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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-03-01 compared with 2020-02-27 · 3 added, 823 removed, 13 unchanged (98% of the section changed)

12 unchanged sentences

These securities are all classified as available-for-sale and consequently are recorded on the balance sheet at fair value, with unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss).

Our holdings of the securities of any one issuer, except obligations of the U.S.

Treasury or U.S.

Treasury-guaranteed securities, do not exceed 5% of our portfolio.

Financial Statemen ts and Supplementary Data

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the stockholders and the Board of Directors of Atara Biotherapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Atara Biotherapeutics, Inc.

and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2020 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases in 2019 due to adoption of Accounting Standards Update No.

2016-02, Leases (Topic 842) , using the optional transition method.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued Research and Development Expenses & Prepaid Research and Development Expenses (Clinical Trial Accrued and Prepaid Expenses) - Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company recognizes costs it incurs for preclinical studies, clinical trials, and manufacturing activities as research and development expenses based on its evaluation of its vendors’ progress toward completion of specific tasks.

Payment timing may differ significantly from the period in which the costs are recognized as expense.

Costs that are paid in advance are deferred as a prepaid expense and amortized over the service period as the services are provided.

Costs for services incurred that have not yet been be paid are recognized as accrued expenses.

In estimating the vendors’ progress toward completion of specific tasks, the Company uses data such as patient enrollment, clinical site activations or vendor information of actual costs incurred.

This data is obtained through reports from or discussions with Company personnel and outside service providers as to the progress or state of completion of trials, or the completion of services.

Given the number of ongoing preclinical study and clinical trial activities and the subjectivity involved in estimating clinical trial accrued and prepaid expenses, auditing the clinical trial accruals and prepaid expenses involved especially subjective judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to clinical trial accrued and prepaid expenses included the following, among others:

We tested the design and effectiveness of controls over the estimation of clinical trial accrued and prepaid expenses.

We obtained and read a sample of research, collaboration, and manufacturing agreements and contracts, as well as amendments thereto.

We evaluated publicly available information (such as press releases and investor presentations) and board of directors’ materials regarding the status of clinical trial and manufacturing activities.

For a sample of agreements and contracts, we compared the amount of accrual or prepaid expenses at the end of the prior period to current year activity and evaluated the accuracy of the Company’s estimation methodology.

We obtained a written confirmation of the ending inventory balance held at the Company’s manufacturing vendor.

We made selections of specific amounts recognized as research and development expense as well as those recognized as accrued and prepaid expenses to evaluate management’s estimate of the vendor’s progress and performed the following procedures:

Performed corroborating inquiries with Company clinical operations and manufacturing operations personnel.

Read the related statement of work, purchase order, or other supporting documentation (such as communications between the Company and vendors).

Evaluated management’s judgments compared to the evidence obtained.

Obtained the listing of all contracts related to research and development expenses to evaluate the completeness of accruals and prepaid expenses.

/s/ DELOITTE & TOUCHE LLP

San Jose, California

February 27, 2020

We have served as the Company’s auditor since 2013.

Atara Biotherapeutics, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

Current assets:

Cash and cash equivalents

Short-term investments

Restricted cash - short-term

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Operating lease assets

Restricted cash - long-term

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

Accrued compensation

Accrued research and development expenses

Other current liabilities

Total current liabilities

Operating lease liabilities - long-term

Other long-term liabilities

Total liabilities

Commitments and contingencies (Note 8)

Stockholders’ equity:

Common stock—$ 0.0001 par value, 500,000 shares authorized as of December 31,

2019 and 2018, respectively;

56,806 and 45,951 shares issued and outstanding

as of December 31, 2019 and 2018, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

Atara Biotherapeutics, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts)

Years Ended December 31,

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Interest and other income, net

Loss before provision for income taxes

Provision for (benefit from) income taxes

Other comprehensive gain (loss):

Unrealized gain (loss) on available-for-sale securities

Comprehensive loss

Net loss per common share:

Basic and diluted net loss per common share

Weighted-average shares outstanding used to calculate

basic and diluted net loss per common share

Atara Biotherapeutics, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

Comprehensive

Stockholders’

Income (Loss)

Balance as of January 1, 2017

Issuance of common stock through ATM facilities, net of

commissions and offering costs of $ 844

RSU settlements, net of shares withheld

Issuance of common stock pursuant to employee stock awards

Stock-based compensation expense

Unrealized gain on available-for-sale securities

Balance as of December 31, 2017

Issuance of common stock through underwritten offerings, net of

offering costs of $ 526

Issuance of common stock through ATM facilities, net of

commissions and offering costs of $ 1,310

RSU settlements, net of shares withheld

Issuance of common stock pursuant to employee stock awards

Stock-based compensation expense

Unrealized loss on available-for-sale securities

Balance as of December 31, 2018

Effect of the adoption of ASC topic 842 (Leases)

Balance as of January 1, 2019

Issuance of common stock and pre-funded warrants through

underwritten offering, net of offering costs of $284

Issuance of common stock through ATM facilities, net of

commissions and offering costs of $ 1,553

RSU settlements, net of shares withheld

Issuance of common stock pursuant to employee stock awards

Stock-based compensation expense

Unrealized gain on available-for-sale securities

Balance as of December 31, 2019

Atara Biotherapeutics, Inc.

Consolidated Statements of Cash Flows

(In thousands)

Year Ended December 31,

Operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation expense

Depreciation and amortization expense

(Accretion) amortization of investment (discounts) premiums

Loss on disposals of property and equipment

Non-cash operating lease expense

Non-cash interest expense

Asset retirement obligation accretion expense

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

Operating lease assets

Accounts payable

Accrued compensation

Accrued research and development expenses

Other current liabilities

Operating lease liabilities

Other long-term liabilities

Net cash used in operating activities

Investing activities

Purchases of short-term investments

Proceeds from maturities and sales of short-term investments

Purchases of property and equipment

Proceeds from sale of property and equipment

Net cash provided by (used in) investing activities

Financing activities

Proceeds from sale of common stock in underwritten offerings, net

Proceeds from issuance of common stock through ATM facilities, net

Proceeds from employee stock awards

Taxes paid related to net share settlement of restricted stock units

Principal payments on finance and capital lease obligations

Net cash provided by financing activities

Increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Non-cash investing and financing activities

Proceeds from issuance of common stock through ATM facilities received

subsequent to December 31, 2019

Property and equipment purchases included in accounts payable and other

accrued liabilities

Accrued costs related to underwritten public offering

Capitalized lease obligations

Property and equipment acquired under capital leases

Asset retirement costs

Interest capitalized during construction period for build-to-suit lease arrangement

Proceeds from options exercised received subsequent to December 31, 2017

Supplemental cash flow disclosure

Cash paid for interest

Cash paid for taxes

Atara Biotherapeutics, Inc.

