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ARGS > SEC Filings for ARGS > Form 10-Q on 15-Aug-2016All Recent SEC Filings

Show all filings for ARGOS THERAPEUTICS INC

Form 10-Q for ARGOS THERAPEUTICS INC


15-Aug-2016

Quarterly Report


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

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes appearing in "Item 1. Financial Statements" in this Quarterly Report on Form 10-Q. In addition to historical information, some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, future financial performance, expense levels and liquidity sources, includes forward-looking statements that involve risks and uncertainties. You should read "Item 1A. Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are an immuno-oncology company focused on the development and commercialization of individualized immunotherapies for the treatment of cancer and infectious diseases based on our proprietary technology platform called Arcelis.

Our most advanced product candidate is AGS-003, which we are developing for the treatment of metastatic renal cell carcinoma, or mRCC, and other cancers. We are currently conducting a pivotal Phase 3 clinical trial of AGS-003 plus sunitinib or another targeted therapy for the treatment of newly diagnosed mRCC under a special protocol assessment, or SPA, with the Food and Drug Administration, or FDA. We refer to this trial as the ADAPT trial. We opened the ADAPT trial for enrollment in January 2013, dosed the first patient in May 2013 and completed enrollment of the trial in July 2015. Based upon the actual rate of enrollment and projected event rate as defined in the protocol, we anticipate having a sufficient number of events to permit the primary analysis and assessment of overall survival to occur in the first half of 2017. In June 2016, the independent data monitoring committee, or IDMC, for the ADAPT trial recommended that the ADAPT trial continue based on results of the IDMC's scheduled interim data review. We expect that the next IDMC meeting will occur in connection with the Genitourinary Cancers Symposium in February 2017. We are also supporting investigator-initiated Phase 2 trials in patients with early stage RCC and non-small cell lung cancer and plan to support investigator-initiated trials of AGS-003 in muscle invasive bladder cancer and in combination with checkpoint inhibitors in mRCC.

We are developing AGS-004, our second most advanced Arcelis-based product candidate, for the treatment of HIV. We have completed Phase 1 and Phase 2 trials funded by government grants and a Phase 2b trial that was funded in full by the National Institutes of Health, or NIH, and the National Institute of Allergy and Infectious Diseases, or NIAID, under a $39.8 million agreement. We are currently supporting an ongoing investigator-initiated clinical trial of AGS-004 in adult HIV patients evaluating the use of AGS-004 in combination with vorinostat, a latency reversing drug for HIV eradication, and plan to support an investigator-initiated Phase 2 clinical trial of AGS-004 evaluating AGS-004 for long-term viral control in pediatric patients.

We have devoted substantially all of our resources to our drug development efforts, including advancing our Arcelis platform, conducting clinical trials of our product candidates, protecting our intellectual property and providing general and administrative support for these operations. We have not generated any revenue from product sales and, to date, have funded our operations primarily through public offerings of our common stock and warrants, a venture loan, private placements of common stock, preferred stock and warrants, convertible debt financings, government contracts, government and other third party grants and license and collaboration agreements. From inception in May 1997 through June 30, 2016, we have raised a total of $443.8 million in cash, including:

$281.1 million from the sale of our common stock, convertible debt, warrants and preferred stock;

$32.9 million from the licensing of our technology;

$104.8 million from government contracts, grants and license and collaboration agreements; and

$25.0 million from our venture loan and security agreement, or the Loan Agreement, with Horizon Technology Finance Corporation and Fortress Credit Co LLC, or the Lenders.

On August 2, 2016, we issued and sold 9,090,909 shares of common stock and warrants to purchase an aggregate of 6,818,181 shares of common stock in an underwritten public offering at a price to the public of $5.50 per share and accompanying warrant. The shares of common stock and warrants were sold in combination, with one warrant to purchase up to 0.75 of a share of common stock accompanying each share of common stock sold. The warrants have an exercise price of $5.50 per share, became immediately exercisable upon issuance and will expire on August 2, 2021. The aggregate net proceeds to us of the offering were approximately $48.2 million after deducting underwriting discounts and commissions and estimated offering expenses.

