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OMED > SEC Filings for OMED > Form 10-Q on 13-Nov-2013All Recent SEC Filings

Show all filings for ONCOMED PHARMACEUTICALS INC

Form 10-Q for ONCOMED PHARMACEUTICALS INC


13-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion in conjunction with our condensed financial statements (unaudited) and related notes included elsewhere in this report. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "could," "will," "would," "should," "expect," "plan," "anticipate," "believe," "estimate," "intend," "predict," "seek," "contemplate," "potential" or "continue" or the negative of these terms or other comparable terminology. These forward-looking statements, include, but are not limited to, the initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs; our ability to advance product candidates into, and successfully complete, clinical trials; our receipt of future milestone payments and/or royalties, and the expected timing of such payments; our collaborators' exercise of their license options; the commercialization of our product candidates; the implementation of our business model, strategic plans for our business, product candidates and technology; the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology; estimates of our expenses, future revenues, capital requirements and our needs for additional financing; the timing or likelihood of regulatory filings and approvals; our ability to maintain and establish collaborations or obtain additional government grant funding; our use of proceeds from our IPO; our financial performance; and developments relating to our competitors and our industry. These statements reflect our current views with respect to future events or our future financial performance, are based on assumptions, and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under "Risk Factors" in the Prospectus or described elsewhere in this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date hereof. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. Unless the context requires otherwise, in this Quarterly Report on Form 10-Q, the terms "OncoMed," "Company," "OncoMed Pharmaceuticals," "we," "us" and "our" refer to OncoMed Pharmaceuticals, Inc., a Delaware corporation, unless otherwise noted.

Overview

OncoMed is a clinical development-stage biopharmaceutical company focused on discovering and developing first-in-class monoclonal antibody therapeutics targeting CSCs. Our approach has been to target CSCs, also known as tumor-initiating cells. Common cancer drugs target bulk tumor cells but have limited impact on CSCs, thereby providing a path for recurrence of the tumor. We utilize our proprietary technologies to identify and validate multiple potential targets critical to CSC self-renewal and differentiation. These targets are in pathways implicated in cancer biology and stem cell biology, including the Notch, Wnt, RSPO/LGR and other fundamental CSC pathways. We believe our product candidates are quite distinct from current generations of chemotherapies and targeted therapies, and have the potential to significantly impact cancer treatment and the clinical outcome of patients with cancer. All of our product candidates were discovered internally in our own research laboratories.

We have five anti-CSC product candidates in clinical development. Additionally, other antibodies are in preclinical development with Investigational New Drug ("IND") filings planned for 2014 and beyond. The first candidate, demcizumab, has completed a single-agent Phase Ia safety and dose escalation trial and is currently in Phase Ib combination therapy trials in patients with non-small cell lung cancer and pancreatic cancer and a Phase Ib/II trial combining demcizumab with paclitaxel in ovarian cancer. The second candidate, anti-Notch2/3 (OMP-59R5), is in a Phase Ib/II trial in pancreatic cancer in combination therapy with gemcitabine (recently amended to include AbraxaneŽ) and a second Phase Ib/II trial in small cell lung cancer in combination therapy with etoposide and cisplatin chemotherapy. The third candidate, vantictumab (OMP-18R5), continues in a single-agent Phase Ia trial, and we have recently initiated a Phase Ib trial in combination with paclitaxel in patients with breast cancer, which is the first of three planned Phase Ib combination therapy trials of vantictumab. The fourth candidate, Fzd8-Fc (OMP-54F28), is in a single-agent Phase Ia safety and dose escalation trial in solid tumor malignancies, and we expect three Phase Ib combination trials in late 2013 or early 2014. The fifth candidate, anti-Notch1 (OMP-52M51), is in two single-agent Phase Ia safety and dose escalation trials in hematologic and solid tumor malignancies. The clinical trials for all five product candidates are ongoing, with the intent of gathering additional data required to proceed to later stage clinical trials and product approval.


Table of Contents

Initial Public Offering

On July 17, 2013, our registration statement on Form S-1 (File No. 333-181331) relating to the IPO of our common stock was declared effective by the SEC. The IPO closed on July 23, 2013 at which time we sold 5,520,000 shares of our common stock, which includes 720,000 shares of common stock purchased by the underwriters upon the full exercise of their option to purchase additional shares of common stock. We received cash proceeds of $82.7 million from the IPO, net of underwriting discounts and commissions and expenses paid by us.