Notes to Consolidated Financial Statements

Description of Business

Atara Biotherapeutics, Inc.

(“Atara”, “we”, “our” or “the Company”) was incorporated in August 2012 in Delaware .

Atara is a leading off-the-shelf, allogeneic T-cell immunotherapy company that is developing novel treatments for patients with cancer, autoimmune and viral diseases.

We have several T-cell immunotherapies in clinical development and are progressing a next-generation allogeneic chimeric antigen receptor T-cell (“CAR T”) program.

We have licensed rights to T-cell product candidates from Memorial Sloan Kettering Cancer Center (“MSK”), rights related to our next-generation CAR T programs from MSK and from Moffitt Cancer Center, and rights to know-how and technology from the Council of the Queensland Institute of Medical Research (“QIMR Berghofer”).

See Note 6 for further information.

Summary of Significant Accounting Policies

Basis of Presentation

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and follow the rules and regulations of the U.S.

Securities and Exchange Commission (“SEC”).

Principles of Consolidation

The consolidated financial statements include the accounts of Atara and our wholly owned subsidiaries.

All intercompany balances and transactions are eliminated in consolidation.

Segment and Geographic Information

We operate and manage our business as one operating and reportable segment, which is the business of developing and commercializing therapeutics.

Our Chief Executive Officer, who is our chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.

Substantially all of our assets are located in the U.S.

Liquidity Risk

We have incurred significant operating losses since inception and have relied on public and private equity financings to fund our operations.

As of December 31, 2019, we had an accumulated deficit of $ 818.0 million.

As we continue to incur losses, our transition to profitability will depend on the successful development, approval and commercialization of product candidates and on the achievement of sufficient revenues to support our cost structure.

We may never achieve profitability, and unless and until we do, we will need to continue to raise additional capital.

We expect that existing cash, cash equivalents and short-term investments as of December 31, 2019, together with net proceeds from the sale of common stock from our 2019 ATM Facility, as defined in Note 9, in January 2020, will be sufficient to fund our planned operations into the second quarter of 2021.

Concentration of Credit Risk and Other Uncertainties

We place cash and cash equivalents in the custody of financial institutions that management believes are of high credit quality, the amount of which at times, may be in excess of the amount insured by the Federal Deposit Insurance Corporation.

We also make short-term investments in money market funds;

Treasury, government agency and corporate debt obligations;

commercial paper;

certificates of deposit;

and asset-backed securities, which can be subject to certain credit risk.

However, we mitigate the risks by investing in high-grade instruments, limiting our exposure to any one issuer and monitoring the ongoing creditworthiness of the financial institutions and issuers.

We are subject to certain risks and uncertainties and believe that changes in any of the following areas could have a material adverse effect on future financial position or results of operations:

our ability to obtain future financing;

regulatory approval and market acceptance of, and reimbursement for, our product candidates, if approved by applicable regulatory authorities;

performance of third-party clinical research organizations and manufacturers upon which we rely;

development of sales channels;

protection of our intellectual property;

litigation or claims against us based on intellectual property, patent, product, regulatory or other factors;

and our ability to attract and retain employees necessary to support our growth.

Use of Estimates

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes.

Significant estimates relied upon in preparing these financial statements include estimates related to clinical study and other accruals, lease assets and liabilities, stock-based compensation expense and income taxes.

Actual results could differ materially from those estimates.

We determine if an arrangement is a lease at inception.

Operating leases are included in operating lease assets, other current liabilities, and operating lease liabilities on our consolidated balance sheets.

Leases with an initial term of 12 months or less are not recorded on the balance sheet;

we recognize lease expense for these leases on a straight-line basis over the lease term.

Finance leases are included in other assets, other current liabilities, and other long-term liabilities on our consolidated balance sheets.

Lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

The lease term includes renewal options that we are reasonably certain of exercising as of the commencement date.

None of the lease terms used to calculate the future minimum lease payments at commencement date include renewal options.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

The incremental borrowing rate for our leases is determined based on lease term and currency in which lease payments are made, adjusted for impacts of collateral.

Lease assets also includes any lease payments made and excludes lease incentives and initial direct costs incurred.

Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Finance lease assets are amortized over the shorter of the lease term or the asset’s estimated useful life.

Our facilities and equipment operating leases have lease and non-lease components and we have made a policy election to account for the lease and non-lease components as a single lease component.

Through December 31, 2018, the leases were reviewed for classification as operating, capital or build-to-suit leases.

For operating leases, rent was recognized on a straight-line basis over the lease period.

For capital leases, we recorded the leased asset with a corresponding liability for principal and interest.

Payments were recorded as reductions to these liabilities with interest being charged to interest expense in our consolidated statements of operations and comprehensive loss.

We analyzed the nature of the renovations and our involvement during the construction period of our manufacturing facility and determined that we were the deemed “owner” of the construction project during the construction period.

As a result, we were required to capitalize the fair value of the building as well as the construction costs incurred on our consolidated balance sheet along with a corresponding financing liability for landlord-paid construction costs (i.e.

“build-to-suit” accounting).

Once construction was complete, the Company considered the requirements for sale-leaseback accounting treatment, including evaluating whether all risks of ownership have been transferred back to the landlord, as evidenced by a lack of continuing involvement in the leased property.

Since the arrangement did not qualify for sale-leaseback accounting treatment, the building asset remained on the Company’s consolidated balance sheets at its historical cost, and such asset was depreciated over its estimated useful life.

The Company bifurcated its lease payments into a portion allocated to the building and a portion allocated to the parcel of land on which the building has been built.

The portion of the lease payments allocated to the land was treated for accounting purposes as operating lease payments, and therefore was recorded as rent expense in the consolidated statements of operations and comprehensive loss.

The portion of the lease payments allocated to the building was further bifurcated into a portion allocated to interest expense and a portion allocated to reduce the build-to-suit lease obligation.

The initial recording of these assets and liabilities were classified as non-cash investing and financing items, respectively, for purposes of the consolidated statements of cash flows.

The build-to-suit asset and corresponding lease obligation was derecognized upon adoption of the new lease standard as we did not control the building during the construction period.

Asset Retirement Obligations (“ARO”)

ARO are legal obligations associated with the retirement of long-lived assets pertaining to leasehold improvements.

These liabilities are initially recorded at fair value and the related asset retirement costs are capitalized by increasing the carrying amount of the related assets by the same amount as the liability.

Asset retirement costs are subsequently depreciated over the useful lives of the related assets.

Subsequent to initial recognition, the Company records period-to-period changes in the ARO liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows.

The Company derecognizes ARO liabilities when the related obligations are settled.

Foreign Currency

Transactions and monetary assets and liabilities that are denominated in a foreign currency are translated into U.S.

dollars at the current exchange rate on the transaction date and as of each balance sheet date, respectively, with gains or losses on foreign exchange changes recognized in interest and other income (expense), net in the consolidated statements of operations and comprehensive loss.