We have incurred losses in each year since our inception in May 1997. Our net loss was $53.3 million for the year ended December 31, 2014, $74.8 million for the year ended December 31, 2015 and $25.4 million for the six months ended June 30, 2016. As of June 30, 2016, we had an accumulated deficit of $304.4 million. Substantially all of our operating losses have resulted from costs incurred in connection with our development programs and from general and administrative costs associated with our operations.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We anticipate that our expenses will increase substantially if and as we:

continue our ongoing ADAPT trial of AGS-003 for the treatment of mRCC;

continue to support ongoing investigator-initiated clinical trials of AGS-003 and AGS-004;

support planned investigator-initiated clinical trials of AGS-003 and AGS-004;

initiate and conduct additional clinical trials of AGS-003 and AGS-004 for the treatment of cancers and HIV;

seek regulatory approvals for our product candidates that successfully complete clinical trials;

lease, build out and equip a facility for the commercial manufacture of our products based on our Arcelis platform;

establish a sales, marketing and distribution infrastructure to commercialize products for which we may obtain regulatory approval;

maintain, expand and protect our intellectual property portfolio;

continue our other research and development efforts;

hire additional clinical, quality control, scientific and management personnel; and

add operational, financial and management information systems and personnel, including personnel to support our product development and planned commercialization efforts.

We have no external sources of funds other than our contract with the NIH and NIAID (as described below). We do not expect to generate significant additional funds or product revenue unless and until we successfully complete development, obtain marketing approval and commercialize our product candidates, either alone or in collaboration with third parties, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the commercialization of AGS-003, AGS-004 or any of our other product candidates. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our operating activities through a combination of equity offerings, debt financings, government contracts, government and other third party grants or other third party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds through these means when needed, on favorable terms or at all.

NIH Funding

In September 2006, we entered into a multi-year research contract with the NIH and NIAID to design, develop and clinically test an autologous HIV immunotherapy capable of eliciting therapeutic immune responses. We have used funds from this contract to develop AGS-004, including to fund in full our Phase 2b clinical trial of AGS-004. On June 29, 2016, a contract modification was agreed to that extended the NIH and NIAID's commitment under the contract to July 31, 2018. We have agreed to a statement of work under the contract, and are obligated to furnish all the services, qualified personnel, material, equipment, and facilities not otherwise provided by the U.S. government needed to perform the statement of work.

Under this contract, as amended, the NIH and NIAID have committed to fund up to a total of $39.8 million, including reimbursement of direct expenses and allocated overhead and general and administrative expenses of up to $38.4 million and payment of other specified amounts totaling up to $1.4 million upon our achievement of specified development milestones. This amount includes a September 2014 modification of the contract under which the NIH and NIAID agreed to fund up to an additional $500,000 to cover a portion of the manufacturing costs of the planned Phase 2 clinical trial of AGS-004 for long-term viral control in pediatric patients. The NIH's commitment under the contract extends to July 31, 2018. Since September 2010, we have received reimbursement of our allocated overhead and general and administrative expenses at provisional indirect cost rates equal to negotiated provisional indirect cost rates agreed to with the NIH and NIAID in September 2010. These provisional indirect cost rates are subject to adjustment based on our actual costs pursuant to the agreement with the NIH and NIAID and may result in additional payments to us from the NIH and NIAID to reflect our actual costs since September 2010.

We have recorded revenue of $37.7 million through June 30, 2016 under the NIH and NIAID contract. This contract is the only arrangement under which we have generated substantial revenue. As of June 30, 2016, there was up to $2.1 million of potential revenue remaining to be earned under the agreement with the NIH and NIAID.

Our Development Programs



The following table summarizes our development programs for AGS-003 and AGS-004.



Product Candidate        Primary                            Status
                       Indication
AGS-003             mRCC                   Ongoing ADAPT trial; enrollment completed
                                            in July 2015; data expected in the first
                                            half of 2017

                                           Planned investigator-initiated Phase 2
                                            clinical trial, in combination with
                                            checkpoint inhibitors, expected to open for
                                            enrollment by the end of 2016

                    Early stage            Ongoing investigator-initiated Phase 2
                    RCC (neoadjuvant)       clinical trial; initial data expected by
                                            the end of 2016

                    Advanced solid         Ongoing investigator-initiated Phase 2
                    tumors                  clinical trial in non-small cell lung
                                            cancer

                                           Planned investigator-initiated Phase 2
                                            clinical trial in muscle invasive bladder
                                            cancer, expected to open for enrollment in
                                            the second half of 2016

AGS-004             HIV                    Ongoing second stage of
                                            investigator-initiated clinical trial in
                                            combination with vorinostat for HIV
                                            eradication

