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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, 2019
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: 001-37449
ALPINE IMMUNE SCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
 
20-8969493
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
201 Elliott Avenue West, Suite 230
Seattle, WA  98119
(206) 788-4545
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
Title of each class
 
Trading symbol(s)
  
Name of each exchange on which registered
Common Stock, par value $0.001 per share
 
ALPN
 
The Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
 
  
Smaller reporting company
 
 
 
 
 
 
 
 
Emerging growth company
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of August 8, 2019, the registrant had 18,587,644 shares of common stock, $0.001 par value per share, outstanding.




ALPINE IMMUNE SCIENCES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2019
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In this report, unless otherwise stated or as the context otherwise requires, references to “Alpine,” “the Company,” “we,” “us,” “our” and similar references refer to Alpine Immune Sciences, Inc. “Variant Immunoglobulin Domain”, “vIgD”, “Transmembrane Immunomodulatory Protein”, “TIP”, “Secreted Immunomodulatory Protein”, and “SIP” are registered trademarks of Alpine Immune Sciences, Inc. All rights reserved. This report also contains registered marks, trademarks, and trade names of other companies. All other trademarks, registered marks, and trade names appearing in this report are the property of their respective holders. 





PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
ALPINE IMMUNE SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
 
 
June 30, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Assets
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
15,468

 
$
10,711

Short-term investments
 
40,097

 
41,592

Prepaid expenses and other current assets
 
1,657

 
1,242

Total current assets
 
57,222

 
53,545

Restricted cash
 
386

 
132

Property and equipment, net
 
1,176

 
1,196

Operating lease, right-of-use asset
 
11,303

 

Total assets
 
$
70,087

 
$
54,873

Liabilities and stockholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
2,399

 
$
1,716

Accrued liabilities
 
5,518

 
4,363

Deferred revenue
 
2,108

 

Operating lease liability, current
 
452

 

Current portion of long-term debt
 
2,079

 
2,048

Total current liabilities
 
12,556

 
8,127

Operating lease liability, noncurrent
 
10,919

 

Long-term debt
 
1,191

 
2,155

Total liabilities
 
24,666

 
10,282

Commitments and contingencies
 


 


Stockholders’ equity:
 
 
 
 
Common stock, $0.001 par value per share; 200,000,000 shares authorized at June 30, 2019 and December 31, 2018; 18,635,197 shares issued and 18,584,730 shares outstanding at June 30, 2019; 13,904,672 shares issued and 13,854,205 shares outstanding at December 31, 2018
 
19

 
14

Treasury stock, at cost; 50,467 shares at June 30, 2019 and December 31, 2018
 

 

Additional paid-in capital
 
115,704

 
90,664

Accumulated other comprehensive gain (loss)
 
9

 
(13
)
Accumulated deficit
 
(70,311
)
 
(46,074
)
Total stockholders’ equity
 
45,421

 
44,591

Total liabilities and stockholders’ equity
 
$
70,087

 
$
54,873

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

1



ALPINE IMMUNE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share amounts)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(unaudited)
Collaboration revenue
$
567

 
$
390

 
$
567

 
$
705

Operating expenses:
 
 
 
 
 
 
 
Research and development
10,166

 
5,718

 
20,516

 
9,510

General and administrative
2,553

 
1,883

 
4,898

 
3,991

Loss on sale of intangible asset

 
1,203

 

 
1,203

Total operating expenses
12,719

 
8,804

 
25,414

 
14,704

Loss from operations
(12,152
)
 
(8,414
)
 
(24,847
)
 
(13,999
)
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(61
)
 
(83
)
 
(131
)
 
(161
)
Interest and other income
357

 
337

 
741

 
642

Loss before taxes
(11,856
)
 
(8,160
)
 
(24,237
)
 
(13,518
)
Income tax benefit

 
253

 

 
305

Net loss
$
(11,856
)
 
$
(7,907
)
 
$
(24,237
)
 
$
(13,213
)
Comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain on investments
17

 
50

 
32

 
4

Unrealized gain (loss) on foreign currency translation
4

 

 
(10
)
 

Comprehensive loss
$
(11,835
)
 
$
(7,857
)
 
$
(24,215
)
 
$
(13,209
)
Weighted-average shares used to compute basic and diluted net loss per share
18,576,199

 
13,848,974

 
18,126,556

 
13,846,865

Basic and diluted net loss per share
$
(0.64
)
 
$
(0.57
)
 
(1.34
)
 
$
(0.95
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


2



ALPINE IMMUNE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
(in thousands, except share amounts)
 
Common Stock
 
Treasury
 
Additional
Paid-in Capital
 
Accumulated
Other Comprehensive Loss
 
Accumulated Deficit
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2017
13,831,178

 
$
14

 
50,467

 
$

 
$
88,346

 
$
(59
)
 
$
(9,384
)
 
$
78,917

Cumulative effect of changes related to adoption of new revenue standard

 

 

 

 

 

 
(202
)
 
(202
)
Exercise of stock options
14,906

 

 

 

 
7

 

 

 
7

Stock-based compensation

 

 

 

 
511

 

 

 
511

Unrealized loss on investments

 

 

 

 

 
(46
)
 

 
(46
)
Net loss

 

 

 

 

 

 
(5,306
)
 
(5,306
)
Balance, March 31, 2018
13,846,084

 
$
14

 
50,467

 
$

 
$
88,864

 
$
(105
)
 
$
(14,892
)
 
$
73,881

Exercise of stock options
4,678

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 
523

 

 

 
523

Unrealized gain on investments

 

 

 

 

 
50

 

 
50

Net loss

 

 

 

 

 

 
(7,907
)
 
(7,907
)
Balance, June 30, 2018
13,850,762

 
$
14

 
50,467

 
$

 
$
89,387

 
$
(55
)
 
$
(22,799
)
 
$
66,547

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
13,854,205

 
$
14

 
50,467

 
$

 
$
90,664

 
$
(13
)
 
$
(46,074
)
 
$
44,591

Issuance of Units in Private Placement, net of offering costs
4,706,700

 
5

 

 

 
23,613

 

 

 
23,618

Exercise of stock options
124

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 
754

 

 

 
754

Unrealized gain on investments

 

 

 

 

 
15

 

 
15

Unrealized loss on foreign currency translation
 
 
 
 
 
 
 
 
 
 
(14
)
 
 
 
(14
)
Net loss

 

 

 

 

 

 
(12,381
)
 
(12,381
)
Balance, March 31, 2019
18,561,029

 
$
19

 
50,467

 
$

 
$
115,031

 
$
(12
)
 
$
(58,455
)
 
$
56,583

Offering costs associated with Private Placement

 

 

 

 
(20
)
 

 

 
(20
)
Exercise of stock options
23,701

 

 

 

 
11

 

 

 
11

Stock-based compensation

 

 

 

 
682

 

 

 
682

Unrealized gain on investments

 

 

 

 

 
17

 

 
17

Unrealized gain on foreign currency translation

 

 

 

 

 
4

 

 
4

Net loss

 

 

 

 

 

 
(11,856
)
 
(11,856
)
Balance June 30, 2019
18,584,730

 
$
19

 
50,467

 
$

 
$
115,704

 
$
9

 
$
(70,311
)
 
$
45,421


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


3



ALPINE IMMUNE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Six Months Ended
June 30,
 
2019
 
2018
 
(unaudited)
Operating activities
 

 
 

Net loss
$
(24,237
)
 
$
(13,213
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Loss on sale of intangible asset

 
1,203

Amortization of right-of-use asset
454

 

Depreciation expense
229

 
170

Amortization of premium/discount on investments
(185
)
 
(368
)
Non-cash interest expense
67

 
88

Deferred income tax

 
(305
)
Stock-based compensation and warrant expense
1,436

 
1,034

Changes in operating assets and liabilities:
 
 
 
Prepaid expenses and other current assets
(415
)
 
(536
)
Accounts payable and accrued liabilities
1,829

 
760

Deferred revenue
2,108

 
(479
)
Lease liabilities
(386
)
 

Net cash used in operating activities
(19,100
)
 
(11,646
)
Investing activities
 
 
 
Purchases of property and equipment
(200
)
 
(278
)
Proceeds from sale of intangible asset

 
250

Purchase of short-term investments
(39,804
)
 
(41,390
)
Maturities of short-term investments
40,125

 
48,626

Proceeds from the sale of short-term investments
1,391

 

Net cash provided by investing activities
1,512

 
7,208

Financing activities
 
 
 
Proceeds from sale of common stock, net of offering costs
23,598

 

Repayment of debt
(1,000
)
 

Proceeds from exercise of stock options
11

 
7

Net cash provided by financing activities
22,609

 
7

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(10
)
 

Net increase (decrease) in cash and cash equivalents and restricted cash
5,011

 
(4,431
)
Cash and cash equivalents and restricted cash, beginning of period
10,843