Foreign currency-denominated monetary assets and liabilities as of December 31, 2019 were not material.

Cash Equivalents and Short-Term Investments

Cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less at the date of purchase, and generally consist of money market funds, U.S.

Treasury, government agency and corporate debt obligations, and commercial paper.

Investments with original maturities of greater than 90 days are classified as short-term investments on the balance sheet, and consist primarily of U.S.

Treasury, government agency and corporate debt obligations, commercial paper and asset-backed securities.

As our entire investment portfolio is considered available for use in current operations, we classify all investments as available-for-sale and as current assets, even though the stated maturity may be more than one year from the current balance sheet date.

Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in accumulated other comprehensive loss, which is a separate component of stockholders’ equity in the consolidated balance sheet.

The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity, which are both recorded to interest and other income (expense), net in the consolidated statements of operations and comprehensive loss.

Changes in the fair value of available-for-sale securities impact the consolidated statements of operations and comprehensive loss only when such securities are sold or if an other-than-temporary impairment is recognized.

Realized gains and losses on the sale of securities are determined by specific identification of each security’s cost basis.

We regularly review our investment portfolio to determine if any security is other-than-temporarily impaired, which would require us to record an impairment charge in the period any such determination is made.

In making this judgment, we evaluate, among other things, the duration and extent to which the fair value of a security is less than its cost, the financial condition of the issuer and any changes thereto, our intent to sell, or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.

Our assessment on whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security.

Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities, if any, are recorded to interest and other income (expense), net in the statements of operations and comprehensive loss.

Fair Value Measurement

The carrying amounts of certain of our financial instruments including cash equivalents, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate fair value due to their short maturities.

Short-term investments are comprised of available-for-sale securities, which are carried at fair value.

Fair Value of Financial Instruments

Our financial assets are measured at fair value on a recurring basis using the following hierarchy to prioritize valuation inputs, in accordance with applicable GAAP:

Quoted prices in active markets for identical assets or liabilities that we have the ability to access

Observable market-based inputs or unobservable inputs that are corroborated by market data such as quoted prices, interest rates and yield curves

Inputs that are unobservable data points that are not corroborated by market data

We review the fair value hierarchy classification on a quarterly basis.

Changes in the ability to observe valuation inputs may result in a reclassification of levels of certain securities within the fair value hierarchy.

We recognize transfers into and out of levels within the fair value hierarchy in the period in which the actual event or change in circumstances that caused the transfer occurs.

There have been no transfers between Level 1, Level 2, and Level 3 in any periods presented.

Financial assets and liabilities are considered Level 2 when their fair values are determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities.

In addition, Level 2 financial instruments are valued using comparisons to like-kind financial instruments and models that use readily observable market data as their basis.

Treasury, government agency and corporate debt obligations, commercial paper and asset-backed securities are valued primarily using market prices of comparable securities, bid/ask quotes, interest rate yields and prepayment spreads and are included in Level 2.

Financial assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable.

We have no Level 3 financial assets or liabilities.

Property and Equipment, net

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, ranging from three to five years .

Costs incurred to acquire, construct or install property and equipment during the construction stage of a capital project or costs incurred to purchase and develop internal use software during the application development stage are recorded as construction in progress.

Leasehold improvements are amortized over the lesser of the life of the leasehold improvements or the lease term.

Maintenance and repairs are charged to operations as incurred.

Long-lived Assets

We evaluate the carrying amount of our long-lived assets whenever events or changes in circumstances indicate that the assets may not be recoverable.

An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount of the asset.

To date, there have been no such impairment losses.

Stock-Based Compensation Expense

We account for stock-based compensation expense, including the expense of restricted common stock awards (“RSAs”), grants of restricted stock units (“RSUs”), and stock options that may be settled in shares of our common stock, based on the fair values of the equity instruments issued.

The fair value is determined on the measurement date, which is generally the date of grant.

The fair value for our RSAs is their intrinsic value, which is the difference between the fair value of the underlying stock at the measurement date and the purchase price.

The fair value of our RSUs is the fair value of the underlying stock at the measurement date.

The fair value for our stock option awards is determined at the grant date using the Black-Scholes valuation model.

For awards with performance-based vesting criteria, we assess the probability of the achievement of the performance conditions at the end of each reporting period and recognize the share-based compensation costs when it becomes probable that the performance conditions will be met.

For awards that are subject to both service and performance conditions, no expense is recognized until it is probable that performance conditions will be met.

Stock-based compensation expense for awards with time-based vesting criteria is recognized as expense on a straight-line basis over the requisite service period.

Stock-based compensation expense for awards with performance and other vesting criteria is recognized as expense under an accelerated graded vesting model.

Key assumptions used in the Black-Scholes valuation model used for employee stock awards include:

Expected term – We derived the expected term using the “simplified” method (the expected term is determined as the average of the time-to-vesting and the contractual life of the options), as we have limited historical information to develop expectations about future exercise patterns and post vesting employment termination behavior.

Expected volatility – Expected volatility is estimated using comparable public companies’ volatility for similar terms.

Expected dividend – We have not historically declared or paid dividends to our stockholders and have no plans to pay dividends;

therefore, we assumed an expected dividend yield of 0 %.

Risk-free interest rate – The risk-free interest rate is based on the yield on U.S.

Treasury securities with the expected term of the associated award.

The fair value of our common stock is based on observable market prices.

We account for forfeitures of stock-based awards as they occur.

Research and Development Expense

Research and development expense consists of costs incurred in performing research and development activities, including compensation and benefits for research and development employees, including stock-based compensation;

expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical and preclinical studies;

the costs of acquiring and manufacturing clinical study materials and other supplies;

payments under licensing and research and development agreements;

other outside services and consulting costs, and an allocation of facility, information technology and overhead expenses.

Research and development costs are expensed as incurred.

Clinical Study Accruals

Costs for preclinical studies, clinical studies and manufacturing activities are recognized based on an evaluation of our vendors’ progress towards completion of specific tasks, using data such as patient enrollment, clinical site activations or information provided to us by our vendors regarding their actual costs incurred.

Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services are performed.

We determine accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of studies, or the services completed.

Our estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time.

Costs that are paid in advance of performance are deferred as a prepaid expense and amortized over the service period as the services are provided.

Defined Contribution Plan

We have one qualified 401(k) plan covering all eligible employees.

Under the plan, employees may contribute up to the statutory allowable amount for any calendar year.

Beginning in 2019, we make matching contributions, equal to 50 % of each dollar contributed up to the first 6 % of an individual’s eligible earnings, up to the annual IRS maximum.

For the year ended December 31, 2019, we recorded matching contributions of approximately $ 1.6 million.