                                           Planned investigator-initiated Phase 2
                                            clinical trial for long-term viral control
                                            in pediatric patients, expected to open for
                                            enrollment in 2017

We hold all commercial rights to AGS-003 and AGS-004 in all geographies other than rights to AGS-003 in Russia and the other states comprising the Commonwealth of Independent States, which we exclusively licensed to Pharmstandard International S.A., or Pharmstandard, rights to AGS-003 for the treatment of mRCC, in South Korea, which we exclusively licensed to Green Cross Corp., or Green Cross, and rights to AGS-003 in China, Hong Kong, Taiwan and Macau, which we exclusively licensed to Lummy (Hong Kong) Co. Ltd., or Lummy HK. We have granted to MEDcell Co., Ltd., a wholly-owned subsidiary of Medinet Co. Ltd., hereinafter referred to together as "Medinet," an exclusive license to manufacture in Japan AGS-003 for the treatment of mRCC.

AGS-003

We are developing AGS-003 for the treatment of mRCC and other cancers. We are currently conducting the ADAPT trial of AGS-003 plus sunitinib / targeted therapy for the treatment of newly diagnosed mRCC, versus sunitinib/targeted therapy alone, in a protocol developed under an SPA with the FDA. We opened the ADAPT trial for enrollment in January 2013 and dosed the first patient in May 2013. In July 2015 we completed enrollment in the trial, enrolling 462 patients with the goal of generating 290 events for the primary endpoint of overall survival. We enrolled these patients at 127 clinical sites in North America, Europe and Israel. Under the trial protocol, these patients were randomized between the AGS-003 plus sunitinib / targeted therapy combination arm and the sunitinib / targeted therapy alone control arm on a two-to-one basis. In June 2016, the IDMC for the ADAPT trial recommended that the ADAPT trial continue based on results of the IDMC's scheduled interim data review. We expect that the next IDMC meeting will occur in connection with the Genitourinary Cancers Symposium in February 2017. Based on internal projections, we believe that we have reached more than half of the targeted number of events for the ADAPT trial's overall survival primary endpoint. Based upon the actual rate of enrollment and the projected event rate as defined in the protocol, we anticipate having a sufficient number of events to permit the primary analysis and assessment of overall survival to occur in the first half of 2017.

In addition, in mRCC we plan to support an investigator-initiated clinical trial of AGS-003 in combination with checkpoint inhibitors that we expect will open for enrollment by the end of 2016.

We are also supporting an ongoing investigator-initiated Phase 2 clinical trial designed to evaluate neoadjuvant treatment with AGS-003 in patients with early stage, localized RCC prior to nephrectomy. This trial was opened for enrollment in late 2014 and four patients were enrolled as of June 30, 2016. We expect that a total of 10 patients will be enrolled in this trial. This trial provides the opportunity to observe the impact of AGS-003 on the immune response in both the peripheral blood and in the primary tumor that is removed after AGS-003 treatment, the latter as evidenced by the presence of tumor infiltrating lymphocytes in the tumor.

We believe that AGS-003 may be capable of treating a wide range of cancers and are planning to evaluate AGS-003 in clinical trials in additional cancer indications. We are supporting an investigator-initiated Phase 2 clinical trial of AGS-003 in patients with non-small cell lung cancer, or NSCLC, that was opened for enrollment in the first quarter of 2016. In the trial, the safety, efficacy and immunologic effects of AGS-003 when combined with platinum-based chemotherapy and radiation will be evaluated in approximately 20 NSCLC patients. In the trial, AGS-003 will be administered either concurrently with chemotherapy and with or without radiation, or sequentially with chemotherapy and with or without radiation, according to the patient's assigned treatment arm. We are conducting this trial in NSCLC patients because NSCLC is a tumor type reported to have a high number of mutated targets for the immune system, which could make it more susceptible to AGS-003's mechanism of action. We also believe platinum-based chemotherapy has immunomodulatory effects by downregulating immunosuppressive regulatory T-cells which may lead to an additive or synergistic effect with AGS-003.