 
8,132

Cash and cash equivalents and restricted cash, end of period
$
15,854

 
$
3,701

Supplemental Information
 
 
 
Recognition of right-of-use asset
$
11,757

 
$

Cash paid for interest
$
67

 
$
72

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

4



ALPINE IMMUNE SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 is unaudited)

1. Description of the Business
Alpine Immune Sciences, Inc. (the “Company”, “Alpine”, “we”, “us”, or “our”), together with its consolidated subsidiaries, is a clinical-stage immunotherapy company committed to leading a new wave of immune therapeutics, creating potentially powerful multifunctional immunotherapies to improve patients’ lives via unique protein engineering technologies. Alpine has two lead programs. The first, ALPN-101 for autoimmune/inflammatory diseases, is a dual selective T-cell costimulation blocker engineered to reduce pathogenic T and B cell immune responses by blocking ICOS and CD28. ALPN-101 is currently enrolling a phase I healthy volunteer trial. The second, ALPN-202 for cancer, is a conditional CD28 costimulator and dual checkpoint inhibitor. Our proprietary scientific platform uses a process known as directed evolution to convert native immune system proteins from the Immunoglobulin Super Family, or IgSF, into multi-targeted therapeutics potentially capable of modulating the human immune system. We were incorporated under the laws of the State of Delaware and are headquartered in Seattle, Washington.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and generally accepted accounting principles in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Significant estimates inherent in the preparation of the accompanying unaudited condensed consolidated financial statements include accruals for clinical trial activities and other accruals, and the estimated fair value of equity-based awards. We base our estimates and assumptions on historical experience when available and on various factors we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates.
The accompanying unaudited condensed consolidated financial statements as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 and the related interim information contained within the notes to the condensed consolidated financial statements are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited financial statements and in the opinion of management, reflect all normal recurring adjustments necessary for a fair statement of our financial position for the interim periods presented. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the years December 31, 2018 and 2017 included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 18, 2019 (“Annual Report”). The results of our operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year.
Principles of Consolidation
Our unaudited condensed consolidated financial statements include the financial position and results of operations of Alpine and our wholly owned operating company and subsidiary, AIS Operating Co., Inc., and Alpine Immune Sciences Australia PTY LTD, respectively. All inter-company balances and transactions have been eliminated in consolidation. 
Restricted Cash
Restricted cash represents cash drawn on lines of credit used to establish collateral to support the security deposit on our leases to rent office and laboratory space in Seattle, Washington.
Short-Term Investments
Our short-term investments include funds invested in highly liquid money market funds, U.S. Treasury securities, commercial paper, and corporate debt securities with a final maturity of each security of less than one year. All investments are classified as available-for-sale securities and are recorded at fair value based on quoted prices in active markets, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Purchase premiums and discounts are recognized as interest income using the interest method over the terms of the securities. Realized gains and losses

5



and declines in fair value deemed to be other than temporary are reflected in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) using the specific-identification method.
Leases (effective January 1, 2019)
We account for our leases under Accounting Standards Codification (“ASC”) 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the condensed consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results is front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.
In calculating the right-of-use asset and lease liability, we elected to combine lease and non-lease components. We exclude short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognize rent expense on a straight-line basis over the lease term. We continue to account for leases in the prior period financial statements under ASC Topic 840.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our steps for recognizing revenue consist of; (1) identifying the contract, (2) identifying the performance obligations as either distinct or bundled goods and services, (3) determining the transaction price associated with each performance obligation for which we expect to be entitled in exchange for transferring such goods and services, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue upon satisfaction of performance obligations.
Our collaboration agreements principally contain multiple performance obligations, which may include (1) grants of, or options to obtain, intellectual property licenses; (2) research and development services; and/or (3) manufacturing or supply services. Payments typically received under these arrangements include one or more of the following: non-refundable upfront license fees, option exercise fees, payment for research and/or development efforts, amounts due upon the achievement of specified objectives, and/or royalties on future product sales. Our revenue is primarily derived from our collaboration agreements with Adaptimmune Therapeutics plc (“Adaptimmune”) and Kite Pharma, a Gilead company (“Kite”). See further discussion of our collaboration agreements in Note 9.
We allocate revenue to each performance obligation based on its relative stand-alone selling price. We generally determine stand-alone selling prices at the inception of the contract based on our best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis. Payments received prior to satisfying the relevant revenue recognition criteria are recorded as deferred revenue in the accompanying Condensed Consolidated Balance Sheets and recognized as revenue when the related revenue recognition criteria are met. We recognize revenue under our collaboration agreements based on employee hours contributed to each performance obligation.
Our collaboration agreements provide for non-refundable milestone payments. We recognize revenue that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is considered substantive when the consideration payable to us for such milestone (1) is consistent with our performance necessary to achieve the milestone or the increase in value to the collaboration resulting from our performance; (2) relates solely to our past performance; and (3) is reasonable relative to all of the other deliverables and payments within the arrangement. In making this assessment, we consider all facts and circumstances relevant to the arrangement, including factors such as the scientific, regulatory, commercial, and other risks that must be overcome to achieve the milestone, the level of effort and investment required to achieve the milestone and whether any portion of the milestone consideration is related to future performance or deliverables.
We review the contributed employee hours for each performance obligation under our collaboration agreements, and adjust the revenue recognized to reflect changes in assumptions relating to the estimated satisfaction of the performance obligation. We could accelerate revenue recognition in the event of early termination of programs or if our expectations change. Alternatively, we could decelerate revenue recognition if programs are extended or delayed. While such changes to our estimates have no impact on our reported cash flows, the timing of revenue recorded in future periods could be materially impacted.

6



Revenue from Asset Purchase Agreement
In June 2018, we entered into an Asset Purchase Agreement (“Purchase Agreement”) with Laurel Venture Capital Ltd. (“Laurel”) and completed the sale of global rights to the indefinite-life GSNOR inhibitor in-process research and development asset acquired as part of the merger with Nivalis in 2017. As consideration under the Purchase Agreement, we received a non-refundable closing payment of $250,000, which was accounted for as a purchase of our intangible asset. Upon the sale of the GSNOR assets, we derecognized the full carrying value of the intangible asset on our accompanying Condensed Consolidated Balance Sheets and recognized a loss on the sale of the intangible asset of $1.2 million on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). In June 2019, we recognized as revenue an additional milestone payment of $425,000, related to the asset purchase.
Foreign Currency Translation
Our functional currency is the U.S. dollar. All assets and liabilities of our subsidiaries are translated using period-end exchange rates and revenues and expenses are translated at average exchange rates for the year. Translation adjustments are included as components of comprehensive gain (loss) in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
Recently Issued Accounting Pronouncements
  In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-18, Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606. This ASU clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. We are currently evaluating the effect, if any, that ASU 2018-18 will have on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. We are evaluating the effect of adopting this new accounting guidance to determine the impact it may have on our financial statements.
Recently Adopted Accounting Pronouncements
In June 2018, the FASB issued ASU No. 2018-07, which aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date. Upon transition, nonemployee awards will be required to be measured at fair value as of the adoption date with a cumulative-effect adjustment recognized in retained earnings as of the beginning of the annual period of adoption. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. We adopted this standard on January 1, 2019 and it did not have a material impact on our financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 requires a lessee to separate the lease components from the non-lease components in a contract and recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. It also aligns lease accounting for lessors with the revenue recognition guidance in ASU 2014-09. We adopted this ASU effective January 1, 2019 using the additional (optional) approach by recording an operating lease right-of-use asset of $797,000, a corresponding operating lease liability of $883,000, and reducing our deferred rent balance by $86,000 to $0 on our accompanying Condensed Consolidated Balance Sheets; there was no effect on opening retained earnings, and we continue to account for leases in the prior period financial statements under ASC Topic 840. In adopting the new standard, we elected to apply the practical expedients regarding the identification of leases, lease classification, indirect costs, and the combination of lease and non-lease components.
3. Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. The net loss per share for the three and six months ended June 30, 2019 reflects 4,706,700 shares of our

7



common stock issued pursuant to a private placement financing completed in January 2019. The significant number of shares issued has affected the year-over-year comparability of our net loss per share calculations.
The common stock issuable upon the conversion or exercise of the following dilutive securities has been excluded from the diluted net loss per share calculation because their effect would have been anti-dilutive:
 
June 30,
 
2019
 
2018
 
(unaudited)
Warrants to purchase common stock
1,859,733

 
24,123

Options to purchase common stock
3,266,572

 
1,990,793

Total
5,126,305

 
2,014,916


4. Cash Equivalents and Short-Term Investments
The amortized cost and fair value of our cash equivalents and short-term investments are as follows (in thousands):
 
June 30, 2019
Assets:
(unaudited)
 
Amortized Cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair market value
Money market funds
$
8,481

 
$

 
$

 
$
8,481

U.S. treasury bills
11,509

 
6

 

 
11,515

Corporate debt securities and commercial paper
31,912

 
13

 

 
31,925

Total
$
51,902

 
$
19

 
$

 
$
51,921

 
December 31, 2018
Assets:
Amortized Cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair market value
Money market funds
$
6,405

 
$

 
$

 
$
6,405

U.S. treasury bills
13,966

 

 
(2
)
 
13,964

Corporate debt securities and commercial paper
31,331

 

 
(11
)
 
31,320

Total
$
51,702

 
$

 
$
(13
)
 
$
51,689


All short-term investments held as of June 30, 2019 and December 31, 2018 were classified as available-for-sale securities and had contractual maturities of less than one year. There were no realized gains and losses on these securities for the periods presented.
5. Fair Value Measurements
Cash and cash equivalents, receivables, accounts payable and accrued liabilities, which are recorded at invoiced amount or cost, approximate fair value based on the short-term nature of these financial instruments. Fair value is defined as the exchange price received for an asset or paid to transfer a liability, or 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. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, is as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs supported by little or no market activity and significant to the fair value of the assets or liabilities.

