10-Q
Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
  
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2016
 
OR
o
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: 001-36783
 
 
BELLICUM PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter) 
 
Delaware
 
2836
 
20-1450200
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)
 
2130 W. Holcombe Blvd., Ste. 800
Houston, TX 77030
(832) 384-1100
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
 
 
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    x   No    o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes    x   No    o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
 
 
Accelerated filer
x
 
 
 
 
 
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
 
Smaller reporting company
o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes    o   No   x
As of April 29, 2016, there were 26,984,725 outstanding shares of Bellicum’s common stock, par value, $0.01 per share.


Table of Contents

TABLE OF CONTENTS
 

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2
Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
 

Bellicum Pharmaceuticals, Inc.
 Balance Sheets
(In thousands, except share and par value amounts)


 
March 31, 2016
 
December 31, 2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
61,790

 
$
70,241

Investment securities, available for sale - short-term
46,482

 
23,820

Accounts receivable, interest and other receivables
361

 
440

Prepaid expenses and other current assets
2,268

 
2,389

Total current assets
110,901

 
96,890

Investment securities, available for sale - long-term
43,536

 
56,304

Property and equipment, net
8,731

 
6,882

Other assets
346

 
330

TOTAL ASSETS
$
163,514

 
$
160,406

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,774

 
$
2,106

Accrued expenses and other current liabilities
5,369

 
5,080

Current portion of capital lease obligation
15

 
13

Current portion of deferred rent
246

 
246

Total current liabilities
7,404

 
7,445

Long-term liabilities:
 
 
 
Long-term debt
14,829

 
—

Capital lease obligation
132

 
118

Deferred rent and other liabilities
783

 
826

TOTAL LIABILITIES
23,148

 
8,389

Commitments and contingencies: (Note: 9)

 

Stockholders’ equity:

 
 
Preferred stock: $0.01 par value; 10,000,000 shares authorized: no shares issued and outstanding
—

 
—

Common stock, $0.01 par value; 200,000,000 shares authorized at March 31, 2016 and December 31, 2015, respectively; 27,652,387 shares issued and 26,974,924 shares outstanding at March 31, 2016; 27,609,344 shares issued and 26,931,881 shares outstanding at December 31, 2015
277

 
276

Treasury stock: 677,463 shares held at March 31, 2016 and December 31, 2015
(5,056
)
 
(5,056
)
Additional paid-in capital
321,768

 
318,591

Accumulated other comprehensive loss
(56
)
 
(302
)
Accumulated deficit
(176,567
)
 
(161,492
)
Total stockholders’ equity
140,366

 
152,017

Total liabilities and stockholders’ equity
$
163,514

 
$
160,406

 

See accompanying notes, which are an integral part of these unaudited financial statements.

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Bellicum Pharmaceuticals, Inc.
 Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)

(Unaudited) 

 


 
Three months ended March 31,
 
2016
 
2015
REVENUES
 
 
 
Grants
$
92

 
$
107

Total revenues
92

 
107

OPERATING EXPENSES
 
 
 
Research and development (includes share-based compensation of $1,386 and $599 for the three months ended March 31, 2016 and 2015, respectively)
10,988

 
5,718

General and administrative (includes share-based compensation of $1,679 and $890 for the three months ended March 31, 2016 and 2015, respectively)
4,284

 
2,197

Total operating expenses
15,272

 
7,915

Loss from operations
(15,180
)
 
(7,808
)
OTHER INCOME (EXPENSE):
 
 
 
Interest income
227

 
50

Interest expense
(122
)
 
—

Total other income
105

 
50

NET LOSS
$
(15,075
)
 
$
(7,758
)
 
 
 
 
Net loss per common share attributable to common shareholders, basic and diluted
$
(0.56
)
 
$
(0.30
)
Weighted-average shares outstanding, basic and diluted
26,882,526

 
26,259,392

 
 
 
 
Net loss
$
(15,075
)
 
$
(7,758
)
Other comprehensive loss:
 
 
 
Unrealized gain on investment securities
246

 
—

Comprehensive loss
$
(14,829
)
 
$
(7,758
)
 

See accompanying notes, which are an integral part of these unaudited financial statements.


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Bellicum Pharmaceuticals, Inc.
Statements of Cash Flows
(In thousands)
(Unaudited)
 
 


Three months ended March 31,

2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net loss
$
(15,075
)
 
$
(7,758
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Share-based compensation
3,065

 
1,489

Depreciation expense
463

 
196

Amortization of premium on investment securities, net
184

 
—

Amortization of lease liability
(43
)
 
(17
)
Amortization of deferred financing costs
28

 
—

Changes in operating assets and liabilities:
 
 
 
Receivables
79

 
204

Prepaid expenses and other current assets
105

 
91

Accounts payable
(332
)
 
(94
)
Accrued liabilities and other
289

 
(1,136
)
NET CASH USED IN OPERATING ACTIVITIES
(11,237
)

(7,025
)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
     Purchase of investment securities
(21,015
)
 
—

     Proceeds from sale of investment securities
11,183

 
—

     Purchases of property and equipment
(2,293
)
 
(933
)
CASH USED IN INVESTING ACTIVITIES
(12,125
)
 
(933
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
     Proceeds from exercise of stock options
113

 
2

     Payment of issuance costs on common stock
—

 
(8
)
     Payment on capital lease obligation
(3
)
 
—

     Payment of debt issuance costs
(199
)
 
—

     Proceeds from line of credit or notes payable or debt
15,000

 
—

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
14,911

 
(6
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(8,451
)
 
(7,964
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
70,241

 
191,602

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
61,790

 
$
183,638

SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
Interest paid on capital lease obligation
$
9

 
$
—

NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
     Capital lease obligation incurred for property and equipment
$
19

 
$
—

     Accrued liabilities for purchase of property and equipment
$
560

 
$
—

     Accrued issuance costs for long-term debt
$
1,216

 
$
—

 

See accompanying notes, which are an integral part of these unaudited financial statements.

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Bellicum Pharmaceuticals, Inc.
 