Financial Operations Overview

Revenue

We have not generated any revenue from product sales. Our revenue to date has been primarily derived from upfront payments and development milestones received from GSK and Bayer. We recognize revenue from upfront payments ratably over the term of our estimated period of performance under the agreements. In addition to receiving upfront payments, we may also be entitled to milestone and other contingent payments upon achieving predefined objectives. Such payments are recorded as revenue when we achieve the underlying milestone if there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved.

The following table summarizes our revenue for the three months and nine months ended September 30, 2013 and 2012.

                                            THREE MONTHS              NINE MONTHS
                                               ENDED                     ENDED
                                           SEPTEMBER 30,             SEPTEMBER 30,
       (In thousands)                     2013        2012         2013         2012
       GSK:
       Recognition of upfront payment   $    493     $   493     $  1,478     $  1,478
       Milestone revenue                      -        5,000           -        10,000

       GSK total                             493       5,493        1,478       11,478

       Bayer:
       Recognition of upfront payment      2,439       2,250        7,317        6,250
       Milestone revenue                  10,000          -        10,000           -

       Bayer total                        12,439       2,250       17,317        6,250

       Grant revenue                          -           -            -            22

       Total revenue                    $ 12,932     $ 7,743     $ 18,795     $ 17,750

We expect that any revenue we generate will fluctuate from period to period as a result of the timing and amount of milestones and other payments from our collaborations with GSK and Bayer or any new collaboration we may enter into, and any new government grants that we may receive in the future.

Research and Development

Research and development expenses represent costs incurred to conduct research such as the discovery and development of clinical candidates for GSK and Bayer as well as discovery and development of our proprietary unpartnered product candidates. We expense all research and development costs as they are incurred. Our research and development expenses consist of employee salaries and related benefits, including stock-based compensation, third-party contract costs relating to research, manufacturing, preclinical studies, clinical trial activities, laboratory consumables, and allocated facility costs.

At any point in time, we typically have various early stage research and drug discovery projects. Our internal resources, employees and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding these costs incurred for these early stage research and drug discovery programs on a project-specific basis.


Table of Contents

The following table summarizes our research and development expenses for the three months and nine months ended September 30, 2013 and 2012. The internal costs include personnel, facility costs, laboratory consumables and discovery and research related activities associated with our pipeline. The external program costs reflect external costs attributable to our clinical development candidates and preclinical candidates selected for further development. Such expenses include third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities.

                                                THREE MONTHS              NINE MONTHS
                                                   ENDED                     ENDED
                                               SEPTEMBER 30,             SEPTEMBER 30,
                                              2013        2012         2013         2012
   Internal Costs:
   Cancer biology                           $  2,957     $ 2,484     $  7,615     $  7,812
   Molecular and cellular biology              1,603       1,670        4,764        4,929
   Process development and manufacturing       1,208       1,535        3,334        4,301
   Product development                         1,552         781        3,806        2,534
   Pathology and toxicology                      445         322        1,133          961

   Subtotal internal costs                     7,765       6,792       20,652       20,537

   External Program Costs:
   Manufacturing                               1,527         475        3,176        3,219
   Clinical                                    3,272       1,412        7,755        3,335
   Translational medicine                        529         430        1,265          833
   Toxicology                                     33         387          328        2,467

   Subtotal external program costs             5,361       2,704       12,524        9,854

   Total research and development expense   $ 13,126     $ 9,496     $ 33,176     $ 30,391

We expect our research and development expenses will increase in the future as we progress our unpartnered product candidates, conduct our development activities under our agreements with GSK and Bayer, advance our discovery research projects into the preclinical stage and continue our early stage research. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. We or our partners may never succeed in achieving marketing approval for any of our product candidates. The probability of success of each product candidate may be affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability. For the biologic programs covered under our strategic alliances with GSK and Bayer, we are responsible for development of each product candidate prior to the exercise of GSK's or Bayer's option to exclusively license such product candidate. GSK and Bayer may exercise such an option on a product-by-product basis during certain time periods through the end of Phase I or Phase II trials for a product candidate. If GSK exercises its option for a product candidate, all further development obligations for such product candidate are assumed by GSK. If Bayer exercises its option for a product candidate, all development obligations for such product candidate after such product candidate reaches a defined early development stage are assumed by Bayer.