8



As of June 30, 2019, and December 31, 2018, cash of $3.6 million and $614,000, respectively, is excluded from the following fair value table below. The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis (in thousands):
 
June 30, 2019
 
(unaudited)
Assets:
Level 1
 
Level 2
 
Level 3
 
Total
Money market funds
$
8,481

 
$

 
$

 
$
8,481

U.S. treasury bills
11,515

 

 

 
11,515

Corporate debt securities and commercial paper

 
31,925

 

 
31,925

Total
$
19,996

 
$
31,925

 
$

 
$
51,921

 
December 31, 2018
Assets:
Level 1
 
Level 2
 
Level 3
 
Total
Money market funds
$
6,405

 
$

 
$

 
$
6,405

U.S. treasury bills
13,964

 

 

 
13,964

Corporate debt securities and commercial paper

 
31,320

 

 
31,320

Total
$
20,369

 
$
31,320

 
$

 
$
51,689


Our Level 2 assets consist of commercial paper and corporate debt securities. We review trading activity and pricing for our available-for-sale securities as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data.
6. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
 
(unaudited)
 
 
Research and development services
$
3,386

 
$
2,457

Employee compensation
1,026

 
1,009

Legal and professional fees
113

 
646

Accrued other
993

 
251

Total
$
5,518

 
$
4,363


7. Long-term Debt
We maintain a long-term financing arrangement with Silicon Valley Bank. On June 30, 2017, we drew down a term loan of $5.0 million. The loan had an interest-only period that expired on July 1, 2018, at which point we became obligated to make thirty consecutive equal monthly payments of principal (each in an amount that will fully amortize the loan), plus accrued interest. Interest accrues at a floating per annum rate equal to the lender’s prime rate minus 1.75%. As a condition to the loan, we agreed to pay a final payment fee of 7.5%, or $375,000, upon repayment of the loan. The final payment fee was recorded in long-term debt with an offsetting reduction in long-term debt and was accounted for as a debt discount.
Pursuant to the loan agreement we have pledged substantially all of our assets, excluding intellectual property, as collateral. The obligations under the loan agreement are subject to acceleration upon the occurrence of specified events of default, including a material adverse change in our business, operations, financial, or other condition. We assessed the likelihood of the lender accelerating payment of the loan due to a material adverse change in our business, operations, financial, or other condition as remote. As such, as of June 30, 2019, the classification of the loan is split between current and noncurrent based on the timing of payment obligations. The term loan agreement contains customary conditions to borrowings, events of default and negative covenants, including covenants that could limit our ability to, among other things, incur additional indebtedness, liens or other encumbrances; make dividends or other distributions; buy, sell or transfer assets; engage in any new

9



line of business; and enter into certain transactions with affiliates. We were in compliance with our covenants as of June 30, 2019.
Also, in connection with the drawdown of the loan, we granted Silicon Valley Bank 7,069 Series A-1 Preferred Stock warrants at an exercise price of $12.38 per share. The fair value of the warrants on the date of issuance was $53,000, determined using the Black-Scholes option-pricing model, and was recorded as a discount to the note and as a warrant liability. In connection with the merger and conversion of all outstanding Series A-1 preferred stock, the warrants became exercisable for 7,069 fully vested shares of our common stock.  As a result of the change in the underlying shares, the warrants were equity-classified beginning on July 24, 2017.  
The debt discount is being amortized to interest expense using the effective interest method over the repayment term of the initial loan amount. Non-cash interest expense associated with the amortization of the discount was $31,000 and $44,000 for the three months ended June 30, 2019 and 2018, respectively, and $67,000 and $88,000 for the six months ended June 30, 2019 and 2018, respectively. The unamortized discount was $105,000 as of June 30, 2019.  
8. Commitments and Contingencies
Operating Leases
We lease office and laboratory space in Seattle, Washington, under an agreement classified as an operating lease that expires on December 31, 2019. This lease has two 12-month renewal options, which we did not include in the lease term when calculating our right-of-use asset and lease liability, as we are not reasonably certain to renew. This lease does not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Variable expenses generally represent our share of the landlord’s operating expenses. We do not act as a lessor or have any leases classified as financing leases. In May 2017, as required by the terms of the lease, we entered into a line of credit to establish collateral to support the security deposit in an amount of $132,000. This is recorded as restricted cash in the accompanying Condensed Consolidated Balance Sheets.
In March 2019, we entered into a lease with ARE-Seattle No. 28, LLC (the “Landlord”) for 27,164 square feet of office and laboratory space located at 188 East Blaine Street, Seattle, Washington. The term of the lease is 10.8 years with one option to extend the term by 5 years. The lease term commenced in June 2019. The “Rent Commencement Date” will be nine months after the commencement date. The annual base rent under the lease is $1.7 million for the first year and will increase by 3.0% each year thereafter. We are not required to pay base rent from the Rent Commencement Date through the last day of the ninth month following the Rent Commencement Date. We will receive a maximum tenant improvement allowance of $5.4 million, which is included in our base rent, and a maximum additional tenant improvement allowance of $1.8 million, which will result in additional rent amortized over the term of the lease at an annual rate of 8.0%. The lease also requires us to pay additional amounts for operating and maintenance expenses. In March 2019, in connection with the lease, we provided a $254,000 letter of credit as a security deposit, which is recorded as restricted cash in our accompanying Condensed Consolidated Balance Sheets.
At June 30, 2019, our operating lease right-of-use assets and operating lease liability associated with these leases were $11.3 million and $11.4 million, respectively, which are included in the accompanying Condensed Consolidated Balance Sheets.
The components of our lease expense were as follows (in thousands):
 
Three Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2019
 
(unaudited)
Lease cost:
 
 
 
Operating lease cost
$
365

 
$
572

Variable lease cost
80

 
171

Total lease cost
$
445

 
$
743

Other information:
 
 
 
Cash paid for amounts included in the measurement of lease liabilities
 
 
$
452

Right-of-use assets exchanged for new operating lease liabilities
 
 
$
11,757

Weighted-average remaining lease term (in years), operating leases
 
 
10.3

Weighted-average discount rate, operating leases
 
 
10.5
%


10



Maturities of our operating leases as of June 30, 2019 are as follows (in thousands):
2019 (remaining six months)
$
460

2020
228

2021
1,976

2022
2,027

2023
2,079

Thereafter
14,078

Total
20,848

Less: imputed interest
(9,477
)
Operating lease liabilities included in the Consolidated Balance Sheets at June 30, 2019
$
11,371