Other Current Liabilities

Other current liabilities consisted of the following as of each period end:

(in thousands)

Accrued operating expenses

Current portion of operating lease liabilities

Current portion of finance and capital lease liabilities

Other accrued liabilities

Total other current liabilities

We use the asset and liability method to account for income taxes.

We record deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect when the differences are expected to reverse.

Valuation allowances are provided when necessary to reduce net deferred tax assets to the amount that is more likely than not to be realized.

Based on the available evidence, we are unable, at this time, to support the determination that it is more likely than not that our deferred tax assets will be utilized in the future.

Accordingly, we recorded a full valuation allowance as of December 31, 2019 and 2018.

We intend to maintain valuation allowances until sufficient evidence exists to support their reversal.

Tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position will be sustained during an audit.

Interest and penalties related to unrecognized tax benefits are included within the provision for income tax.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period resulting from transactions from non-owner sources.

Our other comprehensive income (loss) is comprised solely of unrealized gains (losses) on available-for-sale securities and is presented net of taxes.

We have not recorded any reclassifications from other comprehensive income (loss) to net loss during any period presented.

Recent Accounting Pronouncements

The Company considers the applicability and impact of any Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board (“FASB”).

ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments , which was clarified and amended by the issuances of ASUs 2018-19, 2019-04, 2019-05 and 2019-11 in November 2018, April 2019, May 2019 and November 2019, respectively.

The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis are measured using an expected-loss model, replacing the current incurred-loss model, and recorded through an allowance for credit losses.

The guidance also establishes a new impairment model for available-for-sale debt securities.

We adopted the new standard and the related amendments on January 1, 2020 using a modified retrospective approach.

The adoption did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software (and hosting arrangements that include an internal-use software license).

The guidance provides criteria for determining which implementation costs to capitalize as an asset related to the service contract and which costs to expense.

We adopted the new standard on January 1, 2020 using a prospective approach.

We do not expect the adoption to have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (ASU 2019-12), which eliminates certain exceptions related to the general principles in ASC 740 and makes amendments to other areas with the intention of simplifying various aspects related to accounting for income taxes.

The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

We early adopted the new standard on January 1, 2020.

We do not expect the adoption to have a material impact on our consolidated financial statements.

Adoption of New Accounting Pronouncements

We adopted ASU No.

2016-02, Leases (Topic 842), as of January 1, 2019, using the optional transition method, which allows for the initial application of the new accounting standard at the adoption date and the recognition of a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the period of adoption.

In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.

In addition, we elected the hindsight practical expedient to determine the lease term for existing leases.

Adoption of the new standard resulted in the recording of additional operating lease assets and operating lease liabilities of $ 14.3 million and $ 15.3 million, respectively, as of January 1, 2019.

This was partially offset by de-recognition of the build-to-suit asset and corresponding lease obligation of $ 10.3 million for our Thousand Oaks manufacturing facility lease, as we did not control the building during the construction period (see Note 7).

We evaluated the impact of the new standard for deferred tax accounting purposes and recorded corresponding deferred tax assets and liabilities upon adoption of ASC 842.

The deferred tax assets are offset by the valuation allowance on deferred taxes.

The cumulative effect adjustment to the opening balance of accumulated deficit was a decrease of $ 0.4 million.

The standard did not have a significant impact on our consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flow for the years ended December 31, 2019, 2018 and 2017.

We adopted ASU No.

2018-02, Income Statement – Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which allows a reclassification from accumulated other comprehensive income to retained earnings for adjustments to tax effects that were originally recorded in other comprehensive income due to changes in the U.S.

federal corporate income tax rate resulting from the enactment of the U.S.

tax reform legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).

The new standard had no impact on our consolidated balance sheets as of December 31, 2019 and 2018 or our consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flow for the years ended December 31, 2019, 2018 and 2017.

Net Loss per Common Share

Basic net loss per common share is calculated by dividing net loss by the weighted-average number of shares of common stock and pre-funded warrants outstanding during the period, without consideration of common share equivalents.

Diluted net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock, pre-funded warrants and common share equivalents outstanding for the period.

The pre-funded warrants are included in the computation of basic and diluted net loss per common share as the exercise price is negligible and the pre-funded warrants are fully vested and exercisable.

Common share equivalents are only included in the calculation of diluted net loss per common share when their effect is dilutive.

Potential dilutive securities, which include unvested restricted stock units (“RSUs”), vested and unvested options to purchase common stock and shares to be issued under our employee stock purchase plan (“ESPP”), have been excluded from the computation of diluted net loss per share as the effect is antidilutive.

Therefore, the denominator used to calculate both basic and diluted net loss per common share is the same in all periods presented.

The following table represents the potential common shares issuable pursuant to outstanding securities as of the related period end dates that were excluded from the computation of diluted net loss per common share as their inclusion would have an antidilutive effect:

As of December 31,

Unvested RSUs

Vested and unvested options

ESPP share purchase rights

Financial Instruments

The following tables summarize the estimated fair value and related valuation input hierarchy of our available-for-sale securities as of each period end:

As of December 31, 2019:

(in thousands)

Money market funds

Treasury obligations

Government agency obligations

Corporate debt obligations

Commercial paper

Asset-backed securities

Certificate of deposit

Total available-for-sale securities

Less amounts classified as cash equivalents

Amounts classified as short-term investments

As of December 31, 2018:

(in thousands)

Money market funds

Treasury obligations

Government agency obligations

Corporate debt obligations

Commercial paper

Asset-backed securities

Total available-for-sale securities

Less amounts classified as cash equivalents

Amounts classified as short-term investments

The amortized cost and fair value of our available-for-sale securities by contractual maturity were as follows:

As of December 31, 2019

As of December 31, 2018

(in thousands)

Maturing within one year

Maturing in one to five years

Total available-for-sale securities

As of December 31, 2019 , certain available-for-sale securities had been in a continuous unrealized loss position, each for less than twelve months.

As of this date, no significant facts or circumstances were present to indicate a deterioration in the creditworthiness of the respective issuers .

Because we do not intend to sell these securities and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost bases, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at December 31, 2019 .

During the years ended December 31, 2019 , 2018 and 2017 , we did not recognize any other-than-temporary impairment losses .

In addition, restricted cash collateralized by money market funds is a financial asset measured at fair value and is a Level 1 financial instrument under the fair value hierarchy.

As of December 31, 2019 and 2018, restricted cash totaled $ 1.4 million.

The following table provides a reconciliation of cash, cash equivalents and restricted cash within the consolidated balance sheets that sum to the total of the same such amounts in the consolidated statement of cash flows:

(in thousands)

Cash and cash equivalents

Restricted cash - short-term

Restricted cash - long-term

Total cash, cash equivalents and restricted cash

Property and Equipment

Property and equipment consisted of the following as of each period end:

(in thousands)

Leasehold improvements

Build-to-suit asset (see Note 7)

Lab equipment

Machinery and equipment

Computer equipment and software

Furniture and fixtures

Construction in progress

Property and equipment, gross

Less accumulated depreciation and amortization

Property and equipment, net

Construction in progress represents capitalized costs for our manufacturing facility in Thousand Oaks, California and capitalizable costs incurred for equipment held at our facilities.