Most of our product development programs are at an early stage; therefore, the successful development of our product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. Given the uncertainty associated with clinical trial enrollments and the risks inherent in the development process, we are unable to determine the duration and completion costs of current or future clinical trials of our product candidates or if and to what extent we will generate revenues from the commercialization and sale of any of our product candidates. We anticipate that we and our strategic alliance partners will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate, as well as an ongoing assessment as to each product candidate's commercial potential. We will need to raise additional capital or may seek additional strategic alliances in the future in order to complete the development and commercialization of our product candidates.


Table of Contents

General and Administrative

Our general and administrative expenses consist primarily of personnel costs, allocated facilities costs and other expenses for outside professional services, including legal, human resource, audit, tax and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. We expect to incur additional expenses as a result of being a public company following the completion of our IPO in July 2013, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC. In addition, we expect to incur increased expenses related to additional insurance, investor relations and other increases related to needs for additional human resources and professional services with being a public company.

Interest and Other Income (Expense), net

Interest income consists primarily of interest received on our cash, cash equivalents and short-term investments balances.

Other income (expense) primarily includes gains and losses from the remeasurement of our liabilities related to our convertible preferred stock warrants. We recorded adjustments to the estimated fair value of the convertible preferred stock warrants until they were converted upon the completion of the IPO into warrants exercisable for common stock. At that time, the convertible preferred stock warrant liability was reclassified to additional paid-in capital and we no longer record any related periodic fair value adjustments.

Critical Accounting Polices and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant and material changes in our critical accounting policies during the three and nine months ended September 30, 2013, as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in the Prospectus.

Results of Operations

Comparison of the Three Months Ended September 30, 2013 and 2012



                                                     THREE MONTHS
                                                        ENDED                DOLLAR
                                                    SEPTEMBER 30,            CHANGE
     (In thousands)                               2013          2012
     Revenue:
     Collaboration revenue-related party        $    493      $  5,493      $ (5,000 )
     Collaboration revenue                        12,439         2,250        10,189

     Total revenue                                12,932         7,743         5,189
     Operating expenses:
     Research and development                     13,126         9,496         3,630
     General and administrative                    3,175         1,915         1,260

     Total operating expenses                     16,301        11,411         4,890

     Loss from operations                         (3,369 )      (3,668 )         299
     Interest and other income (expense), net       (117 )          13          (130 )

     Net loss                                   $ (3,486 )    $ (3,655 )    $    169


Table of Contents

Revenue

Total revenue for the three months ended September 30, 2013 was $12.9 million, an increase of $5.2 million, or 67%, compared to total revenue of $7.7 million for the three months ended September 30, 2012. This increase is mainly due to collaboration revenue from Bayer that resulted from achievement of a $10.0 million development milestone for dose escalation of vantictumab (OMP-18R5) in Phase Ia as well as agreement on the Phase Ib trial design in August 2013. This increase is partially offset by the decrease in collaboration revenue-related party under the GSK agreement that resulted from the achievement of $5.0 million of development milestones in 2012 related to the IND filing for the anti-Notch1 (OMP-54M51) program.

Research and Development

Research and development expenses were $13.1 million for the three months ended September 30, 2013, an increase of $3.6 million, or 38%, compared to research and development expenses of $9.5 million for the three months ended September 30, 2012. The increase was comprised of a $2.7 million increase in our external program costs and a $0.9 million increase in our internal program cost.

The increase in our external program costs of $2.7 million was primarily due to an increase of $1.9 million in clinical costs resulting from higher patient enrollment for various programs and an increase of $1.0 million manufacturing costs primarily due to the production of vantictumab (OMP-18R5) manufacturing runs. These increases were partially offset by a decrease of $0.2 million in toxicology studies primarily related to the anti-Notch1 (OMP-52M51) program.

The increase in our internal costs of $0.9 million was primarily due to an increase of $1.0 million in personnel costs due to an increase in headcount as well as a bonus payment and option awards and an increase of $0.1 million in facility and office related expenses. These increases were partially offset by a decrease of $0.2 million in contracted services.

General and Administrative

General and administrative expenses were $3.2 million for the three months ended September 30, 2013, an increase of $1.3 million, or 65%, compared to general and administrative expenses of $1.9 million for the three months ended September 30, 2012. The increase is primarily due to higher employee related costs of $0.7 million due to a bonus payment and option awards, higher legal fees of $0.1 million, and higher consulting fees from third party vendors of $0.3 million.