Rent expense, which is recorded on a straight-line basis, was $206,000 and $398,000 for the three and six months ended June 30, 2018.
9. License and Collaboration Agreements
Adaptimmune
In May 2019, we entered into a collaboration and licensing agreement with Adaptimmune (the “Adaptimmune Collaboration Agreement”) to develop next-generation SPEAR T-cell products. Under the Adaptimmune Collaboration Agreement, we are to perform certain research services and grant Adaptimmune an exclusive license to programs from our secreted immunomodulatory protein (“SIP”) and transmembrane immunomodulatory protein (“TIP”) technologies, in order to further enhance Adaptimmune’s efforts to design and develop next-generation SPEAR T-cell therapies. In June 2019, under the terms of the Adaptimmune Collaboration Agreement, we received an upfront license payment of $2.0 million and an additional $250,000 in research support payments to fund ongoing programs. These payments were recorded as deferred revenue and will be recognized to revenue based on employee hours contributed to each performance obligation. We recorded revenue of $142,000 for the three months ended June 30, 2019. In addition, we are eligible for additional research support payments, one-time payments and downstream development and commercialization milestones of up to $288.0 million, if all pre-specified milestones for each program are achieved. We are also eligible to receive low-single digit royalties on worldwide net sales of the applicable products.
Kite
In October 2015, we entered into a collaboration and licensing agreement (the “Kite Collaboration Agreement”) with Kite to discover and develop protein-based immunotherapies targeting the immune synapse to treat cancer. In May 2019, Kite provided us notice of termination of the Kite Collaboration Agreement following the expiration of the research term. Upon termination, the confidentiality and indemnity obligations of the parties survived and the licenses granted to Kite under the Kite Collaboration Agreement were terminated. Pursuant to the terms of the Kite Collaboration Agreement, the termination was effective in June 2019, thirty days after the effectiveness of Kite’s notice.
Under the terms of the Kite Collaboration Agreement, in 2015, Kite made upfront payments to us of $5.5 million, which were initially recorded as deferred revenue. Under the Kite Collaboration Agreement, we recorded revenue of $0 and $390,000 for the three months ended June 30, 2019 and 2018, respectively, and $0 and $630,000 for the six months ended June 30, 2019 and 2018, respectively. In the second quarter of 2018, based on the completion of our research and development efforts in connection with the performance period, we recognized the remaining balance related to the Kite Collaboration Agreement in deferred revenue.
10. Stockholders’ Equity
Securities Offerings
In January 2019, we entered into a securities purchase agreement (the “Purchase Agreement”) with a limited number of accredited investors, pursuant to which we sold 4,706,700 units (the “Units”) for an aggregate purchase price of $25.3 million in a private placement (the “Private Placement”). Each Unit has a purchase price of $5.37 and consists of one share of our common stock and a warrant to purchase 0.39 shares of common stock. Pursuant to the terms of the Purchase Agreement, we issued 4,706,700 shares of common stock and warrants to purchase an aggregate of 1,835,610 shares of common stock. The warrants have an exercise price of $12.74 and have a term of five years.

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The issuance of the securities sold in the Private Placement was not registered under the Securities Act of 1933, as amended, or state securities laws and such securities could not be offered or sold in the United States absent registration with the SEC or an applicable exemption from such registration requirements. In March 2019, we filed a registration statement with the SEC covering the resale of the shares of common stock issuable in connection with the Private Placement and upon exercise of the warrants, which registration was declared effective by the SEC on April 4, 2019.
We have incurred legal, accounting and other direct costs related to our efforts to raise capital. These costs have been capitalized as deferred offering costs and are included within prepaid expenses and other current assets in our accompanying Condensed Consolidated Balance Sheets. These were deferred until completion of the Private Placement, at which time $1.7 million were reclassified to additional paid-in capital as a reduction of the proceeds. As of June 30, 2019, no sales under our Equity Distribution Agreement (as defined below) have occurred.
In June 2018, we entered into an equity distribution agreement, (“Equity Distribution Agreement”), with Piper Jaffray & Co., (“Piper Jaffray”), pursuant to which we may sell shares of our common stock through an “at the market” equity offering program for up to $50.0 million, in gross cash proceeds. Piper Jaffray will be entitled to compensation for its services of up to 3.0% of the gross sales price per share of all shares sold through Piper Jaffray under the Equity Distribution Agreement. The Equity Distribution Agreement may be terminated by us upon written notice to Piper Jaffray for any reason or by Piper Jaffray upon written notice to us for any reason or at any time under certain circumstances, including but not limited to if we experience a material adverse change.
Under the Equity Distribution Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. We have no obligation to sell any shares under the Equity Distribution Agreement, and may at any time suspend solicitation and offers under the Equity Distribution Agreement. In July 2019, our Registration Statement on Form S-3 (File No. 333-212404) expired pursuant to Rule 415(a)(5) under the Securities Act of 1933, as amended. We will be unable to sell shares under the Equity Distribution Agreement until a new Registration Statement on Form S-3 is filed and declared effective by the SEC and a prospectus supplement relating to any sales under the Equity Distribution Agreement is filed with the SEC.
Stock-Based Compensation Expense 
We use the Black-Scholes option pricing model to estimate the fair value of stock options granted at the grant date. We recognize the fair value of stock-based compensation as compensation expense over the requisite service period, which is the vesting period. Stock-based compensation and warrant expense is classified in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) as follows (in thousands): 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(unaudited)
Employee:
 
 
 
 
 
 
 
Research and development
$
422

 
$
205

 
$
762

 
$
402

General and administrative
248

 
247

 
631

 
555

Non-Employee:
 
 
 
 
 
 
 
Research and development
11

 
7

 
40

 
8

General and administrative
1

 
64

 
3

 
69

Total stock-based compensation expense
$
682

 
$
523

 
$
1,436

 
$
1,034


11. Income Taxes
We are subject to income taxes in the United States and Australia and our effective tax rate is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items. Each quarter an estimate of the annual effective tax rate is updated should we revise our forecast of earnings based upon our operating results. If there is a change in the estimated effective annual tax rate, a cumulative adjustment is made. Our effective tax rate for the three and six-month periods ended June 30, 2019 and 2018 was 0.0% and 0.98%, respectively. The difference between the effective tax rate of 0.00% and the U.S. federal statutory rate of 21% for the three and six-month periods ended June 30, 2019 was primarily due to recognizing a full valuation allowance on deferred tax assets.  The difference between the effective tax rate of 0.98% and the U.S. federal statutory rate of 21% for the three and six-month periods ended June 30, 2018 was primarily due to recognizing a full valuation allowance on deferred tax assets, and the estimated annual benefit of the

12



removal of the deferred tax liability of $305,000 recorded as a result of a previously acquired in-process research and development intangible asset.
As of June 30, 2019, we determined that, based on an evaluation of the four sources of income and all available evidence, both positive and negative, including our latest forecasts and cumulative losses in recent years, it was more likely than not that none of our deferred tax assets would be realized and therefore we continued to record a full valuation allowance. No current tax liability or expense has been recorded in the financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following management’s discussion and analysis of financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2018, included in our Annual Report on Form 10-K, or the “Annual Report”, filed with the SEC on March 18, 2019.
Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” or similar expressions, or the negative or plural of these words or expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to:
 
our ability to identify, develop and commercialize additional products or product candidates;
our estimates regarding our expenses, revenues, anticipated capital requirements and our needs for additional financing;
our ability to obtain funding for our operations;
the implementation of our business model and strategic plans for our business and technology;
the timing of the commencement, progress and receipt of data from any of our preclinical and clinical trials;
the expected results of any preclinical or clinical trial and the impact on the likelihood or timing of any regulatory approval;
the scope of protection we are able to establish and maintain for intellectual property rights covering our technology and product candidates;
the timing or likelihood of regulatory filings and approvals;
the therapeutic benefits, effectiveness and safety of our product candidates;
the rate and degree of market acceptance and clinical utility of any future products;
our ability to maintain and establish collaborations;
our ability to achieve milestones in our current and any future collaborations;
our expectations regarding market risk, including interest rate changes;
developments relating to our competitors and our industry; and
our expectations regarding licensing, acquisitions and strategic operations.

These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A — Risk Factors, and elsewhere in this report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments, except as required by law.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

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Overview
We are a clinical-stage immunotherapy company committed to leading a new wave of immune therapeutics, creating potentially powerful multifunctional immunotherapies to improve patients’ lives via unique protein engineering technologies. Alpine has two lead programs. The first, ALPN-101 for autoimmune/inflammatory diseases, is a selective dual T-cell costimulation blocker engineered to reduce pathogenic T and B cell immune responses by blocking ICOS and CD28. ALPN-101 is currently enrolling a phase I healthy volunteer trial. The second, ALPN-202 for cancer, is a conditional CD28 costimulator and dual checkpoint inhibitor. Our proprietary scientific platform uses a process known as directed evolution to convert native immune system proteins from the Immunoglobulin Super Family, or IgSF, into multi-targeted therapeutics potentially capable of modulating the human immune system.
Our goal is to create modern therapies targeting the immune synapse, using our directed-evolution based scientific platform to treat patients with serious conditions such as cancer and inflammatory diseases. To achieve our goal, we intend to: 
move our lead inflammation/autoimmune therapeutic ALPN-101 through clinical development for the treatment of inflammatory diseases;
move our lead oncology program, ALPN-202, to clinical trials for the treatment of cancer; and
maximize the value of our pipeline and platform via partnering activities.
Our operations to date have been limited to business planning, raising capital, developing our platform technology, identifying potential immunotherapy candidates, and other research and development activities. To date, we have financed operations primarily through private placements of common stock and convertible preferred stock, funds received from a license and research agreement, debt financing and assets acquired upon the close of our merger with Nivalis Therapeutics Inc., or Nivalis. We do not have any products approved for sale and have not generated any product sales. Since inception and through June 30, 2019, excluding amounts borrowed through debt financing, we have raised an aggregate of $124.7 million to fund operations, of which $23.6 million was from the sale of common stock, $49.2 million was from the sale of convertible preferred stock, $7.8 million was through our license and collaboration agreements, and $44.1 million in cash, cash equivalents, and marketable securities acquired through the merger with Nivalis. As of June 30, 2019, we had cash, cash equivalents, and short-term investments totaling $55.6 million.
Our net loss was $11.9 million and $7.9 million for the three months ended June 30, 2019 and 2018, respectively, and $24.2 million and $13.2 million for the six months ended June 30, 2019 and 2018, respectively. We expect to continue incurring significant expenses and operating losses for at least the next several years as we:
 