Notes to Unaudited Financial Statements

NOTE 1 - ORGANIZATION AND BUSINESS DESCRIPTION
 
Bellicum Pharmaceuticals, Inc., the Company or Bellicum, was incorporated in Delaware in July 2004 and is based in Houston, Texas. The Company is a clinical stage biopharmaceutical company focused on discovering and developing novel cellular immunotherapies for various forms of cancer, including both hematological cancers and solid tumors, as well as orphan inherited blood disorders. The Company is devoting substantially all of its present efforts to developing next-generation product candidates in some of the most important areas of cellular immunotherapy, including, hematopoietic stem cell transplantation, CAR-T and TCR cell therapy. The Company has not generated any revenue from product sales to date and does not anticipate generating revenues from product sales in the foreseeable future.

The Company is subject to risks common to companies in the biotechnology industry and the future success of the Company is dependent on its ability to successfully complete the development of, and obtain regulatory approval for, its product candidates, manage the growth of the organization, obtain additional financing necessary in order to develop launch and commercialize its product candidates, and compete successfully with other companies in its industry.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and following the requirements of the U.S. Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been omitted. In management’s opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position and its results of operations and its cash flows for the periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2015 (the Annual Report). A copy of the Annual Report is available on the SEC’s website, www.sec.gov, under the Company’s ticker symbol “BLCM” or on Bellicum’s website, www.bellicum.com. The results for the interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period. Any reference in these footnotes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).

Use of Estimates
The preparation of the financial statements in accordance with GAAP requires management to make certain estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. Actual results could differ from those estimates.
Net Loss and Net Loss per Share of Common Stock Attributable to Common Stockholders
Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period without consideration for common stock equivalents. Diluted net loss per share of common stock is the same as basic net loss per share of common stock, since the effects of potentially dilutive securities are antidilutive. The following outstanding shares of common stock equivalents were excluded from the computations of diluted net loss per shares of common stock attributable to common stockholders for the periods presented, as the effect of including such securities would be anti-dilutive.  
 
As of March 31,
Common Stock Equivalents:
2016
 
2015
 
Number of shares
Warrants to purchase common stock
—

 
355,392

Unvested shares of restricted stock
88,236

 
117,647

Options to purchase common stock
4,467,412

 
3,443,011

 
4,555,648

 
3,916,050



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Investment Securities
Consistent with its investment policy, the Company invests its cash allocated to fund its short-term liquidity requirements with prominent financial institutions in bank depository accounts and institutional money market funds and the Company invests the remainder of its cash in corporate debt securities and municipal bonds rated at least A quality or equivalent, U.S. Treasury notes and bonds and U.S. and state government agency-backed securities.
The Company determines the appropriate classification of investment securities at the time of purchase and reevaluates its classification as of each balance sheet date. All investment securities owned during the three months ended March 31, 2016, were classified as available-for-sale. The cost of securities sold is based on the specific identification method. Investment securities are recorded as of each balance sheet date at fair value, with unrealized gains and, to the extent deemed temporary, unrealized losses included in stockholders’ equity. Interest and dividend income on investment securities, accretion of discounts and amortization of premiums and realized gains and losses are included in interest income in the Statements of Operations and Comprehensive Income Loss.
An investment security is considered to be impaired when a decline in fair value below its cost basis is determined to be other than temporary. The Company evaluates whether a decline in fair value of an investment security is below its cost basis and is other than temporary using available evidence. In the event that the cost basis of the investment security exceeds its fair value, the Company evaluates, among other factors, the amount and duration of the period that the fair value is less than the cost basis, the financial health of and business outlook for the issuer, including industry and sector performance, and operational and financing cash flow factors, overall market conditions and trends, the Company’s intent to sell the investment security and whether it is more likely than not the Company would be required to sell the investment security before its anticipated recovery. If a decline in fair value is determined to be other than temporary, the Company records an impairment charge in the statement of comprehensive income (loss) and establishes a new cost basis in the investment.
Debt Issuance Costs
Costs related to debt issuance are presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts.
Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases.” ASU 2016-01 requires companies that lease assets to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The pronouncement will also require additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. Management is currently evaluating the impact of this pronouncement on the Company’s statements.

In March 2016, the FASB issued ASU No. 2016-09, "Compensation-Stock Compensation." ASU 2016-09 simplifies accounting for share-based compensation arrangements, primarily as it relates to accounting for the income tax effects of share-based compensation. Under the pronouncement, an entity can make an entity-wide accounting policy decision to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures as they occur. The pronouncement is effective for annual periods beginning after December 31, 2016, and interim periods within those annual periods. Earlier application is permitted in any interim or annual period. The Company does not believe the adoption of this standard will have a material impact on the Company's financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.”  ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  During the three months ended March 31, 2016, the Company adopted ASU No. 2015-03.
The Company has evaluated other recent accounting pronouncements and believes that none of them will have a material effect on the Company’s financial statements.


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NOTE 3 - FAIR VALUE MEASUREMENTS AND INVESTMENT SECURITIES
 
Fair Value Measurement
The Company follows ASC, Topic 820, Fair Value Measurements and Disclosures, or ASC 820, for application to financial assets. ASC 820 defines fair value, provides a consistent framework for measuring fair value under GAAP and requires fair value financial statement disclosures. ASC 820 applies only to the measurement and disclosure of financial assets that are required or permitted to be measured and reported at fair value under other ASC topics (except for standards that relate to share-based payments such as ASC Topic 718, Compensation – Stock Compensation).
The valuation techniques required by ASC 820 may be based on either observable or unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, and unobservable inputs reflect the Company’s market assumptions.
These inputs are classified into the following hierarchy:
Level 1 Inputs – quoted prices (unadjusted) in active markets for identical assets that the reporting entity has the ability to access at the measurement date;
Level 2 Inputs – inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly; and
Level 3 Inputs – unobservable inputs for the assets.