Interest and Other Income (Expense), net

Interest and other income (expense), net was $(117,000) for the three months ended September 30, 2013, a change of ($130,000), compared to interest and other income, net of $13,000 for the three months ended September 30, 2012. The change was primarily due to the increase in the fair value of the convertible preferred stock warrant liability in 2013.

Comparison of the Nine Months Ended September 30, 2013 and 2012



                                                    NINE MONTHS
                                                ENDED SEPTEMBER 30,          DOLLAR
   (In thousands)                               2013           2012          CHANGE
   Revenue:
   Collaboration revenue-related party        $   1,478      $  11,478      $ (10,000 )
   Collaboration revenue                         17,317          6,250         11,067
   Grant revenue                                     -              22            (22 )

   Total revenue                                 18,795         17,750          1,045
   Operating expenses:
   Research and development                      33,176         30,391          2,785
   General and administrative                     7,111          5,391          1,720

   Total operating expenses                      40,287         35,782          4,505

   Loss from operations                         (21,492 )      (18,032 )       (3,460 )
   Interest and other income (expense), net        (235 )           92           (327 )

   Net loss                                   $ (21,727 )    $ (17,940 )    $  (3,787 )


Table of Contents

Revenue

Total revenue for the nine months ended September 30, 2013 was $18.8 million, an increase of $1.0 million, or 6%, compared to total revenue of $17.8 million for the nine months ended September 30, 2012. This increase is mainly due to collaboration revenue from Bayer that resulted from achievement of a $10.0 million development milestone for dose escalation of vantictumab (OMP-18R5) in Phase Ia as well as agreement on the Phase Ib trial design in August 2013. In addition, there was an increase of $1.0 million in collaboration revenue related to the amortization of a $5.0 million payment from Bayer for the Fzd8-Fc (OMP-54F28) program received at the signing of an amendment in August 2012.

The increases were offset by the decrease in collaboration revenue-related party under the GSK agreement that resulted from the achievement of two development milestones in 2012. The first was a $5.0 million development milestone related to the proof-of-principle for the anti-Notch2/3 (OMP-59R5) program and the second was a $5.0 million development milestone related to the IND filing for the anti-Notch 1 (OMP-52M51) program.

Research and Development

Research and development expenses were $33.2 million for the nine months ended September 30, 2013, an increase of $2.8 million, or 9%, compared to research and development expenses of $30.4 million for the nine months ended September 30, 2012. The increase was comprised of a $0.1 million increase in our internal costs and a $2.7 million increase in our external program costs.

The increase in our internal costs of $0.1 million was primarily due to an increase of $1.4 million in personnel costs due to an increase in headcount as well as a bonus payment and option awards. This increase was partially offset by a decrease of $0.8 million in contracted services and a decrease of $0.5 million in lab supplies and reagent related expenses.

The increase in our external program costs of $2.7 million was primarily due to an increase of $4.5 million in clinical costs resulting from higher patient enrollment for various programs in 2013 compared to 2012. These increases were partially offset by a $1.8 million decrease in costs for toxicology studies primarily related to the anti-Notch1 (OMP-52M51) program.

General and Administrative

General and administrative expenses were $7.1 million for the nine months ended September 30, 2013, an increase of $1.7 million, or 32%, compared to general and administrative expenses of $5.4 million for the nine months ended September 30, 2012. The increase was due to higher employee related costs of $0.8 million from a bonus payment and option awards, higher legal fees of $0.5 million, and higher consulting fees from third party vendors of $0.3 million.

Interest and Other Income (Expense), net

Interest and other income (expense), net was $(235,000) for the nine months ended September 30, 2013, a change of ($327,000) compared to interest and other income, net of $92,000 for the nine months ended September 30, 2012. The change was primarily due to an increase in the fair value of the convertible preferred stock warrant liability in 2013.

Liquidity and Capital Resources

As of September 30, 2013, we had cash, cash equivalents, and short term investments totaling $128.6 million. In connection with our IPO that closed in July 2013, we received cash proceeds of $82.7 million, net of underwriters' discounts and commissions and expenses paid by the Company. Prior to the IPO, we funded our operations primarily with cash flows from the sales of our convertible preferred stock in private placements and from the upfront and milestone payments and other collaboration related payments received under the GSK and Bayer collaborative arrangements.

Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.


Table of Contents

We believe that our existing cash, cash equivalents and short-term investments as of September 30, 2013, along with the net proceeds from the IPO, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

Our future capital requirements are difficult to forecast and will depend on many factors, including: . . .

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