initiate and complete clinical trials for product candidates, including ALPN-101, a dual ICOS/CD28 antagonist program targeting autoimmune/inflammatory disorders and ALPN-202, a CD80 vIgD-Fc that mediates PD-L1-dependent CD28 costimulation and inhibits the PD-L1 and CTLA-4 checkpoints targeting cancer;
contract to manufacture and perform additional process development for our product candidates; 
continue research and development efforts to build our pipeline beyond the current product candidates; 
maintain, expand, and protect our intellectual property portfolio; 
hire additional clinical, quality control, scientific, and management personnel; and 
add operational and financial personnel to support our product development efforts and operational capabilities applicable to operating as a public company.
We do not expect to generate product revenue unless and until we successfully complete development of, obtain marketing approval for and commercialize our product candidates, either alone or in collaboration with third parties. We expect these activities will take a number of years and our success in these efforts is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the regulatory approval and commercialization of any of our product candidates. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our operating activities through equity or debt financings, collaborations or licenses, capital lease transactions, or other available financing transactions. However, additional capital may not be available on reasonable terms, if at all, and if we raise additional funds through the issuance of additional equity or debt securities, it could result in dilution to our existing stockholders and increased fixed payment obligations.

15



Financial Overview
Collaboration Revenue
We derive our collaboration revenue primarily from our collaboration and licensing agreements. We may generate revenue in the future from milestone payments made pursuant to the Adaptimmune Collaboration Agreement, or from payments from future license or collaboration agreements, product sales, or government contracts and grants. We expect any revenue we generate, if any, will fluctuate from quarter to quarter.
Adaptimmune Therapeutics plc
In May 2019, we entered into a collaboration and licensing agreement, or the Adaptimmune Collaboration Agreement. with Adaptimmune Therapeutics plc, or Adaptimmune, a clinical-stage biopharmaceutical company primarily focused on providing novel cell therapies to patients, particularly for the treatment of solid tumors, to develop next-generation SPEAR T-cell products which incorporate the Company’s secreted and transmembrane immunomodulatory protein (termed SIP™ and TIP™) technology. Under the Adaptimmune Collaboration Agreement, we are to perform certain research services and grant Adaptimmune an exclusive license to programs from our SIP and TIP technologies. In June 2019, under the terms of the Adaptimmune Collaboration Agreement, we received an upfront license payment of $2.0 million and an additional $250,000 in research support payments to fund ongoing programs. These payments were recorded as deferred revenue and will be recognized to revenue based on employee hours contributed to each performance obligation. We have recognized a total of $0.1 million in revenue through June 30, 2019 related to our collaboration agreement with Adaptimmune. In addition, we are eligible for additional research support payments, one-time payments and downstream development and commercialization milestones of up to $288.0 million, if all pre-specified milestones for each program are achieved. We are also eligible to receive low-single digit royalties on worldwide net sales of the applicable products.
Kite Pharma, a Gilead company
In October 2015, we entered into a collaboration and licensing agreement, or the Kite Collaboration Agreement, providing Kite Pharma, a Gilead company, or Kite, with access to two transmembrane immunomodulatory protein, or TIP, programs for use in Kite’s engineered cellular therapy programs. In May 2019, Kite provided us notice of termination of the Agreement following the expiration of the research term. Upon termination, the confidentiality and indemnity obligations of the parties survived and the licenses granted to Kite under the Agreement terminated. Pursuant to the terms of the Kite Collaboration Agreement, the termination was effective in June 2019, thirty days after the effectiveness of Kite’s notice. We have recognized a total of $5.6 million in revenue from inception through June 30, 2019 related to our collaboration agreement with Kite.
Research and Development Expenses
We focus our resources on research and development activities, including the conduct of preclinical and clinical studies and product development and expense such costs as they are incurred. Our research and development expenses consist of:
employee-related expenses, including salaries, benefits, taxes, travel, and stock-based compensation expense for personnel in research and development functions;
expenses related to process development and production of product candidates paid to contract manufacturing organizations;
costs associated with preclinical activities and regulatory operations, including the cost of acquiring, developing, and manufacturing research material;
clinical trials and activities related to regulatory filings for our product candidates; and
allocation of facilities, depreciation, and amortization of laboratory equipment and other expenses.
We incurred $10.2 million and $5.7 million in research and development expenses for three months ended June 30, 2019 and 2018, respectively, and $20.5 million and $9.5 million for the six months ended June 30, 2019 and 2018, respectively. We plan to increase our research and development activities for the foreseeable future as we continue to develop our platform and product candidates.
The successful development of our platform and product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing, or costs of the efforts necessary to finish developing any of our product candidates or the period in which material net cash, if any, from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing therapeutics, including the uncertainty of:

16



the scope, rate of progress, expense, and results of clinical trials;
the scope, rate of progress, and expense of process development and manufacturing;
preclinical and other research activities; and
the timing of regulatory approvals.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for employees in executive, business development, finance, and administrative functions. Other significant general and administrative expenses include professional fees for accounting and legal services, expenses associated with obtaining and maintaining patents and other intellectual property, and allocation of facilities costs.
We expect general and administrative expenses will increase as we expand infrastructure and support operating as a public company. These increases will include increased costs for director and officer liability insurance, costs related to the hiring of additional personnel, and increased fees for directors, outside consultants, lawyers, and accountants. We expect to incur significant costs to comply with corporate governance, internal controls, and similar requirements applicable to public companies.
Loss on Sale of Intangible Asset
Loss on sale of intangible asset relates solely to the sale of the GSNOR asset to Laurel in June 2018. For additional information regarding the sale of the GSNOR asset, please see Note 8 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 18, 2019.
Interest Expense
Interest expense consists of accrued interest and the amortization of the debt discount associated with our $5.0 million term loan.  
Interest and Other Income
Interest income consists of interest earned on our cash, cash equivalents, and short-term investments.
JOBS Act
On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. In addition, for so long as we are an “emerging growth company,” which is until as late as December 31, 2020, we will, among other things not be required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are more fully described in Note 2 of the accompanying unaudited condensed consolidated financial statements and in Note 2 to the audited financial statements contained in our Annual Report. There have been no significant or material changes in our significant

17



accounting policies during the six months ended June 30, 2019, as compared to those disclosed in our Annual Report except the following:
Recently Adopted Accounting Pronouncements
In June 2018, the FASB issued ASU No. 2018-07, which aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date. Upon transition, nonemployee awards will be required to be measured at fair value as of the adoption date with a cumulative-effect adjustment recognized in retained earnings as of the beginning of the annual period of adoption. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. We adopted this standard on January 1, 2019 and it did not have a material impact on our financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 requires a lessee to separate the lease components from the non-lease components in a contract and recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. It also aligns lease accounting for lessors with the revenue recognition guidance in ASU 2014-09. We adopted this ASU effective January 1, 2019 using the additional (optional) approach by recording an operating lease right-of-use asset of $797,000, a corresponding operating lease liability of $883,000, and reducing our deferred rent balance by $86,000 to $0 on our accompanying Condensed Consolidated Balance Sheets; there was no effect on opening retained earnings, and we continue to account for leases in the prior period financial statements under ASC Topic 840. In adopting the new standard, we elected to apply the practical expedients regarding the identification of leases, lease classification, indirect costs, and the combination of lease and non-lease components.
For information regarding recent accounting pronouncements, see Note 2 of the Notes to Condensed Consolidated Financial Statements under Part I, Item 1 of this report.
Results of Operations
Comparison of Three Months Ended June 30, 2019 and 2018
The following table summarizes our results of operations for the three months ended June 30, 2019 and 2018 (in thousands):
 
Three Months Ended
June 30,
 
Increase/
(Decrease)
 
2019
 
2018
 
 
(unaudited)
 
 
Collaboration revenue
$
567

 
$
390

 
$
177

Operating expenses:
 
 
 
 
 

Research and development
10,166

 
5,718

 
4,448

General and administrative
2,553

 
1,883

 
670

Loss on sale of intangible asset

 
1,203

 
(1,203
)
Total operating expenses
12,719

 
8,804

 
3,915

Loss from operations
(12,152
)
 
(8,414
)
 
(3,738
)
Other income (expense):
 
 
 
 
 
Interest expense
(61
)
 
(83
)
 
22

Interest and other income
357

 
337

 
20

Loss before taxes
(11,856
)
 
(8,160
)
 
(3,696
)
Income tax benefit

 
253

 
(253
)
Net loss
$
(11,856
)
 
$
(7,907
)
 
$
(3,949
)
Collaboration Revenue
Revenue for the three months ended June 30, 2019 consists of $0.1 million related to the Adaptimmune Collaboration Agreement and $0.4 million related to the milestone payment from Laurel from the sale of our GSNOR assets. Revenue for the three months ended June 30, 2018 relates to the Kite Collaboration Agreement.