The following tables present the Company’s investment securities (including, if applicable, those classified on the Company’s balance sheet as cash equivalents) that are measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015, respectively:
 
 
 
Fair Value Measurements at Reporting Date
 
Balance at
March 31, 2016
 
Quoted prices in active
markets for identical
assets (Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant unobservable
inputs (Level 3)
 
(in thousands)
Cash Equivalents:
 
 
 
 
 
 
 
Money market funds
$
54,891

 
$
54,891

 
$
—

 
$
—

Total Cash Equivalents
$
54,891

 
$
54,891

 
$
—

 
$
—

 
 
 
 
 
 
 
 
Investment Securities:
 
 
 
 
 
 
 
U.S. government agency-backed securities
$
33,984

 
$
—

 
$
33,984

 
$
—

Corporate debt securities
51,852

 
—

 
51,852

 
—

Municipal bonds
4,182

 
—

 
4,182

 
—

Total Investment Securities
$
90,018

 
$
—

 
$
90,018

 
$
—



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Fair Value Measurements at Reporting Date
 
Balance at
December 31, 2015
 
Quoted prices in active
markets for identical
assets (Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant unobservable
inputs (Level 3)
 
(in thousands)
Cash Equivalents:
 
 
 
 
 
 
 
Money market funds
$
52,714

 
$
52,714

 
$
—

 
$
—

U.S. government agency-backed securities
9,500

 
 
 
9,500

 
 
Total Cash Equivalents
$
62,214

 
$
52,714

 
$
9,500

 
$
—

 
 
 
 
 
 
 
 
Investment Securities:
 
 
 
 
 
 
 
U.S. government agency-backed securities
$
22,388

 
$
—

 
$
22,388

 
$
—

Corporate debt securities
51,547

 
—

 
51,547

 
—

Municipal bonds
6,189

 
—

 
6,189

 
—

Total Investment Securities
$
80,124

 
$
—

 
$
80,124

 
$
—


Corporate debt securities and municipal bonds are valued based on various observable inputs such as benchmark yields, reported trades, broker/dealer quotes, benchmark securities and bids.

Investment securities, all classified as available-for-sale, consisted of the following as of March 31, 2016:

 
March 31, 2016
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Aggregate Estimated Fair Value
 
(in thousands)
Investment Securities:
 
U.S. government agency-backed securities
$
33,981

 
$
15

 
$
(12
)
 
$
33,984

Corporate debt securities
51,916

 
48

 
(112
)
 
51,852

Municipal bonds
4,177

 
6

 
(1
)
 
4,182

Total Investment Securities
$
90,074

 
$
69

 
$
(125
)
 
$
90,018


The Company's investment securities as of March 31, 2016, will reach maturity between April 2016 and July 2026, with a weighted-average maturity date in May 2017.

Management believes that the carrying value of the debt facility approximates its fair value, as the Company's debt facility bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics. The fair value of the Company's debt facility is determined under Level 2 in the fair value hierarchy.


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NOTE 4 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued liabilities and other liabilities consist of the following:
 
March 31, 2016
 
December 31, 2015
 
(in thousands)
Accrued manufacturing costs
$
3,062

 
$
2,412

Accrued payroll
465

 
1,332

Accrued medical facility fees
146

 
282

Accrued patient treatment costs
235

 
333

Accrued property and equipment purchases
560

 
—

Accrued other
901

 
721

Total accrued expenses
$
5,369

 
$
5,080


NOTE 5 - DEBT

On March 10, 2016 (the Closing Date), the Company, entered into a Loan and Security Agreement (the Loan Agreement) with Hercules Capital, Inc. (Hercules), as agent and a lender, Hercules Technology II, L.P., as a lender, and Hercules Technology III, L.P., as a lender, under which the Company borrowed $15.0 million on the Closing Date and may borrow an additional $5.0 million on or prior to September 15, 2016. Subject to the terms and conditions of the Loan Agreement, including approval by Hercules’ investment committee and the Company’s achievement of specified milestones in the Loan Agreement (the Milestones), the Company may borrow an additional $10.0 million through March 15, 2017. The Company intends to use the proceeds received under the Loan Agreement for funding the build-out of our manufacturing facilities and general corporate purposes.
The interest rate will be calculated at a rate equal to the greater of either (i) 9.35% plus the prime rate as reported in The Wall Street Journal minus 3.50%, and (ii) 9.35%.  Payments under the Loan Agreement are interest only for 18 months from the Closing Date, extendable to 24 months upon the Company achieving the Milestones. The interest only period will be followed by equal monthly payments of principal and interest amortized over a 30 months schedule through the maturity date of March 1, 2020 (the “Loan Maturity Date”); provided that if the Milestones are achieved, the Company will make equal monthly payments of principal and interest amortized over a 24 months schedule through the Loan Maturity Date. The remaining principal balance will be due and payable on the Loan Maturity Date.  In addition, upon the Loan Maturity date or such earlier date specified in the Loan Agreement, a final payment equal to $1,216,250 (the Final Facility Charge), plus, subject to and contingent on the funding of the additional $5.0 million loan advance, $173,750; plus, subject to and contingent on the funding of the additional $10.0 million loan advance, $695,000. The Company’s obligations under the Loan Agreement are secured by a security interest in substantially all of its assets, other than its intellectual property.
If the Company prepays the loan, including interest, prior to December 31, 2016, there will be no prepayment penalty. If the Company prepays the loan, including interest, after January 1, 2017 but prior to the date that is 24 months following the Closing Date, it will pay Hercules a prepayment charge based on a prepayment fee equal to 2.00% of the amount prepaid; if the prepayment occurs thereafter, it will pay Hercules a prepayment charge based on a prepayment fee equal to 1.00% of the amount prepaid. The prepayment charge is also applicable upon the occurrence of a change of control of the Company. In addition to a prepayment charge, if any, the Company will pay Hercules the Final Facility Charge.
The Loan Agreement includes customary affirmative and restrictive covenants, but does not include any financial maintenance covenants, and also includes standard events of default, including payment defaults. Upon the occurrence of an event of default, a default interest rate of an additional 5% may be applied to the outstanding loan balance and Hercules may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement.
The Company paid expenses related to the Loan Agreement of $199,000, which, along with the Final Facility Charge of $1,216,250, have been recorded as deferred financing costs, which offset long-term debt on the Company's balance sheet. Deferred financing costs of $1,415,250 will be amortized over the term of the loan, and included in interest expense. During the three months ended March 31, 2016, interest expense included $28,000 of amortized deferred financing costs.