Depreciation and amortization expense was $ 7.1 million, $ 3.7 million and $ 1.0 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

License, Collaboration and Manufacturing Agreements

MSK Agreements – In June 2015, we entered into an exclusive license agreement with MSK for three clinical stage T-cell therapies.

In connection with the execution of the agreement, the Company paid $ 4.5 million in cash to MSK.

We are required to make additional payments of up to $ 33.0 million to MSK based on achievement of specified regulatory and sales-related milestones, as well as mid-single-digit percentage tiered royalty payments based on future sales of products resulting from the development of the licensed product candidates, if any.

In addition, under certain circumstances, we are required to make certain minimum annual royalty payments to MSK, which are creditable against earned royalties owed for the same annual period.

We are also required to pay a low double-digit percentage of any consideration we receive for sublicensing the licensed rights.

The license agreement expires on a product-by-product and country-by-country basis on the later of:

(i) expiration of the last licensed patent rights related to each licensed product, (ii) expiration of any market exclusivity period granted by law with respect to each licensed product, and (iii) a specified number of years after the first commercial sale of the licensed product in each country.

Upon expiration of the license agreement, Atara will retain non-exclusive rights to the licensed products.

In May and December 2018, we licensed additional technology from MSK.

In connection with the effectiveness of the December 2018 license agreement, we made upfront cash payments of $ 12.5 million in first quarter of 2019, which were recorded as research and development expense in our consolidated statement of operations and comprehensive loss in the fourth quarter of 2018.

We are obligated to make additional milestone payments based on achievement of specified development, regulatory and sales-related milestones as well as mid-single-digit percentage tiered royalty payments based on future sales of products resulting from the development of the licensed product candidates, if any.

QIMR Berghofer Agreements – In October 2015, we entered into an exclusive license agreement and a research and development collaboration agreement with QIMR Berghofer.

In consideration for the exclusive license, the Company paid $ 3.0 million in cash to QIMR Berghofer.

Under the terms of the license agreement, we possess an exclusive, worldwide license to develop and commercialize allogeneic T-cell therapy programs utilizing technology and know-how developed by QIMR Berghofer.

In September 2016, the exclusive license agreement and research and development collaboration agreement were amended and restated.

Under the amended and restated agreements, we obtained an exclusive, worldwide license to develop and commercialize additional T-cell programs as well as the option to license additional technology in exchange for $ 3.3 million in cash, which was recorded as research and development expense in our consolidated statement of operations and comprehensive loss in the third quarter of 2016.

We exercised this option in June 2018.

We further amended and restated our license agreement and research and development collaboration agreements with QIMR Berghofer in August 2019 to eliminate our license to certain rights related to cytomegalovirus.

Our current license agreement also provides for various milestone and royalty payments to QIMR Berghofer based on future product sales, if any.

Under the terms of our current research and development collaboration agreement, we are also required to reimburse the cost of agreed-upon development activities related to programs developed under the collaboration.

These payments are expensed on a straight-line basis over the related development periods.

The agreement also provides for various milestone payments to QIMR Berghofer based on achievement of certain developmental and regulatory milestones.

From time to time, we have entered into other license and collaboration agreements with other parties.

For example, we licensed additional rights related to our MSK-partnered next-generation CAR T programs from MSK in May 2018 and from the National Institutes of Health in December 2018 and we licensed rights related to our next-generation CAR T programs from Moffitt Cancer Center in August 2018, and we agreed to collaborate in connection with each of these licenses.

Milestones and royalties under each of the above agreements are contingent upon future events and will be recorded as expense when it is probable that the milestones will be achieved or royalties are due.

As of December 31, 2019 and 2018, there were no outstanding obligations for milestones and royalties under our license and collaboration agreements.

Cognate Agreement – In December 2019, Atara entered into a Commercial Manufacturing Services Agreement (the “Manufacturing Agreement”) with Cognate Bioservices, Inc.

(“Cognate”) to supersede the Development and Manufacturing Agreement that was entered into with Cognate in August 2015 and amended in December 2017, May 2018, November 2018, June 2019 and November 2019.

Pursuant to the Manufacturing Agreement, Cognate provides manufacturing services for certain Atara product candidates.

The initial term of the Manufacturing Agreement is from January 1, 2020 until December 31, 2021 and is renewable with Cognate’s approval for an additional one-year period.

We may terminate the Manufacturing Agreement for convenience on six months’ written notice to Cognate, or immediately if Cognate is unable to perform the services under the Manufacturing Agreement or fails to obtain or maintain certain necessary approvals.

The Manufacturing Agreement includes standard mutual termination rights for uncured breach or insolvency, or a force majeure event preventing the performance of services for at least ninety days.

We lease our corporate headquarters in South San Francisco, California under a non-cancellable lease agreement that expires in April 2021 .

In connection with the lease, we are required to maintain a letter of credit in the amount of $ 0.2 million to the landlord, which expires and is renewed every 12 months, and is classified as restricted cash in our consolidated balance sheet.

In November 2018, we entered into a lease agreement for additional office space in Thousand Oaks, California that expires in February 2026 .

Additionally, we entered into a new lease for our office and lab space in Aurora, Colorado, effective May 2019, that expires in April 2024 .

In February 2017, we entered into a lease agreement for approximately 90,580 square feet of office, lab and cellular therapy manufacturing space in Thousand Oaks, California.

The initial 15 -year term of the lease commenced on February 15, 2018 , upon the substantial completion of landlord’s work as defined under the agreement.

The contractual obligations during the initial term are $ 16.4 million in aggregate.

We have the option to extend the lease for two additional periods of ten and nine years , respectively, after the initial term.

In connection with the lease, we were required to issue a letter of credit in the amount of $ 1.2 million to the landlord, which is recorded as long-term restricted cash in our consolidated balance sheet.

Based on the terms of the lease agreement and on our involvement in certain aspects of the construction, we were deemed the owner of the building during the construction period in accordance with U.S.

GAAP in effect prior to January 1, 2019.

Under this build-to-suit lease arrangement, we recognized construction in progress based on all construction costs incurred by both us and the landlord.

We also recognized a financing obligation equal to all costs funded by the landlord.

Due to completion of the construction by the landlord and not having met the criteria for sale-lease back accounting, we transferred the $ 10.3 million of landlord’s construction costs previously capitalized as construction in progress to a build-to-suit asset, and recognized a corresponding long-term financing obligation for the same amount in long-term liabilities in our consolidated balance sheets.