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Research and Development Expenses
The $4.4 million increase in research and development expenses was primarily attributable to an increase of $1.5 million in clinical trial activity, an increase of $1.1 million in direct research activities, an increase of $1.1 million in personnel-related expenses as a result of growth in headcount to support ongoing discovery and development programs, an increase of $0.2 million in contract manufacturing and process development of our product candidates, an increase of $0.2 million in stock-based compensation, and an increase of $0.3 million in allocated overhead and facilities.
General and Administrative Expenses
The $0.7 million increase in general and administrative expenses was primarily attributable to a $0.7 million increase in personnel-related expenses related to an increase in administrative headcount.
Loss on Sale of Intangible Asset
Loss on sale of intangible asset relates solely to the sale of the GSNOR asset to Laurel in June 2018.
Comparison of Six Months Ended June 30, 2019 and 2018
The following table summarizes our results of operations for the six months ended June 30, 2019 and 2018 (in thousands):
 
Six Months Ended
June 30,
 
Increase/
(Decrease)
 
2019
 
2018
 
 
(unaudited)
 
 
Collaboration revenue
$
567

 
$
705

 
$
(138
)
Operating expenses:
 
 
 
 
 
Research and development
20,516

 
9,510

 
11,006

General and administrative
4,898

 
3,991

 
907

Loss on sale of intangible asset

 
1,203

 
(1,203
)
Total operating expenses
25,414

 
14,704

 
10,710

Loss from operations
(24,847
)
 
(13,999
)
 
(10,848
)
Other income (expense):
 
 
 
 
 
Interest expense
(131
)
 
(161
)
 
30

Interest and other income
741

 
642

 
99

Loss before taxes
(24,237
)
 
(13,518
)
 
(10,719
)
Income tax benefit

 
305

 
(305
)
Net loss
$
(24,237
)
 
$
(13,213
)
 
$
(11,024
)
Collaboration Revenue
Revenue for the six months ended June 30, 2019 consists of $0.1 million related to the Adaptimmune Collaboration Agreement and $0.4 million related to the milestone payment from Laurel from the sale of our GSNOR assets. Revenue for the six months ended June 30, 2018 relates primarily to the Kite Collaboration Agreement.
Research and Development Expenses
The $11.0 million increase in research and development expenses was primarily attributable to an increase of $3.8 million in contract manufacturing and process development of our product candidates, an increase of $2.4 million in clinical trial activity, an increase of $2.3 million in direct research activities, an increase of $1.7 million in personnel-related expenses as a result of growth in headcount to support ongoing discovery and development programs, an increase of $0.4 million in stock-based compensation, and an increase of $0.4 million in allocated overhead and facilities.

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General and Administrative Expenses
The $0.9 million increase in general and administrative expenses was primarily attributable to increased personnel-related expenses related to an increase in administrative headcount.
Loss on Sale of Intangible Asset
Loss on sale of intangible asset relates solely to the sale of the GSNOR asset to Laurel in June 2018.
Liquidity and Capital Resources
As of June 30, 2019, we had cash, cash equivalents, and short-term investments totaling $55.6 million. Excluding amounts borrowed through debt financing, we have raised an aggregate of $124.7 million to fund operations, of which $23.6 million was from the sale of common stock, $49.2 million was from the sale of convertible preferred stock, $7.8 million was through our license and collaboration agreements, and $44.1 million in cash, cash equivalents, and marketable securities acquired through the merger with Nivalis. In June 2017, we drew down a term loan of $5.0 million. In addition to our existing cash, cash equivalents, and marketable securities, we are eligible to receive research and development funding and to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain development and regulatory milestones and royalty payments under our collaboration with Adaptimmune; however, our ability to earn these milestone and contingent payments and the timing of achieving these milestones is uncertain.
We have incurred operating losses since inception. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we continue our research and preclinical and clinical development of our product candidates; expand the scope of our current studies for our product candidates; initiate additional preclinical, clinical or other studies for our product candidates, including under any collaboration agreements; change or add additional manufacturers or suppliers; seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical studies; seek to identify, evaluate and validate additional product candidates; acquire or in-license other product candidates and technologies; maintain, protect and expand our intellectual property portfolio; attract and retain skilled personnel; and experience any delays or encounter issues with any of the above.
Until such time as we can generate substantial product revenue, if ever, we expect to finance our cash needs through a combination of equity or debt financings and collaboration agreements. Except for any obligations of our collaborator to make milestone payments under our agreement with them, we do not have any committed external sources of capital. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through collaboration agreements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Our future capital requirements are difficult to forecast and will depend on many factors, including:
the number and characteristics of the future product candidates we pursue either from our internal research efforts or through acquiring or in-licensing other product candidates or technologies;
the scope, progress, results and costs of independently researching and developing any of our future product candidates, including conducting preclinical research and clinical trials;
whether our existing collaboration generates substantial milestone payments and, ultimately, royalties on future approved products for us;
the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates we develop independently;
the cost of future commercialization activities, if any;
the cost of manufacturing our future product candidates and products, if any;
our ability to maintain our existing collaboration and to establish new collaborations, licensing or other arrangements and the financial terms of such arrangements;
the costs of preparing, filing, prosecuting, maintaining, defending and enforcing patents, including litigation costs and the outcome of such litigation; and

20



the timing, receipt and amount of sales of, or royalties on, our current or future collaborators’ product candidates, and our future products, if any.
Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our existing cash, cash equivalents and marketable securities as of the date of this report will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Additionally, the process of testing drug candidates in preclinical and clinical studies is costly, and the timing of progress in these studies remains uncertain.

Financing Agreements
In January 2019, we entered into a securities purchase agreement, or the Purchase Agreement, with a limited number of accredited investors, pursuant to which we sold approximately 4.7 million units, or the Units, for an aggregate purchase price of $25.3 million in a private placement, which we refer to as the Private Placement. Each Unit has a purchase price of $5.37 and consists of one share of our common stock and a warrant to purchase 0.39 shares of common stock. Pursuant to the terms of the Purchase Agreement, we issued approximately 4.7 million shares of common stock and warrants to purchase an aggregate of approximately 1.8 million shares of common stock. The warrants have an exercise price of $12.74 and have a term of five years.
Prior to execution and delivery of the merger agreement with Nivalis certain holders of our Series A-1 convertible preferred stock purchased shares of our Series A-1 convertible preferred stock. In March 2017, we issued and sold 707,330 shares of Series A convertible preferred stock and received a total of $4.0 million. In April 2017, we issued and sold 2,947,211 shares of our Series A-1 convertible preferred stock for an aggregate of $16.7 million in net proceeds. In addition, contemporaneously with the close of the Merger, certain existing stockholders of Alpine purchased 1,335,118 additional shares of Alpine’s capital stock for an aggregate of $17.0 million in net proceeds. 
In June 2018, we entered into an equity distribution agreement, or the Equity Distribution Agreement, with Piper Jaffray & Co., or Piper Jaffray, pursuant to which we may sell shares of our common stock through an “at the market” equity offering program for up to $50.0 million in gross cash proceeds. Piper Jaffray will be entitled to compensation for its services of up to 3.0% of the gross sales price per share of all shares sold through Piper Jaffray under the Equity Distribution Agreement. The Equity Distribution Agreement may be terminated by us upon written notice to Piper Jaffray for any reason, or by Piper Jaffray upon written notice to us for any reason, or at any time under certain circumstances, including but not limited to if we experience a material adverse change.
Under the Equity Distribution Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. We have no obligation to sell any shares under the Equity Distribution Agreement and may at any time suspend solicitation and offers under the Equity Distribution Agreement. As of June 30, 2019, we have made no sales under the Equity Distribution Agreement. In July 2019, our Registration Statement on Form S-3 (File No. 333-212404) expired pursuant to Rule 415(a)(5) under the Securities Act of 1933, as amended. We will be unable to sell shares under the Equity Distribution Agreement until a new Registration Statement on Form S-3 is filed and declared effective by the SEC and a prospectus supplement relating to any sales under the Equity Distribution Agreement is filed with the SEC.
Long-Term Financing
In December 2016, we entered into a term loan agreement with Silicon Valley Bank pursuant to which up to $5.0 million could be borrowed. On June 30, 2017, we drew down a term loan of $5.0 million pursuant to the agreement. The loan’s interest-only period expired on July 1, 2018, at which point we began making thirty consecutive equal monthly payments of principal (each in an amount that will fully amortize the loan), plus accrued interest. Interest accrues at a floating per annum rate equal to the lender’s prime rate minus 1.75%. As a condition to the loan, we agreed to pay a final payment fee of 7.5%, or $375,000, upon repayment of the loan. The final payment fee was recorded in long-term debt with an offsetting reduction in long-term debt and was accounted for as a debt discount. As of June 30, 2019, we had $3.4 million outstanding principal amount under our term loan agreement.
Pursuant to the loan agreement we have pledged substantially all of our assets, excluding intellectual property, as collateral. The obligations under the loan agreement are subject to acceleration upon the occurrence of specified events of default, including a material adverse change in our business, operations or financial or other condition. The term loan agreement contains customary conditions to borrowings, events of default and negative covenants, including covenants that could limit our ability to, among other things, incur additional indebtedness, liens or other encumbrances, make dividends or