NOTE 6 - SHARE-BASED COMPENSATION


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At March 31, 2016, the Company had share-based awards outstanding under four share-based compensation plans as follows:

The 2006 Stock Option Plan (the 2006 Plan) provided for the issuance of non-qualified stock options to employees, including officers, non-employee directors and consultants to the Company. As of March 31, 2016, 151,410 shares of common stock were reserved for issuance pursuant to outstanding options previously granted under the 2006 Plan to purchase common stock of the Company. The 2006 Plan was terminated by the Board in October 2014.
The 2011 Stock Option Plan (the 2011 Plan) provided for the issuance of incentive and non-qualified stock options to employees, including officers, non-employee directors and consultants to the Company. As of March 31, 2016, 2,211,515 shares of common stock were reserved for issuance pursuant to outstanding options previously granted under the 2011 Plan to purchase common stock of the Company. The 2011 Plan terminated upon the effectiveness of the 2014 Plan described below.
The 2014 Equity Incentive Plan (the 2014 Plan) became effective in December 2014, upon the closing of the Company's initial public offering. The 2014 Plan provides for the issuance of equity awards, including incentive and non-qualified stock options and restricted stock awards to employees, including officers, non-employee directors and consultants to the Company or its affiliates. The 2014 Plan also provides for the grant of performance cash awards and performance-based stock awards. The aggregate number of shares of common stock that are authorized for issuance under the 2014 Plan is 2,990,354 shares, plus any shares subject to outstanding options that were granted under the 2011 Plan or 2006 Plan that are forfeited, terminated, expired or are otherwise not issued.
The 2014 Employee Stock Purchase Plan (the ESPP) provides for eligible Company employees, as defined by the ESPP, to be given an opportunity to purchase our common stock at a discount, through payroll deductions, with stock purchases being made upon defined purchase dates. The ESPP authorizes the issuance of up to 550,000 shares of our common stock, pursuant to purchase rights granted to our employees. No shares were purchased under the ESPP during the periods presented.

A summary of activity within the ESPP follows:
 
Three months ended March 31,
 
2016
 
2015
 
(in thousands)
Deductions from employees
$
98

 
$
101

Share-based compensation expense recognized
$
65

 
$
—

Remaining share-based compensation expense
$
180

 
$
—


The Company granted options to purchase 895,124 shares of its common stock during the three months ended March 31, 2016.
The fair value of the option grants during the three months ended March 31, 2016 and 2015 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
 
Three months ended March 31,
 
2016
 
2015
Expected volatility
72.1
%
 
91.2
%
Expected term (in years)
6.08

 
6.08

Risk-free interest rate
1.87
%
 
1.60
%
Expected dividend yield
—
%
 
—
%

At March 31, 2016, there was $34.4 million of unrecognized compensation expense related to unvested stock options and stock that is expected to be recognized over a weighted-average period of 3.0 years.

During the three months ended March 31, 2016 and 2015, the Company received cash proceeds from the exercise of stock options of approximately $113,000 and $2,000, respectively. The aggregate intrinsic value of options exercised during the three months ended March 31, 2016 and 2015 was $0.7 million and $0.1 million, respectively.


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The following table summarizes the stock option activity for all stock plans during the three months ended March 31, 2016:
 
Options
 
Weighted-
Average
Exercise
Price
Per Share
 
(in years)
Weighted-
Average
Contractual
Life
 
(in thousands)
Aggregate
Intrinsic
 Value (1)
Outstanding at December 31, 2015
3,628,973

 
$
10.32

 
8.03
 
$
39,021

Granted
895,124

 
$
18.41

 
 
 
 
Exercised
(43,043
)
 
$
2.63

 
 
 
 
Canceled or forfeited
(13,642
)
 
$
15.83

 
 
 
 
Outstanding at March 31, 2016
4,467,412

 
$
12.00

 
8.20
 
$
11,492

Exercisable at March 31, 2016
1,922,004

 
$
6.14

 
6.92
 
$
9,880

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the common stock for the options that were in the money at March 31, 2016.

At March 31, 2016 and December 31, 2015, there were 88,236 shares of unvested common stock outstanding.

NOTE 7 - GRANT REVENUE
NIH Grant
During both 2015 and 2016, the Company was awarded $0.3 million, under grants from the National Institutes of Health (NIH). The awards cover the period from April 2015 through March 2017. The awards were made pursuant to the authority of 42 USC 241 42 CFR 52, and are subject to the requirements of the statute. Funds spent on the grant are reimbursed through monthly reimbursement requests. Funds spent under the grant were approximately $0.1 million in the three month periods ended March 31, 2016 and 2015. As of March 31, 2016 and December 31, 2015, the Company had a receivable of $25,200 and $57,000, respectively, pursuant to the grants.

NOTE 8 - LICENSE AGREEMENTS

License Agreements - Baylor

In March 2016, the Company and Baylor College of Medicine (BCM) entered into two additional license agreements pursuant to which the Company obtained exclusive rights to technologies and patent rights owned by BCM. The Company paid BCM a non-refundable license fee of $0.1 million, and could incur additional payments upon the achievement of certain milestone events as set forth in the agreement. If the Company is successful in developing any of the licensed technologies, resulting sales would be subject to a royalty payment in the low single digits.

NOTE 9 - COMMITMENTS AND CONTINGENCIES
Litigation
The Company, from time to time, may be involved in litigation relating to claims arising out of its ordinary course of business. Management believes that there are no material claims or actions pending or threatened against the Company.



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Item 2.          Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015, or our Annual Report, as well as our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q, or this Quarterly Report.

Forward-Looking Statements

This report contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipate,” “believe,” “could,” “designed,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “project," “will," “would," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part I, Item 1A, “Risk Factors” in our Annual Report and in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.
Overview
We are a clinical stage biopharmaceutical company focused on discovering and developing novel cellular immunotherapies for various forms of cancer, including both hematological cancers and solid tumors, as well as orphan inherited blood disorders. We are using our proprietary Chemical Induction of Dimerization, or CID, technology platform to engineer and then control components of the immune system in real time. By incorporating our CID platform, our product candidates may offer better safety and efficacy outcomes than are seen with current cellular immunotherapies.

