses | $121.5 million | $81.2 million |
| Net loss | $119.5 million | $79.0 million |
| Basic and diluted loss per share | $4.00 | $2.75 |
| Net cash used in operating activities | $87.5 million | $60.0 million |
| Cash, cash equivalents and short-term investments at year-end | $166.1 million | $255.7 million |
| Working capital at year-end | $144.5 million | $250.9 million |
At December 31, 2017, total assets were $217.8 million, total liabilities $39.9 million, and stockholders’ equity $177.9 million. Long-term liabilities were $12.3 million, including a $9.9 million build-to-suit financing obligation related to the Thousand Oaks facility. The filing does not report conventional borrowings. Operating margins are not meaningful because the company had no revenue and incurred operating losses.
Atara raised $19.2 million net through its at-the-market share program in 2017. In January 2018, it raised approximately $131.4 million net from an underwritten equity offering. Management expected year-end cash and investments plus that offering’s proceeds to fund planned operations into the first half of 2020. No committed external funding source was reported.
Material changes versus the prior comparable period
- Net loss increased by $40.4 million, and operating cash use increased by $27.5 million year over year.
- R&D expense rose $24.7 million, reflecting clinical and manufacturing preparations, increased headcount, and advancement of tabelecleucel and ATA188. G&A expense rose $15.6 million, mainly from compensation and professional services.
- Cash, cash equivalents and short-term investments fell $89.6 million from year-end 2016, despite the 2017 ATM financing.
- Property and equipment increased to $44.1 million from $3.3 million, primarily due to construction of the Thousand Oaks facility.
Outlook, management commentary, risks and unusual items
- Development plans: Two Phase 3 tabelecleucel trials for EBV-positive PTLD began in the United States in December 2017. The company expected first results from the first trial or cohort to reach its endpoint in the first half of 2019, planned an EU conditional marketing authorization application in the first half of 2019, and expected U.S. biologics license applications after completion of a Phase 3 trial. These are forward-looking plans, not assured outcomes.
- Pipeline: ATA188 entered Phase 1 for multiple sclerosis in late 2017; the company planned to expand enrollment and expected initial progressive-MS results in the first half of 2019. ATA230 had Phase 2 data in CMV infection, but Atara prioritized EBV programs and planned to reassess its development strategy in 2018. ATA621 was in manufacturing-process development, with a Phase 1 trial planned for 2019. ATA520 development was to continue subject to process and program priorities.
- Reported clinical observations: In interim expanded-access data, response rates exceeded 70% among five evaluable HCT and six evaluable SOT PTLD patients. Across 173 tabelecleucel-treated patients in clinical trials, the company reported 12 possibly related serious adverse events, three possibly related graft-versus-host disease cases, and no cytokine release syndrome. These findings are not equivalent to results from the ongoing pivotal trials. ATA190 investigators reported clinical improvement in six of ten patients in a Phase 1 study; ATA230 investigators reported an approximately 60% response rate in 50 post-transplant patients with refractory CMV.
- Manufacturing and spending: The Thousand Oaks cellular-therapy facility was under construction; the company estimated approximately $21.3 million of cash spending in 2018 to complete the build-out. Management expected R&D and G&A expenses to continue increasing. Clinical supply, manufacturing comparability, scale-up, facility completion and regulatory acceptance are key execution risks.
- Funding and other risks: Atara expects continued losses and may need additional capital; equity financing could dilute shareholders. Product candidates remain investigational, and clinical results, regulatory approval, reimbursement, commercialization, intellectual-property protection and third-party manufacturing are uncertain. The company also disclosed interest-rate exposure on its investment portfolio, but stated that a 10-basis-point immediate rate change would not materially affect fair value.
- Unusual accounting item: Atara recorded a $3.3 million stock-based-compensation adjustment in the fourth quarter of 2016 to correct errors in prior interim periods. It reported that the adjustment was not material to the 2016 annual or previously issued interim statements.
- Controls and audit: Management concluded disclosure controls and internal control over financial reporting were effective at year-end. Deloitte issued an unqualified opinion on the financial statements; it did not audit internal-control effectiveness, consistent with the company’s emerging-growth-company exemption.
Most important facts for investors to verify
- Whether the Phase 3 MATCH and ALLELE trials enroll on schedule and meet their confirmed response-rate endpoints, and whether FDA and EMA agree the data support the planned filings.
- Whether tabelecleucel manufacturing comparability, commercial-scale production, facility completion and supply capacity meet regulatory and operating requirements.
- Whether the reported early clinical signals for tabelecleucel, ATA188, ATA190 and ATA230 are confirmed in larger, prospectively designed studies, including the associated safety profile.
- Whether cash burn, construction costs and development spending remain consistent with management’s runway estimate into the first half of 2020, and what additional financing may be required.
- The impact of the January 2018 share offering and outstanding equity awards on dilution, as well as milestone, royalty and lease commitments.