21



other distributions; buy, sell or transfer assets; engage in any new line of business; and enter into certain transactions with affiliates. We were in compliance with our covenants as of June 30, 2019.
Operating Lease
In March 2019, we entered into a lease with ARE-Seattle No. 28, LLC (the “Landlord”) for 27,164 square feet of office and laboratory space located at 188 East Blaine Street, Seattle, Washington. The term of the lease is 10.8 years with one option to extend the term by 5 years. The lease term commenced in June 2019. The “Rent Commencement Date” will be nine months after the commencement date. We are not required to pay base rent from the Rent Commencement Date through the last day of the ninth month following the Rent Commencement Date. The annual base rent under the lease is $1.7 million for the first year and will increase by 3.0% each year thereafter. We will receive a maximum tenant improvement allowance of $5.4 million, which is included in our base rent, and a maximum additional tenant improvement allowance of $1.8 million, which will result in additional rent amortized over the term of the lease at an annual rate of 8.0%. The lease also requires us to pay additional amounts for operating and maintenance expenses. In March 2019, in connection with the lease, we provided a $254,000 letter of credit as a security deposit, which is recorded as restricted cash in our accompanying Condensed Consolidated Balance Sheets.
Cash Flows
The following is a summary of our cash flows (in thousands):
 
Six Months Ended
June 30,
 
2019
 
2018
 
(unaudited)
Net cash used in operating activities
$
(19,100
)
 
$
(11,646
)
Net cash provided by investing activities
1,512

 
7,208

Net cash provided by financing activities
22,609

 
7

Net Cash Used in Operating Activities:
Net cash used in operating activities was $19.1 million during the six months ended June 30, 2019, and consisted primarily of our net loss of $24.2 million. This was offset by increases of $3.1 million in our net operating assets and liabilities and $2.0 million in our net non-cash adjustments, which primarily relate to stock-based compensation, depreciation and amortization.
Net cash used in operating activities was $11.6 million during the six months ended June 30, 2018, and consisted primarily of our net loss of $13.2 million and a net decrease of $0.2 million in operating assets and liabilities. This was partially offset by net non-cash adjustments of $1.8 million, which primarily relate to the loss on the sale of our intangible asset, stock-based compensation, the write-off of our deferred tax liability, depreciation and amortization.
Net Cash Provided by Investing Activities:
Cash flows from investing activities primarily reflect cash used to purchase short-term investments and proceeds from the maturities of short-term investments, thus causing a shift between our cash and cash equivalents, and short-term investment balances. We manage our cash usage with respect to our total cash, cash equivalents and short-term investments.
Net cash provided by investing activities was $1.5 million during the six months ended June 30, 2019 and consisted primarily of our purchases, sales and maturities of short-term investments in U.S. Treasury securities, commercial paper, and corporate debt securities as well as purchases of property and equipment, primarily lab equipment, to support our research and development efforts.
Net cash provided by investing activities was $7.2 million during the six months ended June 30, 2018 and consisted primarily of our net purchases and maturities of short-term investments in U.S. Treasury securities, commercial paper, and corporate debt securities.

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Net Cash Provided by Financing Activities:
Net cash provided by financing activities was $22.6 million during the six months ended June 30, 2019 and consisted primarily of the net proceeds of $23.6 million related to the sale of approximately 4.7 million Units under our Purchase Agreement, partially offset by $1.0 million related to principal payments on our debt.
Net cash provided by financing activities was $7,000 for the six months ended June 30, 2018 and consisted of proceeds from the exercise of stock options.
Contractual Obligations and Contingent Liabilities
As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, we are not required to provide additional information on our contractual obligations and contingent liabilities pursuant to Item 303 of Regulation S-K.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, and pursuant to Item 305 of Regulation S-K, we are not required to provide quantitative and qualitative disclosures about market risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), as of the end of the period covered by this report. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective, in design and operation, at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
Our management, including our principal executive and principal financial officers, evaluated any changes in our internal control over financial reporting during the period ended June 30, 2019, and has concluded that there were no changes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Control
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of our management, would reasonably be expected to have a material adverse effect on our business, financial condition, operating results or cash flows if determined adversely to us. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
You should carefully consider the following risk factors, in addition to the other information contained in this Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2, and our consolidated financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this report occurs, our business, operating results and financial condition could be seriously harmed. This report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.
Risks Related to Our Financial Position, Capital Needs and Business
We will need to raise substantial additional funds to advance development of our therapeutic candidates, and we cannot guarantee we will have sufficient funds available in the future to develop and commercialize our current or future therapeutic candidates.
We will need to raise substantial additional funds to expand our development, regulatory, manufacturing, marketing, and sales capabilities or contract with other organizations to provide these capabilities to us. We have used substantial funds to develop our therapeutic candidates and will require significant funds to conduct further research and development, preclinical testing, and clinical trials of our therapeutic candidates, to seek regulatory approvals for our therapeutic candidates, and to manufacture and market products, if any are approved for commercial sale. As of June 30, 2019, we had $55.6 million in cash and cash equivalents and short-term investments. Based on our current operating plan, we believe our available cash and cash equivalents, will be sufficient to fund our planned level of operations for at least the next 12 months. Our future capital requirements and the period for which we expect our existing resources to support our operations may vary significantly from what we expect. Our monthly spending levels vary based on new and ongoing development and corporate activities. Because the length of time and activities associated with successful development of our therapeutic candidates are highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. To execute our business plan, we will need, among other things:
to obtain the human and financial resources necessary to develop, test, obtain regulatory approval for, manufacture, and market our therapeutic candidates;
to build and maintain a strong intellectual property portfolio and avoid infringing intellectual property of third parties;
to establish and maintain successful licenses, collaborations, and alliances;
to satisfy the requirements of clinical trial protocols, including patient enrollment;
to establish and demonstrate the clinical efficacy and safety of our therapeutic candidates;
to obtain regulatory approvals;
to manage our spending as costs and expenses increase due to preclinical studies, clinical trials, regulatory approvals, manufacturing scale-up, and commercialization;
to obtain additional capital to support and expand our operations; and
to market our products to achieve acceptance and use by the medical community in general.
If we are unable to obtain necessary funding on a timely basis or on acceptable terms, we may have to delay, reduce, or terminate our research and development programs, preclinical studies, or clinical trials, if any, limit strategic opportunities, or undergo reductions in our workforce or other corporate restructuring activities. We also could be required to seek funds through arrangements with collaborators or others requiring us to relinquish rights to some of our technologies or therapeutic candidates we would otherwise pursue on our own. We do not expect to realize revenue from product sales, or royalties in the