We also plan to support an additional investigator-initiated Phase 2 clinical trial of AGS-003 in muscle invasive bladder cancer, which we expect to open for enrollment in the second half of 2016. The trial has two phases: a pre-treatment phase and a treatment phase. In the pre-treatment phase, tumor tissue will be obtained via a transurethral resection of the bladder tumor, which will then be used to extract RNA for the manufacture of AGS-003. In the treatment phase, AGS-003 will be given before tumor resection and combined with standard-of-care cytotoxic chemotherapy, consisting of cisplatin and gemcitabine. Booster doses of AGS-003 will continue after tumor resection. As with the neoadjuvant RCC trial, we expect that the trial will provide us with the opportunity to observe the impact of AGS-003 on the immune response in both the peripheral blood and the primary tumor, the latter as evidenced by the presence of tumor infiltrating lymphocytes in the tumor.

AGS-004

We are developing AGS-004 for the treatment of HIV and are focusing this program on the use of AGS-004 in combination with other therapies for the eradication of HIV. We believe that by combining AGS-004 with therapies that are being developed to expose the virus in latently infected cells to the immune system, we can potentially eradicate the virus. The current standard-of-care, antiretroviral drug therapy, or ART, can reduce levels of HIV in a patient's blood, increase the patient's life expectancy and improve the patient's quality of life. However, ART cannot eliminate the virus, which persists in latently infected cells, where it remains undetectable by the immune system and can lead to disease recurrence. In addition, ART requires daily, life-long treatment which can have significant side effects and impact patients' quality of life.

We are supporting an investigator-initiated clinical trial of AGS-004 in adult HIV patients to evaluate the use of AGS-004 in combination with the latency reversing drug vorinostat for the eradication of HIV at the University of North Carolina. Vorinostat is marketed under the name Zolinza by Merck & Co. Inc. for the treatment of cutaneous T-cell lymphoma. This trial is being conducted in two stages. Stage 1 of this trial, which was designed to study immune response kinetics to AGS-004 in patients on continuous ART, has been completed. Data from Stage 1 were used to better define the optimal dosing strategy for the combination of AGS-004 and vorinostat in the ongoing Stage 2 phase of this trial. We expect that up to 12 adult HIV patients will be studied in Stage 2. These patients will receive alternating courses of AGS-004 and vorinostat, and will continue ART throughout the study. In July 2016, the first patient in Stage 2 was dosed. The patient clinical costs for the first stage of this trial were funded by Collaboratory of AIDS Researchers for Eradication, or CARE. The second stage of the trial is being funded by a federal research grant from the Division of AIDS of the National Institute of Allergy and Infectious Diseases at NIH.

We also plan to explore the use of AGS-004 monotherapy to provide long-term control of HIV viral load in otherwise immunologically healthy patients and eliminate their need for ART. Accordingly, we plan to support an investigator-initiated Phase 2 clinical trial of AGS-004 monotherapy in pediatric patients infected with HIV who have otherwise healthy immune systems and have been treated with ART since birth or shortly thereafter and, as a result, are lacking the antiviral memory T-cells to combat the virus. The commencement of this trial is subject to approval of the protocol by the principal investigator(s), institutional review boards, the IMPAACT Network leadership and the FDA and to the agreement by the NIH to fund the trial costs not related to AGS-004 manufacturing. Assuming the supportive data and the necessary approvals are obtained, we expect this trial to open in 2017.

Manufacturing

We currently have manufacturing suites in our facility located at our corporate headquarters in Durham, North Carolina. We manufacture our Arcelis-based product candidates for research and development purposes and for clinical trials at this facility. In August 2014, we entered into a lease agreement with the developer, TKC LXXII, LLC, or TKC. Under the lease agreement, we agreed to lease certain land and an approximately 125,000 square-foot building to be constructed in Durham County, North Carolina, which we refer to as Centerpoint. We intended this facility to house our corporate headquarters and commercial manufacturing. The shell of the new facility was constructed on a build-to-suit basis in accordance with agreed upon specifications and plans and was completed in June 2015. However, the build-out and equipping of the interior of the facility have been suspended as we explore potential financing arrangements.

Under the lease agreement, we had an option to purchase the property. In February 2015, we exercised this purchase option and entered into a Purchase and Sale Agreement with TKC. The purchase price to be paid by us is $7.4 million plus the amount of any additional costs incurred by TKC as a result of changes requested by us, for which we have paid $1.7 million as of June 30, 2016, and the amount of any improvement allowances advanced to us by TKC prior to the closing. Under the terms of the Purchase and Sale Agreement, we had until February 16, 2016 to consummate the purchase of the property. However, on July 1, 2016, we and TKC amended the Purchase Agreement to extend the period for purchasing the property until September 23, 2016. If we purchase the property, the lease agreement will terminate upon the closing.