We are developing next-generation product candidates in some of the most important areas of cellular immunotherapy, including hematopoietic stem cell transplantation, or HSCT, chimeric antigen receptor T cell therapy, or CAR-Ts, and T cell receptors, or TCRs. HSCT, also known as bone marrow transplantation, has for decades been curative for many patients with hematological cancers or orphan inherited blood disorders. However, adoption of HSCT to date has been limited by the risks of transplant-related morbidity and mortality from graft-versus-host-disease, or GvHD, and the potential for serious infections due to the lack of an effective immune system following a transplant. CAR-T and TCR cell therapies are an innovative approach in which a patient’s T cells are genetically modified to carry chimeric antigen receptors, or CARs, or TCRs which redirect the T cells against cancer cells. While high objective response rates have been reported in some hematological malignancies, serious and sometimes fatal toxicities have arisen in patients treated with CAR-T cell therapies. These toxicities include instances in which the CAR-T cells have caused high levels of cytokines due to over-activation, referred to as “cytokine release syndrome”, frequent transient neurologic toxicities and cases in which they have attacked healthy organs as well as the targeted tumor, sometimes resulting in death. In solid tumors, where the behavior of CAR-T cells is particularly unpredictable and results have been inconsistent, researchers are developing enhanced CAR-T cell approaches called “armored CARs” that raise even greater safety concerns. 

Our proprietary CID platform is designed to address these challenges. Events inside a cell are controlled by cascades of specialized signaling proteins. CID consists of molecular switches, modified forms of these signaling proteins, which are triggered inside the patient by infusion of a small molecule, rimiducid, instead of by natural upstream signals. We include these molecular switches in the appropriate immune cells and deliver the cells to the patient in the manner of conventional cellular immunotherapy. We have developed two such switches: a “safety switch,” designed to initiate programmed cell death, or apoptosis, of the immunotherapy cells, and an “activation switch,” designed to stimulate activation and in some cases proliferation of the immunotherapy cells. Each of our technologies incorporates one of these switches, for enhanced, real time control of safety and efficacy:

•
CaspaCIDe is our safety switch, incorporated into our HSCT, and in certain of our CAR-T or TCR, product candidates, where it is inactive unless the patient experiences a serious side effect. In that event, rimiducid is

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administered to fully or partially eliminate the cells, with the goal of terminating or attenuating the therapy and resolving the serious side effect.

•
CIDeCAR consists of CAR-T cells modified to include the signaling domains of two proteins, MyD88 and CD40. Together, these form our proprietary dual co-stimulatory domain, or MC, which is designed to activate T cells. Incorporation of CaspaCIDe in a CIDeCAR product candidate is intended to allow the enhanced potency of MC co-stimulation to be deployed safely in patients.

•
GoCAR-T consists of CAR-T cells that are modified to include MC. In contrast to CIDeCAR, MC is structured in GoCAR-T as a rimiducid-driven molecular switch, separate from the chimeric antigen receptor. GoCAR-T is designed to allow control of the activation and proliferation of the CAR-T cells through the scheduled administration of a course of rimiducid infusions that may continue until the desired patient outcome is achieved. In the event of emergence of side effects, the level of activation of the GoCAR-T cells is designed to be attenuated by extending the interval between rimiducid doses and/or reducing the dosage per infusion.

By incorporating our novel switch technologies, we are developing product candidates with the potential to elicit positive clinical outcomes and ultimately change the treatment paradigm in various areas of cellular immunotherapy. Our lead clinical product candidate is described below.

•
BPX-501. We are developing a CaspaCIDe product candidate, BPX-501, as an adjunct T-cell therapy administered after allogeneic HSCT. BPX-501 is designed to improve transplant outcomes by enhancing the recovery of the immune system following an HSCT procedure. BPX-501 addresses the risk of infusing donor T cells by enabling the elimination of donor T cells through the activation of the CaspaCIDe safety switch if there is an emergence of uncontrolled GvHD.

In addition, our preclinical product candidates are designed to overcome the current limitations of CAR-T and TCR therapies and include the following:

•
BPX-701 is a CaspaCIDe-enabled natural high affinity T cell receptor, or TCR, product candidate designed to target malignant cells expressing the preferentially-expressed antigen in melanoma, or PRAME. Initial planned indications for BPX-701 development are Refractory or Relapsed Acute Myeloid Leukemia, or AML, and Myelodysplastic Syndromes, or MDS, with an additional study planned for metastatic uveal melanoma. Each of these is an orphan indication where PRAME is highly expressed and for which current treatment options are limited.


•
BPX-601 is a GoCAR-T product candidate containing our proprietary iMC, inducible MyD88/CD40, activation switch, designed to treat solid tumors expressing prostate stem cell antigen, or PSCA. Preclinical data shows enhanced T-cell proliferation, persistence and in vivo anti-tumor activity compared to traditional CAR T therapies. The initial planned indication for BPX-601 development is non-resectable pancreatic cancer.

•
BPX-401 is a CIDeCAR product candidate incorporating our proprietary MC co-stimulatory domain and the CaspaCIDe safety switch, designed to target blood cancers expressing CD19.
On January 11, 2016, we submitted required documentation, including clinical trial protocols, for BPX-701 and BPX-601 for review by the National Institutes of Health, or NIH, Recombinant DNA Advisory Committee (RAC). Public review of those programs occurred at the RAC Meeting on March 9, 2016.
We expect to file Investigational New Drug Applications, or INDs, for our three most advanced CAR T and TCR adoptive cell therapy product candidates. INDs for BPX-601 and BPX-701 are expected to be filed during the first half of 2016 and for BPX-401 during the second half of the year. Our IND-enabling activities for each of these preclinical product candidates include manufacturing key components and developing a robust process to produce cell products that comply with regulations of the FDA and other regulatory agencies. We have developed an efficient and scalable process to manufacture genetically modified T cells of high quality. This process is currently being implemented by our third-party contract manufacturers to produce BPX-501 for our clinical trials. We expect to leverage this process, as well as our resources, capabilities and expertise for the manufacture of our CAR-T and TCR product candidates. We expect to begin enrolling patients in Phase 1 trials of BPX-701 and BPX-601 in mid-2016 and BPX-401 in the second half of 2016.

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Recent Developments
On March 10, 2016, or the Closing Date, we entered into a Loan and Security Agreement, or the Loan Agreement, with Hercules Capital, Inc., or Hercules, as agent and a lender, Hercules Technology II, L.P., as a lender, and Hercules Technology III, L.P., as a lender, under which we borrowed $15.0 million on the Closing Date and may borrow an additional $5.0 million on or prior to September 15, 2016. Subject to the terms and conditions of the Loan Agreement, including approval by Hercules’ investment committee and our achievement of specified milestones in the Loan Agreement, we may borrow an additional $10.0 million through March 15, 2017. We intend to use the proceeds received under the Loan Agreement for funding the build-out of our manufacturing facilities and for general corporate purposes.
On February 22, 2016, the Company announced that the FDA granted orphan drug designation for the combination of BPX-501 genetically modified T cells and activator agent rimiducid as "replacement T-cell therapy for the treatment of immunodeficiency and graft versus host disease after allogeneic hematopoietic stem cell transplant." BPX-501 is an adjunct T-cell therapy incorporating the Company's proprietary CaspaCIDe safety switch.

Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires us to make judgments, estimates and assumptions in the preparation of our financial statements and accompanying notes. Actual results could differ from those estimates. We believe there have been no material changes in our critical accounting policies as discussed in our Annual Report.


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Financial Operations Overview
Financial Operations Overview
Revenues
To date, we have only recognized revenue from government grants and we have not generated any product revenue. We have received funds from the National Institutes of Health, or NIH, which was awarded based on the progress of the program being funded. In cases when the grant money is not received until expenses for the program are incurred, we accrue the revenue based on the costs incurred for the programs associated with the grant.
During 2013, we entered into a grant agreement with the NIH. The grant is a modular five year grant with funds being awarded each year based on the progress of the program being funded. Grant money is not received until expenses for the program are incurred. We have been awarded approximately $1.0 million to date, of which $0.9 million has been received. We accrue the revenue based on the costs incurred for the programs associated with the grant.
In the future, we may generate revenue from a combination of product sales, government or other third-party grants, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, milestone and other payments, and the amount and timing of payments that we receive upon the sale of our products, to the extent any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval of them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
Research and Development Expenses
To date, our research and development expenses have related primarily to the development of our CID platform and the identification and development of our product candidates. Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits for research and development employees and consultants, facilities expenses, overhead expenses, cost of laboratory supplies, manufacturing expenses, fees paid to third parties and other outside expenses.
Research and development costs are expensed as incurred. Clinical trial and other development costs incurred by third parties are expensed as the contracted work is performed. We accrue for costs incurred as the services are being provided by monitoring the status of the clinical trial or project and the invoices received from our external service providers. We adjust our accrual as actual costs become known. Where contingent milestone payments are due to third parties under research and development arrangements, the milestone payment obligations are expensed when the milestone events are achieved.
We utilize our research and development personnel and infrastructure resources across several programs, and many of our costs are not specifically attributable to a single program. Accordingly, we cannot state precisely our total costs incurred on a program-by-program basis.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase over the next several years as we seek to conduct our ongoing and planned clinical trials for BPX-501, BPX-401, BPX-601 and BPX-701 and as we selectively develop additional product candidates. However, it is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates.
The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:
•
per patient clinical trial costs;
•
the number of patients that participate in the clinical trials;
•
the number of sites included in the clinical trials;
•
the process of collection, differentiation, selection and expansion of immune cells for our cellular immuno-therapies;
•
the countries in which the clinical trials are conducted;

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•
the length of time required to enroll eligible patients;
•
the number of doses that patients receive;
•
the drop-out or discontinuation rates of patients;
•
potential additional safety monitoring or other studies requested by regulatory agencies;
•
the duration of patient follow-up; and
•
the efficacy and safety profile of the product candidates.
In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the ongoing scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential.
General and administrative expenses
General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in executive, finance, accounting, business development, legal and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to corporate matters, insurance costs and professional fees for consultancy, legal, accounting, audit and investor relations.
We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities, potential commercialization of our product candidates and the increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with NASDAQ listing rules and SEC requirements, insurance and investor relations costs.

Income Taxes

We did not recognize any income tax expense for the three months ended March 31, 2016 or 2015.

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Results of Operations

Comparison of the Three Months Ended March 31, 2016 and 2015
The following table sets forth our results of operations for the three months ended March 31, 2016 and 2015:
 
Three Months Ended March 31,
 
2016
 
2015
 
Change

(in thousands)
Grant revenues
$
92

 
$
107

 
$
(15
)
Operating expenses:
 
 
 
 
 
Research and development
10,988

 
5,718

 
5,270

General and administrative
4,284

 
2,197

 
2,087

Total operating expenses
15,272

 
7,915

 
7,357

Loss from operations
(15,180
)
 
(7,808
)
 
(7,372
)
Other income (expense):
 
 
 
 
 
Interest income
227

 
50

 
177

Interest expense
(122
)
 
—

 
(122
)
Total other income (expense)
105

 
50

 
55

Net loss
$
(15,075
)
 
$
(7,758
)
 
$
(7,317
)
Research and Development Expenses
Research and development expenses were $11.0 million and $5.7 million for the three months ended March 31, 2016 and March 31, 2015, respectively. The $5.3 million increase in research and development expenses for the three months ended March 31, 2016, was due to an increase in clinical and manufacturing costs of $2.3 million related to BPX-501, primarily due to increased patient enrollment in our clinical trials. The higher research and development expenses were also due to an increase of $1.0 million for IND enabling activities on our product candidates, BPX-601, BPX-701 and BPX-401, plus an increase of $2.0 million of general research and development costs, which includes an increase of $1.6 million in research and development personnel costs, $0.6 million in allocated overhead costs and a decrease of $0.2 million in other costs.
The following table presents our research and development expense by project/category for the periods indicated:

Three Months Ended March 31,
Product Candidates
2016
 
2015
 
Change
 
(in thousands)
BPX-401
$
176

 
$
—

 
$
176

BPX-501
5,058

 
2,745

 
2,313

BPX-601
589

 
—

 
589

BPX-701
212

 
—

 
212

General
4,953

 
2,973

 
1,980

Total
$
10,988

 
$
5,718

 
$
5,270

General and Administrative Expenses
General and administrative expenses were $4.3 million for the three months ended March 31, 2016 and $2.2 million for the three months ended March 31, 2015. The $2.1 million increase in G&A expenses for the 2016 period was primarily due to our overall

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growth, including an increase of $1.4 million in costs related to personnel, of which $0.8 million was attributable to share based compensation expense, higher facility costs and increased legal, accounting and travel expenses.
Liquidity and Capital Resources
Sources of Liquidity
We are a clinical stage biopharmaceutical company with a limited operating history. To date, we have financed our operations primarily through equity and debt financings and grants. We have not generated any revenue from the sale of any products. As of March 31, 2016 and December 31, 2015, we had cash, cash equivalents and investment securities of $151.8 million and $150.4 million, respectively. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.
On March 10, 2016, we entered into a term loan arrangement with Hercules Capital, Inc. as agent and lender, and borrowed $15.0 million on the closing date. We have the ability to borrow another $5.0 million on or prior to September 15, 2016, and, subject to the achievement of specified milestones in the loan agreements and approval by the loan committee, may borrow another $10 million through March 15, 2017. We intend to use the proceeds to fund the build-out of our manufacturing facilities, and for general corporate purposes.
We will make monthly interest only payments through September 2017. The interest only feature can be extended for an additional six months if we achieve the specified milestones. After the expiration of the interest only period, we will repay the loan over the remaining term of the loan, through its final maturity date of March 1, 2020.
We incurred issuance costs of $0.2 million, and have accrued an additional $1.2 million for a facility charge which is payable at the earlier of the repayment of the loan in full or the final maturity date. The $1.4 million debt issuance costs will be recognized over the term of the loan as additional interest expense.
We will pay interest on the loan at the greater of either (i) 9.35% plus the prime rate as reported in the Wall Street Journal minus 3.5% and (ii) 9.35%. For additional information about the loan, see Note 5 - Debt to the unaudited financial statements included herein.
Cash Flows
The following table sets forth a summary of our cash flows for the three months ended March 31, 2016 and 2015:
 
Three Months Ended March 31,
 
2016
 
2015
 
Change
 
(in thousands)
Net cash used in operating activities
$
(11,237
)
 
$
(7,025
)
 
$
(4,212
)
Net cash used in investing activities
(12,125
)
 
(933
)
 
(11,192
)
Net cash provided by (used in) financing activities
14,911

 
(6
)
 
14,917

Net change in cash and cash equivalents
$
(8,451
)
 
$
(7,964
)
 
$
(487
)
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2016 was comprised of a net loss of $15.1 million, which included depreciation expense of $0.5 million and share-based compensation expense of $3.1 million. Net cash used in operating activities was also comprised of the following primary components: a decrease in receivables of $0.1 million and a decrease in prepaid expenses and other assets of $0.1 million.
Net cash used in operating activities for the three months ended March 31, 2015, was comprised of a net loss of $7.8 million, which included depreciation expense of $0.2 million and share-based compensation expense of $1.5 million. Net cash used in operating activities was also comprised of the following primary components: a decrease in receivables of $0.2 million, a decrease in other assets of $1.0 million and a decrease in accounts payable and other liabilities of $1.3 million.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2016 was $12.1 million, consisting of the purchase of investment securities of $21.0 million, offset by the proceeds from sale of investment securities of $11.2 million and the purchase of property and equipment of $2.3 million. Net cash used in investing activities for the three months ended March 31, 2015 consisted of $0.9 million, which was derived solely from the purchase of property and equipment.

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Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2016 was $14.9 million, which was derived from borrowings on long-term debt of approximately $15.0 million, payment of debt issuance costs of approximately $0.2 million, and $0.1 million of proceeds from the exercise of stock options. Net cash provided by financing activities for the three months ended March 31, 2015 was $6,000, which was derived from $2,000 of proceeds from exercise of stock options, offset by $8,000 of expenses related to our December 2014 initial public offering.
Funding Requirements
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses, facility costs and general overhead costs. In addition, we expect to use capital to expand our manufacturing capabilities.
The successful development of any of our product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the development of BPX-501 or our other current and future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of product candidates. This is due to the numerous risks and uncertainties associated with developing medical treatments, including, but not limited to, the uncertainty of:
•
successful enrollment in, and completion of, clinical trials;
•
receipt of marketing approvals from applicable regulatory authorities;
•
making arrangements with third-party manufacturers;
•
obtaining and maintaining patent and trade secret protection and regulatory exclusivity;
•
launching commercial sales of our products, if and when approved, whether alone or in collaboration with others; and
•
market acceptance of our products, if and when approved.
A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate.
Because all of our product candidates are in the early stages of clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements.
We plan to continue to fund our operations and capital funding needs through equity and/or debt financing. We may also consider new collaborations or selectively partnering our technology. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our existing stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms unfavorable to us. Any of these actions could harm our business, results of operations and future prospects.

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Outlook
Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our cash and cash equivalents as of March 31, 2016 will enable us to fund our operating expenses and capital expenditure requirements through 2017. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Furthermore, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements will depend on many factors, as we:
•
initiate or continue clinical trials of BPX-501, BPX-701, BPX-601 and BPX-401, and any other product candidates;
•
continue the research and development of our product candidates; seek to discover additional product candidates; seek regulatory approvals for our product candidates if they successfully complete clinical trials;
•
establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any products that may receive regulatory approval; enhance operational, financial and information management systems and hire additional personnel, including personnel to support development of our product candidates and, if a product candidate is approved, our commercialization efforts; and
•
incur additional costs associated with being a public company.


Contractual Obligations and Commitments

Our contractual obligations as of March 31, 2016 were as follows:

 
Commitment
 
Less Than 1 Year
 
1 to 3 Years
 
3 to 5 Years
 
More Than 5 Years
 
 
(in thousands)
License agreements (1)
 
$
140,236

 
$
1,858

 
$
6,361

 
$
19,695

 
$
112,322

Operating lease agreements (2)
 
7,953

 
1,868

 
3,877

 
2,208

 
—

Manufacturing arrangements (3)
 
4,935

 
4,769

 
166

 
—

 
—

Toxicology studies (4)
 
1,648

 
1,648

 
—

 
—

 
—

Equipment lease agreements (5)
 
267

 
50

 
99

 
99

 
19

Sponsored research agreements (6)
 
235

 
122

 
113

 
—

 
—

Other
 
1,688

 
1,688

 
—

 
—

 
—

Total contractual obligations
 
$
156,962

 
$
12,003

 
$
10,616

 
$
22,002

 
$
112,341


(1)
License agreements - We have entered into several license agreements under which we obtained rights to certain intellectual property. Under the agreements, we could be obligated for payments upon successful completion of clinical and regulatory milestones regarding the products covered by this license. The obligations listed in the table above represent estimates of when the milestones will be achieved. We cannot assure that the timing of the milestones will be completed when estimated or at all.

(2)
Operating lease agreements - The amounts above are comprised of two five-year lease agreements. The first lease will expire on January 31, 2020 and the second lease expires on August 31, 2020.

(3)
Manufacturing arrangements - We have entered into several manufacturing service arrangements with various terms. The obligations listed in the table above represent estimates of when certain services will be performed.

(4)
Toxicology studies - We have entered into several toxicology arrangements with various terms. The obligations listed in the table above represent estimates of when certain services will be performed.


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(5)
Capital lease agreements - We have entered into several office capital lease agreements with various terms. The commitments include equipment, maintenance and supplies.

(6)
Sponsored research agreements - During 2015, we entered into two separate sponsored research agreements to undertake research which is of mutual interest to all parties. One agreement includes a commitment over 14 months and the other includes a commitment over a three-year period.

Recent Accounting Pronouncements
See Note 2 to the Notes to Unaudited Financial Statements in "Item 1 - Financial Statements" in this Quarterly Report for discussion regarding recent accounting pronouncements.


Off-Balance Sheet Arrangements
 
During the periods presented, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.


Item 3. Quantitative and Qualitative Disclosures about Market Risks
 
The primary objective of our investment activities is to preserve our capital and meet our liquidity needs to fund operations. We also seek to generate competitive rates of return from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of cash equivalents and investments in a variety of securities that are of high credit quality based on ratings from commonly relied upon rating agencies. As of March 31, 2016, we had cash, cash equivalents and investment securities of $151.8 million. Our cash, cash equivalents and investments in investment securities may be subject to interest rate risk and could fall in value if market interest rates increase. However, because our cash is invested in accounts with market interest rates and because our cash equivalents and investments in investment securities are traded in active markets, we believe that our exposure to interest rate risk is not significant and estimate that an immediate and uniform 10% increase in market interest rates from levels as of March 31, 2016 would not have a material impact on the total fair value of our portfolio.

We sometimes contract for the conduct of clinical trials or other research and development and manufacturing activities with contract research organizations, clinical trial sites and contract manufacturers in Europe, and in the future potentially elsewhere outside of the United States. We may be subject to exposure to fluctuations in foreign currency exchange rates in connection with these agreements. If the average exchange rate between the currency of our payment obligations under any of these agreements and the U.S. dollar were to strengthen or weaken by 10% against the corresponding exchange rate as of March 31, 2016, we estimate that the impact on our financial position, results of operations and cash flows would not be material. We do not hedge our foreign currency exposures.

We have not used derivative financial instruments for speculation or trading purposes.

Item 4. Controls and Procedures
 
Management’s Evaluation of our Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial and Accounting Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31, 2016. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2016, our

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Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our latest fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Our business and results of operations are subject to a number of risks and uncertainties. You should carefully consider the risk factors described under the heading “Risk Factors” in our Annual Report and in other reports we file with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

Use of Proceeds from Initial Public Offering of Common Stock

On December 23, 2014, we completed the initial public offering of our common stock pursuant to a registration statement on Form S-1(File Nos. 333-200328 and 333-201031), which was declared effective by the SEC on December 17, 2014.

As of March 31, 2016, we have used the net offering proceeds from our initial public offering to fund operations, capital expenditures, working capital and other general corporate purposes and for debt repayment. We are holding the balance of the net proceeds from the offering in cash, cash equivalents and investment securities. There has been no material change in our planned use of the balance of the net proceeds from the offering described in our final prospectus filed with the SEC on December 17, 2014 pursuant to Rule 424(b) under the Securities Act.

Purchase of Equity Securities

We did not purchase any of our registered securities during the period covered by this Quarterly Report.

Item 6. Exhibits
 
The exhibits filed as part of this Quarterly Report are set forth on the Exhibit Index, which is incorporated herein by reference.

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Signatures
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 

 
Bellicum Pharmaceuticals, Inc.
 
 
 
Date: May 9, 2016
By:
/s/ Thomas J. Farrell
 
 
Thomas J. Farrell
 
 
President and Chief Executive Officer
 
 
 
Date: May 9, 2016
By:
/s/ Alan A. Musso
 
 
Alan A. Musso
 
 
Chief Financial Officer and Treasurer
Principal Financial and Accounting Officer


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EXHIBIT INDEX
Exhibit
number
 
Description of exhibit
 
 
 
3.1(1)
 
Amended and Restated Certificate of Incorporation of the Registrant.
 
 
 
3.2(1)
 
Amended and Restated Bylaws of the Registrant.
 
 
 
4.1
 
Reference is made to Exhibits 3.1 and 3.2.
 
 
 
4.2(2)
 
Form of Common Stock Certificate of the Registrant.
 
 
 
4.3(2)
 
Second Amended and Restated Investor Rights Agreement by and among the Registrant and certain of its stockholders, dated August 22, 2014.
 
 
 
4.4(3)
 
Registration Rights Agreement by and among the Registrant and Baker Brothers Life Sciences, LP, and two of its affiliated funds, dated January 15, 2016.
 
 
 
10.1
 
Loan and Security Agreement by and between the Registrant and Hercules Capital, Inc., dated March 10, 2016.
 
 
 
31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 101.INS
 
XBRL Instance Document
 
 
 
 101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
 101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
   (1) Incorporated by reference to the Registrant's Current Report on Form 8-K, filed with the SEC on December 23, 2014.
   (2) Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 333-200328), as amended, originally filed
         with the SEC on November 18, 2014.
   (3) Incorporated by reference to the Registrant's Annual Report on Form 10-K, filed with the SEC on March 14, 2016.
 



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