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foreseeable future, if at all. Our revenue sources are, and will remain, extremely limited unless and until our therapeutic candidates are clinically tested, approved for commercialization, and successfully marketed.
To date, we have financed our operations primarily through the sale of equity securities and payments received under our collaboration agreements. We will be required to seek additional funding in the future and intend to do so through a combination of public or private equity offerings, debt financings, credit and loan facilities, research collaborations, and license agreements. Our ability to raise additional funds from these or other sources will depend on financial, economic, and other factors, many of which are beyond our control. Additional funds may not be available to us on acceptable terms or at all.
If we raise additional funds by issuing equity securities, our stockholders will suffer dilution, and the terms of any financing may adversely affect the rights of our stockholders. For example, in January 2019, we issued in a private placement 4,706,700 shares of common stock and warrants to purchase an additional 1,835,610 shares of common stock for gross proceeds of approximately $25.3 million. We also have an Equity Distribution Agreement in place with Piper Jaffray to sell up to $50.0 million of our common stock, from time to time, through an “at the market” equity offering program under which Piper Jaffray acts as sales agent; however, in July 2019, our Registration Statement on Form S-3 expired pursuant to Rule 415(a)(5), and until a new Registration Statement on Form S-3 is filed and declared effective by the SEC and a prospectus supplement relating to any sales under the Equity Distribution Agreement is filed with the SEC, the equity offering program will not be available to us.
In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Debt financing, if available, may involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of a liquidation or insolvency, debt holders would be repaid before holders of equity securities receive any distribution of corporate assets. Our failure to raise capital or enter into such other arrangements within a reasonable timeframe would have a negative impact on our financial condition, and we may have to delay, reduce, or terminate our research and development programs, preclinical or clinical trials, or undergo reductions in our workforce or other corporate restructuring activities.
We are an early stage biopharmaceutical company with a history of losses, we expect to continue to incur significant losses for the foreseeable future, we may never achieve or maintain profitability, and we have a limited operating history that may make it difficult for investors to evaluate the potential success of our business.
We are a clinical-stage immunotherapy company, with a limited operating history, focused on developing treatments for autoimmune/inflammatory diseases and cancer. Since inception, we have devoted our resources to developing novel protein-based immunotherapies using our proprietary scientific platform technology, which produces variant Ig domains or vIgDs. We have had significant operating losses since inception. For the six months ended June 30, 2019, our net loss was $24.2 million. Substantially all of our losses have resulted from expenses incurred in connection with our research programs and from general and administrative costs associated with our operations. Our technologies and therapeutic candidates are in early stages of development, and we are subject to the risks of failure inherent in the development of therapeutic candidates based on novel technologies.
We have historically generated revenue primarily from the receipt of research funding and upfront payments under our collaboration agreements. We have not generated, and do not expect to generate, any revenue from product sales for the foreseeable future, and we expect to continue to incur significant operating losses for the foreseeable future due to the cost of research and development, preclinical studies, clinical trials, and the regulatory approval process for therapeutic candidates. The amount of future losses is uncertain. Our ability to achieve profitability, if ever, will depend on, among other things, our or our existing collaborators, or any future collaborators, successfully developing therapeutic candidates, obtaining regulatory approvals to market and commercialize therapeutic candidates, manufacturing any approved products on commercially reasonable terms, establishing a sales and marketing organization or suitable third party alternatives for any approved product, and raising sufficient funds to finance business activities. If we or our existing collaborators, or any future collaborators, are unable to develop and commercialize one or more of our therapeutic candidates or if sales revenue from any therapeutic candidate receiving approval is insufficient, we will not achieve profitability, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Our approach to the discovery and development of innovative therapeutic treatments based on our technology is unproven and may not result in marketable products.
We plan to develop novel protein-based immunotherapies using our proprietary vIgD technology for the treatment of cancer and autoimmune/inflammatory diseases. The potential to create therapies capable of working within and/or modulating an immune synapse, forcing a synapse to occur, or preventing a synapse from occurring is an important, novel attribute of our vIgDs. However, the scientific research forming the basis of our efforts to develop therapeutic candidates based on our platform

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is relatively new. Further, the scientific evidence to support the feasibility of developing therapeutic treatments based on vIgDs is both preliminary and limited.
Relatively few therapeutic candidates based on immunoglobulin superfamily, or IgSF, domains have been tested in animals or humans, and a number of clinical trials conducted by other companies using IgSF domains technologies have not been successful. We may discover the therapeutic candidates developed using our scientific platform do not possess certain properties required for the therapeutic candidate to be effective, such as the ability to remain stable or active in the human body for the period of time required for the therapeutic candidate to reach the target tissue and/or cell. We currently have only limited data, and no conclusive evidence, to suggest we can introduce these necessary therapeutic properties into vIgD-based therapeutic candidates. We may spend substantial funds attempting to introduce these properties and may never succeed in doing so. In addition, vIgDs may demonstrate different chemical and pharmacological properties in human subjects or patients than they do in laboratory studies. Even if our programs, such as the ALPN-101 program, have successful results in animal studies, they may not demonstrate the same chemical and pharmacological properties in humans and may interact with human biological systems in unforeseen, ineffective, or harmful ways. For example, in the context of immunotherapies, in a Phase I clinical trial of TeGenero AG’s product candidate TGN1412, healthy volunteer subjects receiving the product candidate experienced a systemic inflammatory response resulting in renal and pulmonary failure requiring interventions such as dialysis and critical care support. Following this experience, regulatory agencies now ask for evaluation of immunomodulatory antibodies with a number of in vitro assays with human cells. While we are currently performing in vitro and in vivo proof of concept studies for several of our vIgDs preclinically, and safety studies clinically for ALPN-101, the risk profile in humans has yet to be fully assessed. Undesirable side effects that may be caused by our therapeutic candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Such side effects could also affect patient recruitment or the ability of enrolled patients to complete clinical trials or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. As a result, we may never succeed in developing a marketable therapeutic, we may not become profitable, and the value of our common stock will decline.
Further, we believe that the FDA has no prior experience with vIgDs and no regulatory authority has granted approval to any person or entity, including our company, to market and commercialize therapeutics using vIgDs, which may increase the complexity, uncertainty, and length of the regulatory approval process for our therapeutic candidates. Our company and our current collaborators, or any future collaborators, may never receive approval to market and commercialize any therapeutic candidate. Even if our company or a collaborator obtains regulatory approval, the approval may be for disease indications or patient populations not as broad as we intended or desired or may require labeling, including significant use or distribution restrictions or safety warnings. Our company or a collaborator may be required to perform additional or unanticipated clinical trials to obtain approval or be subject to post-marketing testing requirements to maintain regulatory approval. If therapeutic candidates we develop using our scientific platform prove to be ineffective, unsafe, or commercially unviable, our entire platform and pipeline would have little, if any, value, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
The market may not be receptive to our therapeutic products based on a novel therapeutic modality, and we may not generate any future revenue from the sale or licensing of therapeutic products.
Even if approval is obtained for a therapeutic candidate, we may not generate or sustain revenue from sales of the therapeutic product due to factors such as whether the therapeutic product can be sold at a competitive price and otherwise accepted in the market. Therefore, any revenue from sales of the therapeutic product may not offset the costs of development. The therapeutic candidates we are developing are based on new technologies and therapeutic approaches. Market participants with significant influence over acceptance of new treatments, such as physicians and third-party payors, may not adopt a treatment based on our therapeutic products, and we may not be able to convince the medical community and third-party payors to accept and use, or to provide favorable coverage or reimbursement for, any therapeutic products developed by our company, our existing collaborator, or any future collaborators. Market acceptance of our therapeutic products will depend on, among other factors:
the timing of our receipt of any marketing and commercialization approvals;
the terms of any approvals and the countries in which approvals are obtained;
the safety and efficacy of our therapeutic products;
the prevalence and severity of any adverse side effects associated with our therapeutic products;
the prevalence and severity of any adverse side effects associated with therapeutics of the same type or class as our therapeutic products;
limitations or warnings contained in any labeling approved by the FDA or other regulatory authority;

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relative convenience and ease of administration of our therapeutic products;
the willingness of patients to accept any new methods of administration;
the success of our physician education programs;
the availability of adequate government and third-party payor coverage and reimbursement;
the pricing of our products, particularly as compared to alternative treatments;
our ability to compliantly market and sell our products; and
availability of alternative effective treatments for the disease indications our therapeutic products are intended to treat and the relative risks, benefits, and costs of those treatments.
With our focus on engineering wild-type IgSFs proteins, these risks may increase to the extent this field becomes more competitive or less favored in the commercial marketplace. Additional risks apply in relation to any disease indications we pursue which are classified as rare diseases and allow for orphan drug designation by regulatory agencies in major commercial markets, such as the United States, European Union, and Japan. Because of the small patient population for a rare disease, if pricing is not approved or accepted in the market at an appropriate level for an approved therapeutic product with orphan drug designation, such drug may not generate enough revenue to offset costs of development, manufacturing, marketing, and commercialization despite any benefits received from the orphan drug designation, such as market exclusivity, assistance in clinical trial design, or a reduction in user fees or tax credits related to development expense. Market size is also a variable in disease indications classified as rare. Our estimates regarding potential market size for any rare indication may be materially different from what we discover to exist at the time we commence commercialization, if any, for a therapeutic product, which could result in significant changes in our business plan and have a material adverse effect on our business, financial condition, results of operations, and prospects.
If a therapeutic product with orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the therapeutic product is entitled to orphan product exclusivity, which means the FDA may not approve any other applications to market the same therapeutic product for the same indication, except in very limited circumstances, for seven years. Orphan drug exclusivity, however, could also block the approval of one of our therapeutic products for seven years if a competitor obtains approval of the same therapeutic product as defined by the FDA or if our therapeutic product is determined to be within the same class as the competitor’s therapeutic product for the same indication or disease.
As in the United States, we may apply for designation of a th