In addition, we recorded $ 0.3 million of capitalized interest during the construction period through December 31, 2018.

A portion of the monthly lease payment was allocated to land rent and recorded as an operating lease expense and the non-interest portion of the amortized lease payments to the landlord related to rent of the building was applied to the lease financing liability.

Further, we recorded ground lease expense of $ 0.4 and $ 0.3 million for the years ended December 31, 2018 and 2017, respectively, in our consolidated statement of operations and comprehensive loss, representing the estimated cost of renting the land during the construction period.

Due to the adoption of ASU No.

2016-02, Leases (Topic 842), no ground lease expense was recognized for the year ended December 31, 2019.

The maturities of lease liabilities under our operating and finance leases as of December 31, 2019 were as follows:

Operating Leases

Finance Leases

Years Ending December 31,

(in thousands)

Total lease payments

amount representing interest

Present value of lease liabilities

Balance as of December 31, 2019

Other current liabilities

Operating lease liabilities

Other long-term liabilities

The components of lease cost were as follows:

December 31, 2019

(in thousands)

Operating lease cost:

Operating lease cost

Short-term lease cost

Total operating lease cost

Finance lease cost:

Amortization expense

Interest on lease liabilities

Total finance lease cost

Future minimum payments under our operating, finance and capital leases as of December 31, 2018 were as follows:

Operating Leases

Finance Leases

Capital Leases

Years Ending December 31,

(in thousands)

Total minimum payments

amount representing interest

Present value of capital lease obligations

current portion

Capital lease obligation, net of current portion

Rent expense under operating leases for the years ended December 31, 2018 and 2017 was $ 2.2 million and $ 1.4 million, respectively.

Other information related to leases was as follows:

December 31, 2019

(in thousands, except

lease term and

discount rate)

Supplemental Cash Flows Information

Cash paid for amounts included in the measurement of

lease liabilities:

Operating cash flows for operating leases

Operating cash flows for finance leases

Financing cash flows for finance leases

Operating lease assets obtained in exchange for lease

Finance lease assets obtained in exchange for lease

Weighted Average Remaining Lease Term

Operating leases

Finance leases

Weighted Average Discount Rate

Operating leases

Finance leases

Asset Retirement Obligation

The Company’s ARO consists of a contractual requirement to remove the tenant improvements at our manufacturing facility in Thousand Oaks, California and restore the facility to a condition specified in the lease agreement.

The Company records an estimate of the fair value of its ARO in long-term liabilities in the period incurred.

The fair value of the ARO is also capitalized in property and equipment, net and depreciated over the lease term.

The fair value of our ARO was estimated by discounting projected cash flows over the estimated life of the related assets using our credit adjusted risk-free rate.

The following table presents the activity for our ARO liabilities:

ARO Liability

(In thousands)

Balance as of December 31, 2018

Accretion expense

Balance as of December 31, 2019

Commitments and Contingencies

License and Collaboration Agreements

Potential payments related to our license and collaboration agreements, including milestone and royalty payments, are detailed in Note 6.

Other Research and Development Agreements

We may enter into contracts in the normal course of business with clinical research organizations for clinical trials, with contract manufacturing organizations for clinical supplies, and with other vendors for preclinical studies, supplies and other services for our operating purposes.

These contracts generally provide for termination on notice.

As of December 31, 2019 and 2018, there were no amounts accrued related to termination charges for minimum purchase volumes not being met.

Indemnification Agreements

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for indemnification for certain liabilities.

The exposure under these agreements is unknown because it involves claims that may be made against us in the future but have not yet been made.

To date, we have not paid any claims or been required to defend any action related to our indemnification obligations.

However, we may record charges in the future as a result of these indemnification obligations.

We also have indemnification obligations to our directors and executive officers for specified events or occurrences, subject to some limits, while they are serving at our request in such capacities.

There have been no claims to date and we believe the fair value of these indemnification agreements is minimal.

Accordingly, we did no t record liabilities for these agreements as of December 31, 2019 and 2018.

Contingencies

From time to time, we may be involved in legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business or otherwise.

The ultimate outcome of any litigation is uncertain and unfavorable outcomes could have a negative impact on our results of operations and financial condition.

Regardless of outcome, litigation can have an adverse impact on us because of the defense costs, diversion of management resources and other factors.

We are not currently involved in any material legal proceedings.

Stockholders’ Equity

Our authorized capital stock consists of 520,000,000 shares, all with a par value of $ 0.0001 per share, of which 500,000,000 shares are designated as common stock and 20,000,000 shares are designated as preferred stock.

There were no shares of preferred stock outstanding as of December 31, 2019 and 2018 .

Equity Offerings

In January 2018, we completed an underwritten public offering of 7,675,072 shares of common stock at an offering price of $ 18.25 per share and received net proceeds of $ 131.4 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

Further, in March 2018, we completed an underwritten public offering of 4,928,571 shares of common stock at an offering price of $ 35.00 per share and received net proceeds of $ 161.9 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

In July 2019, we issued and sold 6,871,727 shares of common stock at a public offering price of $ 15.28 per share and pre-funded warrants to purchase 2,945,026 shares of common stock at an offering price of $ 15.2799 per warrant in an underwritten public offering pursuant to a shelf registration on Form S-3.

The gross proceeds from this public offering were $ 150.0 million, resulting in aggregate net proceeds of $ 140.7 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

Each pre-funded warrant entitles the holder to purchase one share of common stock at an exercise price of $ 0.0001 per share and expires seven years from the date of issuance.

These warrants were recorded as a component of stockholders’ equity within additional paid-in capital.

Per the terms of the warrant agreement, a holder of the outstanding warrants is not entitled to exercise any portion of any pre-funded warrant if, upon exercise of the warrant, the holder’s ownership (together with its affiliates) of our common stock or combined voting power of our securities beneficially owned by such holder (together with its affiliates) would exceed 9.99 % after giving effect to the exercise (“Maximum Ownership Percentage”).

Upon at least 61 days’ prior notice to us by the holder, any holder may increase or decrease the Maximum Ownership Percentage to any other percentage not to exceed 19.99 %.

As of December 31, 2019, none of the pre-funded warrants had been exercised.

ATM Facilities

In March 2017, we entered into a sales agreement (the “2017 ATM Facility”) with Cowen and Company, LLC (“Cowen”), which provided for the sale, in our sole discretion, of shares of our common stock, in the aggregate offering price of up to $ 75.0 million through Cowen, as our sales agent.

We paid a commission of up to 3.0 % of the gross sales proceeds of any common stock sold under the 2017 ATM Facility.

In February 2019, we terminated the 2017 ATM Facility and entered into a new sales agreement (the “2019 ATM Facility”) with Cowen, which provides for the sale, in our sole discretion, of shares of our common stock having an aggregate offering price of up to $ 100.0 million through Cowen, as our sales agent.