We are actively exploring financing arrangements in connection with the planned Centerpoint facility. Under the arrangements we are discussing with a real estate investment firm, we would expect to transfer our right to purchase Centerpoint to, and concurrently enter into a long-term lease with, the real estate investment firm. Under the terms of the proposed lease, both the real estate investment firm and we would provide funding for the build-out and equipping of approximately 41,000 square feet of life science manufacturing and laboratory space and 42,000 square feet of office and common area space. We expect that our share of the costs associated with the build-out and equipping of the facility would be approximately $11 million, in addition to the approximately $11 million we have committed to the project to date, and that the real estate investment firm's share of these costs would be approximately $28 million. We further expect that the lease would have a 20-year term, with five successive five-year renewal options, and an initial annual rental rate of $3.1 million, with a two percent escalation each year. In the event that the real estate investment firm contributes to the further build-out and equipping of the facility beyond the initial 83,000 square feet, the annual rental rate would be adjusted according to agreed upon terms. The real estate investment firm would be the sole owner of Centerpoint. We would retain certain rights of first negotiation and rights of first refusal in the event that the real estate investment firm decides to sell the property, and would receive a portion of the proceeds from any sale or significant refinancing of the facility above a threshold amount.

We are also exploring alternatives for the commercial supply of our products, including the leasing, build-out and equipping of an existing facility in Durham County, North Carolina for commercial manufacture. Under this alternative, we would enter into an agreement with a contract manufacturing organization that would initially provide for the leasing of the facility. Under this alternative, we would provide initial funding for the build-out and equipping of manufacturing space, with an additional payment due to the contract manufacturing organization upon biologic license application, or BLA, approval. Also under this alternative, we would be solely responsible for all manufacturing operations through the end of the first full year of commercialization efforts. Following the first full year of commercialization efforts, we would have the option to terminate for a fee or to continue the arrangement and transition the manufacturing operations from us to the contract manufacturing organization. The contract manufacturing organization would be the sole owner of the facility, and we would only pay rent during the period in which we would be solely responsible for manufacturing operations.

We expect that we will enter into arrangements for the commercial manufacture of our products in the second half of 2016. Under either alternative, we expect that it would take approximately nine to 12 months to complete the build-out and equipping of a commercial manufacturing facility and that such arrangements would likely involve material obligations. However, we have not entered into any binding arrangement with any party with respect to the lease, build-out and equipping of a manufacturing facility, and the contemplated arrangements described above have not been finalized and are subject to change. There can be no assurance that we will enter into arrangements on the terms contemplated, on a timely basis or at all.

We plan to establish manual and automated manufacturing processes in the commercial manufacturing facility. However, we have determined to delay the implementation of our automated manufacturing process until after commercialization of AGS-003, and thus plan to seek marketing approval of AGS-003 and, if approved, to initially commercially supply AGS-003 using our manual manufacturing process. Prior to implementing commercial manufacturing of AGS-003, we will be required to demonstrate that the commercial manufacturing facility is constructed and operated in accordance with current good manufacturing practice. We will also be required to show the comparability between AGS-003 that we produce using the manual processes in our current facility and AGS-003 produced using the manual process in the new facility.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2015 with the Three and Six Months Ended June 30, 2016

The following table summarizes the results of our operations for each of the three and six month periods ended June 30, 2015 and 2016, together with the changes in those items in dollars and as a percentage:

                                Three Months Ended                                     Six Months Ended
                                     June 30,                $            %                June 30,                 $            %
                                2015          2016         Change       Change        2015          2016         Change        Change
                                                                           (in thousands)
Revenue                      $     107     $     489     $    382         357 %    $     286     $     635     $     349         122 %
Operating expenses
Research and development        16,085         9,164       (6,921 )     (43.0 )%      30,852        18,666       (12,186 )     (39.5 )%
General and administrative       2,909         3,390          481        16.5 %        5,280         6,365         1,085        20.5 %

Total operating expenses        18,994        12,554       (6,440 )     (33.9 )%      36,132        25,031       (11,101 )     (30.7 )%

Loss from operations           (18,887 )     (12,065 )      6,822        36.1 %      (35,846 )     (24,396 )      11,450        31.9 %

. . .
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