We pay a commission of up to 3.0 % of gross sales proceeds of any common stock sold under the 2019 ATM Facility.

During the fiscal year ended December 31, 2019 , we sold an aggregate of 3,135,347 shares of common stock under the 2019 ATM Facility, at an average price of $ 16.09 per share, for gross proceeds of $ 50.5 million and net proceeds of $ 48.9 million, after deducting commissions and other offering expenses payable by us.

Approximately $ 1.2 million of the $48.9 million net proceeds was received on January 3, 2020.

During the fiscal year ended December 31, 2018 , we sold an aggregate of 1,007,806 shares of common stock under the 2017 ATM Facility, at an average price of $ 48.52 per share, for gross proceeds of $ 48.9 million and net proceeds of $ 47.6 million, after deducting commissions and other offering expenses payable by us.

The issuance and sale of these shares by us pursuant to the 2019 ATM Facility and 2017 ATM Facility are deemed “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), and are registered under the Securities Act.

As of December 31, 2019 , we had $ 49.5 million of common stock available to be sold under the 2019 ATM Facility.

In January 2020, we sold an aggregate of 1,371,216 shares of common stock under the 2019 ATM Facility, at an average price of $ 15.77 per share, for gross proceeds of $ 21.6 million and net proceeds of $ 21.1 million, after deducting commissions payable by us.

As of January 31, 2020, we had $ 27.9 million of common stock available to be sold under the 2019 ATM Facility.

In February 2020, we entered into a new sales agreement (the “2020 ATM Facility”) with Cowen, which provides for the sale, in our sole discretion, of shares of our common stock having an aggregate offering price of up to $ 100.0 million through Cowen, as our sales agent.

The 2020 ATM Facility is separate from and does not replace the 2019 ATM Facility in any way.

The issuance and sale of these shares by us pursuant to the 2020 ATM Facility are deemed “at the market” offerings and are registered under the Securities Act of 1933, as amended.

We will pay a commission of up to 3.0 % of gross sales proceeds of any common stock sold under the 2020 ATM Facility.

Equity Incentive Plan s

In March 2014, we adopted the 2014 Equity Incentive Plan (“2014 EIP”), which was amended and restated on October 15, 2014 upon the pricing of our initial public offering, or IPO.

The 2014 EIP provides for annual increases in the number of shares available for issuance thereunder on the first business day of each fiscal year, beginning with 2015 and ending in 2024, equal to five percent of the number of shares of the Company’s common stock outstanding as of such date or a lesser number of shares as determined by our board of directors.

Under the terms of the 2014 EIP, we may grant stock options, RSAs and RSUs to employees, directors, consultants and other service providers.

RSUs generally vest over four years .

Stock options are granted at prices no less than 100 % of the estimated fair value of the shares on the date of grant as determined by the board of directors, provided, however, that the exercise price of an option granted to a 10 % shareholder cannot be less than 110 % of the estimated fair value of the shares on the date of grant.

Options granted generally vest over four years and expire in seven to ten years .

As of December 31, 2019 , a total of 11,935,558 shares of common stock were reserved for issuance under the 2014 EIP, of which 3,948,605 shares were available for future grant and 7,986,953 shares were subject to outstanding options and RSUs.

In February 2018, we adopted the 2018 Inducement Plan (“Inducement Plan”), under which we may grant options, stock appreciation rights, RSAs and RSUs to new employees.

As of December 31, 2019 , 1,213,760 shares of common stock were reserved for issuance under the Inducement Plan, of which 427,436 shares were available for future grant and 786,324 shares were subject to outstanding options and RSUs.

Restricted Stock Units

The fair value of RSUs is determined as the closing stock price on the date of grant.

The weighted average grant date fair value of RSUs granted during the years ended December 31, 2019 , 2018 and 2017 was $ 27.04 , $ 36.83 and $ 15.07 , respectively.

The estimated fair value of RSUs that vested in the years ended December 31, 2019 , 2018 and 2017 was $ 13.8 million, $ 10.8 million and $ 3.7 million, respectively.

As of December 31, 2019 , there was $ 38.0 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted average period of 2.1 years.

The aggregate intrinsic value of the RSUs outstanding as of December 31, 2019 was $ 31.5 million.

The following is a summary of RSU activity under our 2014 EIP and Inducement Plan:

Unvested as of December 31, 2018

Outstanding as of December 31, 2019

Under our RSU net settlement procedures, for most of our employees, we withhold shares at settlement to cover the minimum payroll withholding tax obligations.

During 2019 , we settled 574,168 shares underlying RSUs, of which 488,964 shares underlying RSUs were net settled by withholding 212,879 shares.

The value of the shares underlying RSUs withheld was $ 6.7 million, based on the closing price of our common stock on the settlement date.

During 2018 , we settled 638,518 shares underlying RSUs, of which 440,503 shares underlying RSUs were net settled by withholding 190,205 shares.

The value of the shares underlying RSUs withheld was $ 7.5 million, based on the closing price of our common stock on the settlement date.

The value of RSUs withheld in each period was remitted to the appropriate taxing authorities and has been reflected as a financing activity in our consolidated statements of cash flows.

Stock Options

The following is a summary of stock option activity under our 2014 EIP and Inducement Plan.

The table below also includes the activity relating to options for 275,000 shares of our common stock which were issued in 2017 outside of these plans:

Weighted Average Exercise Price

Weighted Average

(in thousands)

Outstanding as of December 31, 2018

Forfeited or expired

Outstanding as of December 31, 2019

Vested and expected to vest as of

December 31, 2019

Exercisable as of December 31, 2019

Aggregate intrinsic value represents the difference between the closing stock price of our common stock on December 31, 2019 and the exercise price of outstanding, in-the-money options.

As of December 31, 2019 , there was $ 69.7 million of unrecognized stock-based compensation expense related to stock options that is expected to be recognized over a weighted average period of 2.8 years.

Options for 347,716 , 1,051,180 and 60,125 shares of our common stock were exercised during the years ended December 31, 2019 , 2018 and 2017, with an intrinsic value of $ 3.8 million, $ 19.2 million and $ 0.2 million, respectively.

As we believe it is more likely than not that no stock option related tax benefits will be realized, we do no t record any net tax benefits related to exercised options.

The fair value of each option issued was estimated at the date of grant using the Black-Scholes valuation model.

The following table summarizes the weighted-average assumptions used as inputs to the Black-Scholes model and resulting weighted-average grant date fair values of stock options granted to employees during the periods indicated:

Year ended December 31,

Expected term (years)

Expected volatility

Risk-free interest rate

Expected dividend yield

Weighted-average estimated grant date fair value per share

Options granted

Total estimated grant date fair value

The estimated fair value of stock options that vested in the years ended December 31, 2019 , 2018 and 2017 was $ 31.6 million, $ 16.2 million and $ 14.0 million, respectively.

Employee Stock Purchase Plan

In May 2014, we adopted the 2014 Employee Stock Purchase Plan (“2014 ESPP”), which became effective on October 15, 2014 upon the pricing of our IPO.

The 2014 ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods.

Eligible employees can purchase shares of the Company’s common stock at 85 % of the lower of the fair market value of the common stock at (i) the beginning of a 12-month offering period, or (ii) at the end of one of the two related 6-month purchase periods .

No participant in the 2014 ESPP may purchase shares of common stock valued at more than $ 25,000 per calendar year.

The first offering under the 2014 ESPP commenced on June 1, 2016 , and subsequent offerings commence on each anniversary of this date.

The Company recorded $ 1.3 million, $ 1.2 million and $ 0.6 million of expense related to the 2014 ESPP in the years ended December 31, 2019, 2018 and 2017, respectively.

A total of 139,466 , 109,193 and 81,922 shares were purchased under the ESPP during the years ended December 31, 2019 , 2018 and 2017, respectively.

As of December 31, 2019, there was $ 0.5 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized by the end of second quarter of 2020.

The 2014 ESPP provides for annual increases in the number of shares available for issuance thereunder on the first business day of each fiscal year, beginning with 2015 and ending in 2024, equal to the lower of (i) one percent of the number of shares of our common stock outstanding as of such date, (ii) 230,769 shares of our common stock, or (iii) a lesser number of shares as determined by our board of directors.

As of December 31, 2019, there were 1,355,973 shares authorized under the 2014 ESPP.

Reserved Shares

The following shares of common stock were reserved for future issuance as of December 31, 2019 :

2014 Equity Incentive Plan

2018 Inducement Plan

2014 Employee Stock Purchase Plan

Options outside the equity plans

Total reserved shares of common stock

Stock-based Compensation Expense

Total stock-based compensation expense related to all stock awards was as follows:

Year Ended December 31,

(in thousands)

Research and development

General and administrative

Total stock-based compensation expense

Losses before provision for income taxes were as follows in each period presented:

Year Ended December 31,

(in thousands)

United States

Total loss before provision for income taxes

The Company liquidated its Cayman Islands entity in 2018 and elected to treat the entity as disregarded for the fiscal year 2018.

As such, the applicable 2018 losses are treated as losses in the United States.

The components of provision for (benefit from) income taxes were as follows in each period presented:

Year Ended December 31,

(in thousands)

Current provision for (benefit from) income taxes:

Total current provision for (benefit from) income

A reconciliation of statutory tax rates to effective tax rates were as follows in each of the periods presented:

Year Ended December 31,

Federal income taxes at statutory rate

Impact of stock compensation

Foreign income tax at different rate

Impact of U.S.

Non-deductible executive compensation

Capitalized research

Change in valuation allowance

Effective tax rate

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of our deferred tax assets and liabilities were as follows for each of the dates presented:

As of December 31,

(in thousands)

Deferred tax assets:

Net operating losses

Capitalized expenses

Stock-based compensation

Operating lease liabilities

Total deferred tax assets

Valuation allowance

Total deferred tax assets

Deferred tax liabilities:

Operating lease assets

Total deferred tax liabilities

Net deferred tax assets (liabilities)

We recognize deferred income taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes, as well as for tax attribute carryforwards.

We regularly evaluate the positive and negative evidence in determining the realizability of our deferred tax assets.

Based upon the weight of available evidence, which includes our historical operating performance and reported cumulative net losses since inception, we maintained a full valuation allowance on the net deferred tax assets as of December 31, 2019 and 2018.

We intend to maintain a full valuation allowance on our deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.

The valuation allowance increased by $ 78.1 million for the year ended December 31, 2019 and increased by $ 79.9 million for the year ended December 31, 2018.

As of December 31, 2019 , we had federal and state net operating loss carryforwards for tax return purposes of $ 547.7 million and $ 695.4 million, respectively.

The federal and state net operating loss carryforwards begin to expire in 2032 in various amounts if not utilized .

Of the $547.7 million federal net operating losses, $ 482.2 million were generated after January 1, 2018 and are not subject to expiration.

Under Section 382 of the Internal Revenue Code of 1986, as amended, our ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if we have experienced an “ownership change.” Generally, a Section 382 “ownership change” occurs if one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period.

Similar rules may apply under state tax laws.

We have completed a Section 382 study of transactions in our stock through December 31, 2019.

The study concluded that we have experienced ownership changes since inception and that our utilization of net operating loss carryforwards will be subject to annual limitations.

However, it is not expected that the annual limitations will result in the expiration of tax attribute carryforwards prior to utilization.

On December 22, 2017, the Tax Act was enacted into law.

The Tax Act, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21% ;

limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses);

limitation of the deduction of net operating losses generated in tax years beginning after December 31, 2017 to 80% of taxable income, indefinite carryforward of net operating losses generated in tax years after 2018 and elimination of net operating loss carrybacks;

changes in the treatment of offshore earnings regardless of whether they are repatriated;

current inclusion in U.S.

federal taxable income of certain earnings of controlled foreign corporations, mandatory capitalization of research and development expenses beginning in 2022;

immediate deductions for certain new investments instead of deductions for depreciation expense over time;

further deduction limits on executive compensation;

and modifying, repealing and creating many other business deductions and credits, including the reduction in the orphan drug credit from 50% to 25% of qualifying expenditures.

The changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for the years ended December 31, 2017, 2018 and 2019 are as follows:

(In thousands)

Balance as of January 1, 2017

Gross increases for tax positions related to current year

Gross increases for tax positions related to prior year

Gross decreases for tax positions related to prior year

Impact of change in tax rate

Balance as of December 31, 2017

Gross increases for tax positions related to current year

Gross increases for tax positions related to prior year

Gross decreases for tax positions related to prior year

Balance as of December 31, 2018

Gross increases for tax positions related to current year

Gross increases for tax positions related to prior year

Gross decreases for tax positions related to prior year

Balance as of December 31, 2019

The Company currently has a full valuation allowance against its U.S.

net deferred tax assets, which would impact the timing of the effective tax rate benefit should any uncertain tax position be favorably settled in the future.

Of the $ 86.0 million total unrecognized tax benefits as of December 31, 2019 , no amount, if recognized, would affect the Company’s effective tax rate.

The Company’s policy is to account for interest and penalties related to uncertain tax positions as a component of the income tax provision.

The Company has not accrued interest and penalties as of December 31, 2019 and 2018 due to available tax losses.

Our significant jurisdictions are the U.S.

federal jurisdiction and the California state jurisdiction.

All of our tax years remain open to examination by the U.S.

federal and California tax authorities.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Our holdings of the securities of any one issuer, except for obligations of the U.S.

Treasury, U.S.

Treasury-guaranteed securities or money market funds, do not exceed 5% of our portfolio.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk