AIMMUNE THERAPEUTICS : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our audited financial statements
and related notes included elsewhere in this Annual Report on Form 10-K. This
discussion and other parts of this Annual Report on Form 10-K contain
forward-looking statements that involve risks and uncertainties, such as
statements of our plans, objectives, expectations and intentions. Our actual
results could differ materially from those discussed in these forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in the section of this Annual Report of
on Form 10-K titled "Risk Factors." Except as may be required by law, we assume
no obligation to update these forward-looking statements or the reasons that
results could differ from these forward-looking statements.

Overview

We are a biopharmaceutical company developing and commercializing treatments for
potentially life-threatening food allergies. It is estimated that over 30
million people in the United States and Europe have a food allergy, with peanut
allergy being the most prevalent and most commonly associated with severe
outcomes and life-threatening events.



Patients with food allergies are typically counseled to practice strict dietary
avoidance. When accidental exposure to food allergens invokes a serious allergic
reaction, rescue therapies, such as antihistamines or injectable epinephrine,
are the only recourse available.



Our main therapeutic approach, which we refer to as Characterized Oral
Desensitized Immunology Therapy, or CODITTM, is designed to desensitize patients
to food allergens and thereby reduce the risk of having an allergic reaction
upon accidental exposure or reduce symptom severity should an allergic reaction
occur. As a result, we believe CODIT could contribute to reducing the burden and
anxiety experienced by food-allergic patients and their families.



PALFORZIATM (Peanut (Arachis hypogaea) Allergen Powder-dnfp) (formerly AR101) is
our lead internally developed product utilizing CODIT and was approved by the
FDA for marketing and sale in the United States in January 2020. PALFORZIA is
indicated for the mitigation of allergic reactions, including anaphylaxis, that
may occur with accidental exposure to peanut. PALFORZIA is approved for use in
patients with a confirmed diagnosis of peanut allergy. Initial Dose Escalation
may be administered to patients aged 4 through 17 years. Up-dosing and
maintenance may be continued in patients 4 years of age and older. PALFORZIA is
to be used in conjunction with a peanut-avoidant diet. We are currently
commercializing PALFORZIA in the United States through a specialty sales force
of approximately 80 Practice Account Managers targeting practicing allergists.
We expect to commence commercial sales in the first quarter of 2020.



In addition to the approved indication, we are developing PALFORZIA for use in
young children aged one to less than four years old in a randomized,
double-blind, placebo controlled multinational Phase 3 trial called POSEIDON. We
expect to complete enrolment of this trial in the second half of 2020. We also
submitted a Marketing Authorization Application, or MAA, for PALFORZIA with the
European Medicines Agency, or EMA, in June 2019 and the application is currently
under review. We expect the EMA to issue a decision on the application in the
fourth quarter of 2020. We maintain worldwide commercial rights to PALFORZIA and
all of our product candidates. If approved in the European Union, or EU, and the
United Kingdom, we currently intend to commercialize PALFORZIA in Europe by
developing a specialty sales force targeting allergy-focused clinicians in major
European markets, beginning with Germany.



We are developing additional CODIT product candidates beyond peanut allergy. In
August 2019, we commenced a Phase 2 clinical trial in subjects with hen egg
allergy for our product candidate, AR201, which we expect to be fully enrolled
for in the second half of 2020. We are also exploring a product candidate
designed to treat multi-nut allergy, including walnut allergy.

Since commencing our operations in 2011, substantially all our efforts have been
focused on research, development and commercialization of PALFORZIA. We have not
generated any revenue from product sales and, as a result, we have incurred
significant losses. We incurred net losses of $248.5 million, $210.8 million and
$131.3 million for the years ended December 31, 2019, 2018, and 2017,
respectively, and used $195.4 million of cash in operations for the year ended
December 31, 2019. As of December 31, 2019, our accumulated deficit was $724.7
million. We expect to continue to incur losses for the foreseeable future, and
we anticipate these losses will increase as we begin to commercialize PALFORZIA
and as we continue to develop other product candidates.

In February and March 2018, we issued and sold an aggregate of 6,325,000 shares
of our common stock in an underwritten public offering at a price to the public
of $32.00 per share, including the closing of the full exercise of the
underwriters' option to purchase an additional 825,000 shares of common
stock. In addition, in November 2018, we sold an additional 3,237,529 shares of
our common stock to Nestlé Health Science at a price of $30.27 per share, for
aggregate proceeds of $98.0 million.

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In January 2019, we entered into a loan agreement with an affiliate of KKR for
up to $170.0 million in three tranches. Of the total loan amount, $40.0 million
was funded upon the closing of the transaction in January 2019 and $85.0 million
was funded in February 2020 upon FDA approval of AR101 and satisfaction of other
customary borrowing conditions. The remaining $45.0 million is to be made
available at our option in 2020, upon the satisfaction of certain borrowing
conditions, including our achievement of aggregate net sales (as defined in the
agreement) for PALFORIZA by July 31, 2020 in an amount of at least $30.0
million.

In February 2020, we sold Nestlé Health Science an additional 525,634 shares of
our Series A Preferred Stock at a price of $319.675 per share and 1,000,000
shares of our common stock at a price of $31.97 per share for aggregate proceeds
of $200.0 million.

We rely exclusively on the Golden Peanut Company, or GPC, to provide standard
food-grade peanut flour pursuant to a long-term exclusive commercial supply
agreement. We currently utilize contract manufacturers for all our manufacturing
activities. In June 2015, we entered into a lease for a manufacturing facility
in Clearwater, Florida. In June 2017, we completed the construction of the
manufacturing facility within the leased building, which we intend to handle
full-scale cGMP (current Good Manufacturing Practices) commercial production of
PALFORZIA and supply future clinical trials of AR101. This manufacturing
facility became operational in November 2018. We plan to continue to rely on the
contract manufacturer that is located at the same site to manage the operations
of this new manufacturing facility. Additionally, we currently utilize
specialized clinical vendors, clinical trial sites, consultants, and clinical
research organizations, or CROs, to ensure the proper and timely conduct of our
clinical trials. We expect to continue to significantly increase our investment
in our manufacturing process and commercial organization as we launch PALFORZIA
commercially in the United States and as we prepare for the potential approval
of the MAA with the EMA for PALFORZIA.

Credit Agreement with KKR

In January 2019, we entered into a Credit Agreement with KKR Peanut Aggregator
L.P., an affiliate of KKR LLC, which we refer to, together with the several
banks and other financial institutions from time to time party to the Credit
Agreement, collectively as the Lenders, and Cortland Capital Market Services
LLC, as the administrative agent and the collateral agent, or Agent. The Credit
Agreement consists of a six-year term loan facility for an up to aggregate
principal amount of $170.0 million, which we refer to as the Term Loans. The
Credit Agreement provided for an initial Term Loan of $40.0 million, which was
funded in January 2019. We drew an additional $85.0 million of the Term Loans in
February 2020 following FDA approval of PALFORZIA and satisfaction of other
customary borrowing conditions. At our option and, subject to the fulfillment of
customary conditions precedent, including our achievement of aggregate net sales
(as defined in the agreement) for PALFORIZA by July 31, 2020 in an amount of at
least $30.0 million, we may draw the remaining $45.0 million of the Term
Loans. The Term Loans under the Credit Agreement bear interest through maturity,
at our election, with respect to (a) ABR Loans, 6.50% per annum and (b) LIBOR
Loans, 7.50% per annum. We began accruing interest on the outstanding Term Loans
on March 31, 2019, and continue to accrue interest on the outstanding Term loans
on the last business day of each March, June, September and December thereafter
while any Term Loan is outstanding, as well as on the final maturity date of the
Term Loans. For each interest payment date until and including the fiscal
quarter ending June 30, 2020, we have the option to elect whether the interest
payments due on such interest payment date shall be paid in cash or paid in kind
and capitalized. We have selected to pay in kind and have the interest
capitalized for the year ending December 31, 2019.



Principal payments on the Term Loans are paid according to the following
schedule: (i) on December 31, 2023, 50.0% of the outstanding principal amount of
the Term Loans as of such date, including any capitalized interest, (ii) on each
interest payment date thereafter, 12.5% of the outstanding principal amount of
the Term Loans as of December 31, 2023 and (iii) on January 3, 2025, any
remaining outstanding balance of the Term Loans. We are also required to make
mandatory prepayments of the Term Loans under the Credit Agreement, subject to
specified exceptions, with the proceeds of asset sales, debt issuances, royalty
transactions, collaboration transactions, and specified other events. In
addition, upon the occurrence of a change of control, we must prepay, the
outstanding amount of the Term Loans.



If all or any of the Term Loans are prepaid or required to be prepaid under the
Credit Agreement, then we will pay, in addition to such prepayment, a prepayment
premium equal to (i) with respect to any such prepayment paid on or prior to
January 3, 2021, the amount, if any, by which (a) the present value as of such
date of determination of (x) 105.00% of the principal amount of the Term Loans
prepaid plus (y) all required interest payments that would have been due on the
principal amount of the Term Loans prepaid through and including January 3,
2021, computed using a discount rate equal to the treasury rate most nearly
equal to the period from such date of prepayment to January 3, 2021 plus 50
basis points exceeds (b) the principal amount of the Term Loans prepaid, (ii)
with respect to any prepayment paid or required to be paid after January 3, 2021
but on or prior to January 3, 2022, 5.00% of the principal amount of the Term
Loans prepaid, (iii) with respect to any prepayment paid or required to be paid
after January 3, 2022 but on or prior to January 3, 2023, 2.00% of the principal
amount of the Term Loans prepaid and (iv) with respect to any prepayment paid or
required to be prepaid thereafter, 0.00% of the principal amount of the Term
Loans prepaid.



Upon the prepayment or repayment of all or any of the Term Loans, we will pay an
additional (in addition to the prepayment premium) exit fee in an amount equal
to 4.00% of the principal amount of the Term Loans prepaid or repaid. In
addition, we paid certain customary fees and expenses to the Agent and other
service providers upon the closing of the transaction.

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The obligations under the Credit Agreement are secured by a lien on
substantially all of our tangible and intangible property. The Credit Agreement
contains certain affirmative covenants, negative covenants and events of
default, including, covenants and restrictions that among other things, require
us and our subsidiary guarantors to satisfy a minimum cash balance covenant and
restricts our ability and each of our subsidiaries' ability to incur liens,
incur additional indebtedness, make loans and investments, engage in mergers and
acquisitions, engage in asset sales or sale and leaseback transactions, and
declare dividends or redeem or repurchase capital stock. A failure to comply
with these covenants could permit the Lenders under the Credit Agreement to
declare the Term Loans, together with accrued interest and fees, to be
immediately due and payable.

Collaboration with Nestle Health Science

In November 2016, we entered into a two-year strategic collaboration with an
affiliate of Nestle Health Science US Holdings, Inc. for the advancement of food
allergy therapeutics and issued and sold to Nestle Health Science US Holdings,
Inc. (together with its affiliate, Nestle Health Science) 7,552,084 shares of
common stock in a private placement at a price of $19.20 per share, which
represented approximately 15.1% of our outstanding shares at the time of the
transaction. Subject to certain limited exceptions, Nestle Health Science agreed
to a two-year market standoff provision under which it agreed not to sell or
transfer any of our common stock or other securities. Subject to certain limited
exceptions, Nestle Health Science also agreed to a two-year standstill agreement
under which Nestle Health Science agreed not to acquire us through any means. We
agreed to register the resale of the shares that Nestle Health Science purchased
on a registration statement to be filed with the SEC upon the request of Nestle
Health Science, which cannot make the request prior to the 45th day preceding
the end of the market standoff provision. The investment and the collaboration
do not include any development milestones, product marketing rights or
royalties.

In November 2018, we entered into an extension of the strategic collaboration on
similar terms and issued and sold an additional 3,237,529 shares of our common
stock in a private placement at a price of $30.27 per share for aggregate
proceeds of $98.0 million, increasing Nestlé Health Science's ownership of
Aimmune to approximately 19%. The transaction documents include the extension of
the registration rights, standstill rights and market standoff provisions. We
are not subject to any partnership, collaboration, or negotiation restrictions
under the extension agreements. In addition, we retain all rights to our current
and future pipeline assets, and we and Nestlé Health Science expect to continue
to collaborate towards the successful development of such assets.

The initial investment launched a two-year strategic collaboration, which was
extended for an additional two years in November 2018, between us and Nestle
Health Science, the terms of which enable both parties to discuss our current
and future oral immunotherapy development programs through a newly established
pipeline forum. Nestle Health Science will provide ongoing scientific,
regulatory, and commercial expertise and advice to us through the pipeline
forum. Any information disclosed in the collaboration will remain our
confidential information, and any new ideas or inventions that arise that relate
to our products will be our solely owned intellectual property. If we elect to
seek a partner or collaborator for one of our oral immunotherapy development
programs during the two-year term of the collaboration, Nestle Health Science
will have a three-month period to negotiate exclusively with us. During the term
of the collaboration, and for so long as Nestle Health Science holds not less
than ten percent of our outstanding common stock, Nestle Health Science will be
entitled to designate one nominee to serve as a director on our Board of
Directors. In November 2016, Greg Behar joined our Board of Directors on behalf
of Nestle Health Science. The strategic collaboration agreement contains a
non-competition covenant pursuant to which Nestle Health Science has agreed not
to engage in certain activities relating to OIT for the treatment of food
allergies.

In February 2020, we announced a $200.0 million equity investment by Nestle Health Science S.A. and the extension of their existing strategic collaboration designed to enable the development and commercialization of innovative food allergy therapies, which will terminate in November 2021.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles, or GAAP,
in the United States. The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, as well as the
reported revenue generated and expenses incurred during the reporting periods.
Our estimates are based on our historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. We
believe that the accounting policies discussed below are critical to
understanding our historical and future performance, as these policies relate to
the more significant areas involving management's judgments and estimates. Our
significant accounting policies are more fully described in Note 2 of Notes to
Consolidated Financial Statements in Part II, Item 8 of this Annual Report on
Form 10-K.

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Accrued Research and Development Costs

We record expenses for our research and development activities conducted by
third-party service providers, which include the conduct of pre-clinical studies
and clinical trials, contract manufacturing activities and pre-approval
inventory, based upon the estimated amount of services provided and work
completed but not yet invoiced and in accordance with agreements established
with these third-party service providers. We include these costs in accrued
liabilities in the consolidated balance sheets and within research and
development expenses in the consolidated statements of operations and
comprehensive loss. These costs are a significant component of our research and
development expenses.

We estimate the amount of work completed through discussions with internal
personnel and external service providers as to the progress or stage of
completion of the services and the agreed-upon fee to be paid for such services.
We make significant judgments and estimates in determining the accrued balance
in each reporting period. As actual costs become known, we adjust our accrued
estimates. Although we do not expect our estimates to be materially different
from amounts actually incurred, our understanding of the status and timing of
services performed, the number of patients enrolled and the rate of patient
enrollment may vary from our estimates and could result in us reporting amounts
that are too high or too low in any particular period. Our accrued expenses are
dependent, in part, upon the receipt of timely and accurate reporting from
clinical research organizations and other third-party service providers. To
date, there have been no material differences from our accrued expenses to
actual expenses.

Stock-Based Compensation

We recognize compensation costs related to stock options granted to employees
and directors based on the estimated fair value of the awards on the date of
grant, net of estimated forfeitures. We estimate the grant date fair value using
the Black-Scholes option-pricing model. The grant date fair value of the
stock-based awards is generally recognized on a straight-line basis over the
requisite service period, which is generally the vesting period of the
respective awards. The fair value of ESPP is expensed over the purchase period,
which is generally six months, on a straight-line basis.

We recorded stock-based compensation expense of $32.9 million, $32.7 million and $16.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.

In determining the fair value of the stock-based awards used to calculate stock-based compensation expense, we use the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires judgment to determine.

• Expected Term. The expected term of stock-bases awards represents the

weighted average period the stock-based awards are expected to be

outstanding. We have opted to use the simplified method for estimating the

expected term as provided by the Securities and Exchange Commission Staff

Accounting Bulletin, or SAB, 110 as our stock-based awards are considered

"plain vanilla". The simplified method calculates the expected term as the

        average time-to-vesting and the contractual life of the options. We plan
        to continue to use the simplified method under SAB 110 until we have
        sufficient exercise history as a publicly traded company.

• Expected Volatility. As we have limited trading history for our common

stock, the expected stock price volatility assumption is determined based

on the historical volatilities of a group of industry peers as well as the

historical volatility of our own common stock since we began trading

subsequent to our IPO in August 2015. Industry peers consist of several

public companies in the biopharmaceutical industry with comparable

characteristics including enterprise value, risk profiles and position

within the industry. We intend to continue to consistently apply this

process using the same or similar public companies until a sufficient

        amount of historical information regarding the volatility of our own
        common stock share price becomes available, or unless circumstances change
        such that the identified companies are no longer similar to us, in which

case, more suitable companies whose share prices are publicly available

would be utilized in the calculation.

• Risk-Free Interest Rate. The risk-free interest rate is based on the

implied yield available on U.S. Treasury zero-coupon issues in effect at

the time of grant for periods corresponding with the expected term of the

stock-based award.

• Expected Dividend Yield. We have never paid dividends on our common stock

and have no plans to pay dividends on our common stock. Therefore, we used

        an expected dividend yield of zero for all years presented.


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Restricted Stock Units, or RSUs are measured based on the fair market value of
the underlying stock on the date of grant and recognized as expense on a
straight-line basis over the employee's requisite service period (generally the
vesting period).

The weighted-average assumptions used to estimate the fair value of stock
options using the Black-Scholes option valuation model and the resulting
weighted average grant date fair value of stock options granted were as follows:



                                            Year Ended December 31,
                                          2019        2018        2017
Expected term (in years)                     6.0         6.0         6.0
Expected volatility                         62.4 %      67.8 %      73.1 %
Risk free interest rate                      2.3 %       2.5 %       2.0 %
Dividend yield                                 -           -           -

Weighted average estimated fair value $ 13.47 $ 19.53 $ 13.70

In addition to the Black-Scholes assumptions, we estimate our forfeiture rate
based on an analysis of our actual forfeitures and will continue to evaluate the
adequacy of the forfeiture rate based on actual forfeiture experience, analysis
of employee turnover behavior and other factors. The impact from any forfeiture
rate adjustment would be recognized in full in the period of adjustment, and if
the actual number of future forfeitures differs from our estimates, we might be
required to record adjustments to stock-based compensation in future periods. We
will continue to use judgment in evaluating the expected volatility, expected
terms and forfeiture rates utilized for our stock-based compensation expense
calculations on a prospective basis.



As of December 31, 2019, we had $48.2 million and $7.9 million of unrecognized
stock-based compensation expense related to unvested stock options and stock
awards, respectively, which is expected to be recognized over an estimated
weighted-average period of 2.7 years and 2.4 years, respectively. For stock
options subject to ratable vesting, we recognize stock-based compensation
expense on a straight-line basis over the service period for the entire award.
In future periods, our stock-based compensation expense is expected to increase
as a result of recognizing our existing unrecognized stock-based compensation
for awards that will vest and as we issue additional stock-based awards to
attract and retain our employees.

Recent Accounting Pronouncements

The information required by this item is included in Note 2, Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Components of Results of Operations

Research and Development Expenses

The largest component of our total operating expenses has historically been our investment in research and development activities. Research and development expenses consist primarily of external-related expenses, employee-related expenses, stock-based compensation expense, and facilities and other costs, which include the following:

• External costs include costs incurred to conduct research, such as the

discovery and development of our product candidates; costs related to the

production of clinical supplies and pre-approval inventory, including fees

paid to contract manufacturers; fees paid to consultants and vendors,

including clinical research organizations in conjunction with implementing

and monitoring our clinical trials and acquiring and evaluating clinical

trial data, including all related fees, such as for investigator grants,

patient screening fees, laboratory work and statistical compilation and

analysis; costs for scientific conferences and meetings; and costs related

to compliance with drug development regulatory requirements.

• Employee-related costs include salaries, bonuses, severance and benefits

for personnel in our research and development functions.

• Stock-based compensation expense is expense associated with our equity

plans for awards to personnel in our research and development functions.

• Facilities and other costs include facilities-related rent, depreciation

and other allocable expenses, which include general and administrative

support functions and general supplies for our research and development

        activities.


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We recognize all research and development expenses as they are incurred. Clinical trial, contract manufacturing prior to FDA approval and other development costs incurred by third parties are expensed as the contracted work is performed.

General and Administrative Expenses

General and administrative expenses include employee-related costs, stock-based
compensation expense, external professional services expenses, and facilities
and other costs. Employee-related costs include salaries, bonuses, severance and
benefits for personnel in our general and administrative functions, including
medical affairs. Stock-based compensation expense is expense associated with our
equity plans for awards to personnel in our general and administrative
functions. External professional services expenses consist of legal, accounting,
and audit services, certain medical affairs related-expenses and other
consulting fees. Facilities and other costs consist of allocable expenses,
including facilities-related rent and depreciation, from our facilities and
information technology departments, which are allocated between research and
development and general and administrative functions based on headcount.

Results of Operations

Comparison of the years ended December 31, 2019 and 2018

                                             Year Ended December 31,
                                               2019             2018        $ Change       % Change
                                                                (In thousands)
Operating expenses:
Research and development                   $     123,987     $  133,420     $  (9,433 )           (7 )%
General and administrative                       125,817         81,921        43,896             54 %
Total operating expenses                         249,804        215,341        34,463             16 %
Loss from operations                            (249,804 )     (215,341 )     (34,463 )           16 %
Interest income                                    5,851          4,984           867             17 %
Interest expense                                  (4,916 )         (113 )      (4,803 )         4250 %
Other income (expense), net                        1,088           (221 )       1,309           (592 )%

Loss before provision for income taxes (247,781 ) (210,691 )

  (37,090 )           18 %
Provision for income taxes                           716             61           655           1074 %
Net loss                                   $    (248,497 )   $ (210,752 )   $ (37,745 )           18 %

Research and Development Expenses

The following table summarizes our research and development expenses incurred during the years ended December 31, 2019 and 2018:

                                             Year Ended December 31,
                                               2019             2018        $ Change       % Change
                                                                (In thousands)

External clinical-related expenses $ 68,262 $ 86,577 $ (18,315 ) (21 )% Employee-related costs

                           31,644          27,903         3,741             13 %
Stock-based compensation expense                 11,245           9,945         1,300             13 %
Facilities and other costs                       12,836           8,995         3,841             43 %
Total research and development             $    123,987       $ 133,420     $  (9,433 )           (7 )%




Research and development expenses decreased by $9.4 million for the year ended
December 31, 2019 compared to the year ended December 31, 2018, primarily due to
decreased external clinical-related expenses, which were partially offset by
higher employee-related costs, stock-based compensation expense and facilities
and other costs. External costs decreased primarily due to the close-out of
certain PALFORZIA clinical trials, including RAMSES, ARC009, ARTEMIS and ARC011,
and were partially offset by an increase in manufacturing costs for the
production of pre-approval inventory of PALFORZIA as well as costs related to
our Phase 2 clinical trial of AR201 in subjects with hen egg allergy.
Employee-related costs and stock-based compensation expense increased primarily
due to increased headcount to support continued development of PALFORZIA.
Facilities and other costs increased primarily due to the allocation of higher
facilities and information technology costs, which are allocable from general
and administrative to research and development expenses based on headcount.



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We expect research and development expenses to decrease in the near-term as we
continue to close-out PALFORZIA related clinical trials, which we expect to be
partially offset by the development of additional CODIT product candidates,
including for the treatment of egg allergy and multi-tree nut allergy. Following
our receipt of regulatory approval of PALFORZIA in January 2020, future
manufacturing costs will be capitalized as inventory and will subsequently be
expensed as costs of goods sold when such inventory is sold.

General and Administrative Expenses

The following table summarizes our general and administrative expenses incurred during the years ended December 31, 2019 and 2018:

                                     Year Ended December 31,
                                       2019              2018       $ Change      % Change
                                                        (In thousands)
Employee-related costs             $      44,684       $ 22,949     $  21,735            95 %

Stock-based compensation expense 21,684 22,787 (1,103 ) (5 )% External professional services

            56,168         35,028        21,140            60 %
Facilities and other costs                 3,281          1,157         2,124           184 %

Total general and administrative $ 125,817 $ 81,921 $ 43,896

            54 %




General and administrative expenses increased by $43.9 million for the year
ended December 31, 2019 compared to the year ended December 31, 2018,
primarily due to increased employee-related costs, external professional
services costs and facilities and other costs. Employee-related costs increased
primarily due to increased headcount, which was for additional administrative
support for the continued buildout of our infrastructure to support the
commercialization of PALFORZIA, including the establishment of key commercial
functions such as marketing, market access and our field teams and a medical
science liaison organization. External professional services costs increased
primarily due to consulting services for commercial planning, medical education
and grants, and support for PALFORZIA.  Facilities and other costs increased due
to increased general and administrative costs related to support functions and
general supplies for our growing headcount. Stock-based compensation expense
decreased primarily due to lower expense from our stock issuance to an affiliate
of GPC as a result of lower stock prices in 2019.

We expect our general and administrative expenses to continue to increase as we
continue to build our commercial infrastructure, including the hiring of
additional personnel, and incur expenses related to the commercialization of
PALFORZIA.



Interest Income

Interest income increased by $0.9 million for the year ended December 31, 2019
compared to the year ended December 31, 2018, primarily due to higher interest
income resulting from higher average cash, cash equivalents, and investment
balances.



Interest Expense

Interest expense increased by $4.8 million for the year ended December 31, 2019 compared to the year ended December 31, 2018, due to interest expense on long-term debt issued in January 2019.

Other income (expense), net

Other income (expense), net, increased by $1.3 million for the year ended December 31, 2019 compared to the year ended December 31, 2018, due to research and development credits related to our foreign subsidiaries.

Provision for Income Taxes

The provision for income taxes for the year ended December 31, 2019 resulted from our foreign subsidiaries.

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Comparison of the years ended December 31, 2018 and 2017

Refer to our Annual Report on Form 10-K filed with the SEC on February 28, 2019 for a comparison of the results for the years ended December 31, 2018 and 2017.

Liquidity and Capital Resources

As of December 31, 2019, we had cash, cash equivalents and investments of $158.2
million. With the proceeds from Nestlé Health Science's $200.0 million equity
investment and the draw of the second loan tranche from KKR of $85.0 million in
February 2020, we anticipate that these financial resources will fully fund us
based on our current business plan.

In February and March 2018, we issued and sold an aggregate of 6,325,000 shares
of our common stock in an underwritten public offering at a price to the public
of $32.00 per share, including the closing of the full exercise of the
underwriters' option to purchase an additional 825,000 shares of common
stock. In November 2018, we sold 3,237,529 shares of our common stock to Nestlé
Health Science at a price of $30.27 per share, for aggregate proceeds of $98.0
million.

In January 2019, we entered into a loan agreement with an affiliate of KKR for
up to $170.0 million in three tranches. Of the total loan amount, $40.0 million
was funded upon the closing of the transaction in January 2019 and $85.0 million
was funded in February 2020 upon FDA approval of AR101 and satisfaction of other
customary borrowing conditions. The remaining $45.0 million is to be made
available at our option in 2020, upon the satisfaction of certain borrowing
conditions, including our achievement of aggregate net sales (as defined in the
agreement) for PALFORIZA by July 31, 2020 in an amount of at least $30.0
million. The loan can be prepaid at our discretion, at any time, subject to
prepayment fees. The weighted-average interest rate will be calculated based on
the daily cost of borrowing, reflecting the relevant adjusted London Interbank
Offered Rate, or LIBOR, or Alternate Base Rate, or ABR plus the applicable
margin. We have the option to elect to make interest payments from available
funds or make interest payments in kind by capitalizing such interest amounts on
the applicable interest payment date by adding the amounts to the outstanding
principal amount of the loan. Any capitalized amounts shall thereafter bear
interest. The Company has selected to pay in kind and have the interest
capitalized for the year ending December 31, 2019.

In February 2020, we sold Nestlé Health Science an additional 525,634 shares of
our Series A Preferred Stock at a price of $319.675 per share and 1,000,000
shares of our common stock at a price of $31.97 per share for aggregate proceeds
of $200.0 million.

With FDA approval in January 2020, we expect to commence commercial sales in the
first quarter of 2020. Until such time that we can generate substantial revenue
from product sales, if ever, we expect to finance our operating activities with
existing cash and investment and through a combination of equity offerings and
debt financings and we may seek to raise additional capital through strategic
collaborations. However, we may be unable to raise additional funds or enter
into such arrangements when needed on favorable terms, or at all, which would
have a negative impact on our financial condition and could force us to delay,
limit, reduce or terminate our development programs or commercialization efforts
or grant to others rights to develop or market product candidates that we would
otherwise prefer to develop and market ourselves. Failure to receive additional
funding could cause us to cease operations, in part or in full. Furthermore,
even if we believe we have sufficient funds for our current or future operating
plans, we may seek additional capital due to favorable market conditions or
strategic considerations.

We expect to incur continued expenditures in the future in connection with the
expansion of our U.S. commercial infrastructure and sales force in connection
with commercializing PALFORZIA in the United States. In addition, we intend to
continue to make investments in the development of AR201 to treat egg allergy
and explore other product candidates.

Summary Statement of Cash Flows

Comparison of the years ended December 31, 2019 and 2018

                                            Year Ended December 31,
                                              2019             2018          Change
                                                        (In thousands)
Net cash provided by (used in):
Operating activities                      $    (195,408 )   $ (169,128 )   $  (26,280 )
Investing activities                            111,899        (96,010 )      207,909
Financing activities                             55,878        299,162     

(243,284 ) Net change in cash and cash equivalents $ (27,631 ) $ 34,024 $ (61,655 )

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Net Cash Used In Operating Activities

Net cash used in operating activities was $195.4 million for the year ended
December 31, 2019, an increase of $26.3 million from $169.1 million for the year
ended December 31, 2018. This increase was primarily due to higher net loss from
operations resulting from increased general and administrative expenses.

Net Cash Provided By Investing Activities

Net cash provided by investing activities was $111.9 million for the year ended
December 31, 2019, an increase of $207.9 million from net cash used in investing
activities of $96.0 million for the year ended December 31, 2018. The increase
was primarily due to the timing of net maturities of various investments and
capitalized assets.

Net Cash Provided By Financing Activities

Net cash provided by financing activities was $55.9 million for the year ended
December 31, 2019, a decrease of $243.3 million from $299.2 million for the year
ended December 31, 2018. The decrease was primarily due to 6,325,000 shares
issued and sold during our public offering in February 2018, which was partially
offset by our net debt borrowing under the KKR agreement of $36.1 million in
January 2019.

As of December 31, 2019, we had cash, cash equivalents and investments of $158.2 million.

Comparison of the years ended December 31, 2018 and 2017

Refer to our Annual Report on Form 10-K filed with the SEC on February 28, 2019 for a comparison of the results for the years ended December 31, 2018 and 2017.

Contractual Obligations and Other Commitments

The following table summarizes our future contractual obligations as of December
31, 2019:



                                                          Years
                         Total         Less than 1         1-3            3-5          More than 5
                                                      (In thousands)
Operating leases       $   17,506     $       3,772     $    7,868     $    5,639     $         227
Capital lease                  78                34             44              -                 -
Long-term debt (1)         44,004                 -              -         44,004                 -
Other purchase
commitments and
  obligations (2),
(3), (4), (5)              52,389            11,892         18,592         18,875             3,030
Total contractual
obligations            $  113,977     $      15,698     $   26,504     $   68,518     $       3,257

(1) In January 2019, we entered into a loan agreement with an affiliate of KKR

for up to $170.0 million in three tranches. Of the total loan amount, $40.0

    million was funded upon the closing of the transaction. The loan can be
    prepaid at our discretion, at any time, subject to prepayment fees. The
    weighted-average interest rate is calculated based on the daily cost of
    borrowing, reflecting the relevant adjusted LIBOR Rate or ABR plus the

applicable margin. We have the option to elect to make interest payments from

available funds or make interest payments in kind by capitalizing such

interest amounts on the applicable interest payment date by adding the

amounts to the outstanding principal amount of the loan. Any capitalized

amounts shall thereafter bear interest. The Company selected to pay in kind

and have the interest capitalized for the year ending December 31, 2019.

In February 2020, $85.0 million was funded following FDA approval of PALFORZIA
and satisfaction of other customary borrowing conditions. The remaining
$45.0 million is to be made available at our option in 2020, upon the
satisfaction of certain borrowing conditions, including our achievement of
aggregate net sales (as defined in the agreement) for PALFORIZA by July 31, 2020
in an amount of at least $30.0 million.

(2) We purchase standard food-grade peanut flour from Golden Peanut Company, or

GPC, a wholly-owned subsidiary of Archer Daniels Midland, pursuant to a

long-term exclusive commercial supply agreement, which was expanded and

extended in January 2018. GPC is not allowed to sell several peanut flour

products to any third party worldwide for use in OIT for the treatment or

cure of peanut allergy, provided that we are in compliance with our exclusive

purchase obligation and meet specified annual purchase commitments. The

restated agreement remains in effect until ten years after the first delivery

to us of peanut flour for commercial use and includes an option for us to

extend the term for an additional five years. In connection with the

expansion and extension of the agreement, we issued Archer Daniels Midland

Company 300,000 shares of our common stock, vesting over a 3.5-year period.

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Pursuant with the restated agreement, our purchase obligation commences with the
first delivery of peanut flour for commercial use, which occurred in 2019. The
aggregate purchase commitment under this agreement would be $5.6 million over a
term of nine years.

(3) In December 2018, we entered into an exclusive supply agreement for egg

protein with Michael Foods, Inc. Pursuant to the agreement, we have exclusive

access to the clinical and commercial use of Michael Foods' egg products for

any egg allergy treatment, prevention or cure for a period of up to 15 years

    beyond the potential approval of AR201.

(4) In May 2019, we entered into a commercial supply agreement, or the Commercial

Supply Agreement, pursuant to which CoreRx, Inc. agreed to manufacture

commercial supply of PALFORZIA, if approved. Under the Commercial Supply

Agreement, we are required to purchase a minimum percentage of our PALFORZIA

commercial supply requirements in each of the first six years of the

Commercial Supply Agreement, subject to certain conditions and restrictions,

ranging from 100% in 2019 and decreasing to a majority in 2024.We are also

required to purchase a minimum percentage or our PALFORZIA supply

requirements for release testing in each of the first six years of the

Commercial Supply Agreement, ranging from 100% in 2019 and decreasing to a

significant majority in 2024. As of December 31, 2019, the minimum aggregate

purchase commitment under this agreement would be $43.8 million. The initial

term of the Commercial Supply Agreement began upon execution of the

Commercial Supply Agreement and will continue until December 31, 2024. The

Commercial Supply Agreement then automatically renews for

successive two-year terms, unless earlier terminated pursuant to its terms,

    or upon either party's notice of termination to the other.

(5) In November 2019, we entered into a commercial packaging agreement, or the

Commercial Packaging Agreement, with AndersonCrecon Inc. doing business as

PCI of Illinois, or PCI, pursuant to which PCI package bulk product in

accordance with our specifications, applicable laws and the terms and

conditions of the Commercial Packaging Agreement. The initial term of the

Commercial Packaging Agreement is for four contract years following the

effective date. Contract Year one means the period beginning on the effective

date of the Commercial Packaging Agreement and ending on December 31, 2019.

Each contract year thereafter is the 12-month period from January 1 to

December 31. The Commercial Packaging Agreement will automatically be renewed

for one-year terms after the end of the Initial Term unless and until one

party gives the other party at least three (3) years prior written notice of

its desire to terminate as of the end of the then-current term, or is

otherwise terminated in accordance with the other terms of the Commercial

Packaging Agreement. As of December 31, 2019, the minimum aggregate purchase

    commitment under this agreement would be $3.0 million.




In February 2020, we entered into a license agreement, or the License Agreement,
with Xencor, Inc., or Xencor, for the exclusive, worldwide, royalty-bearing
license for the development, manufacture and commercialization of
biopharmaceutical products containing or comprising the humanized monoclonal
antibody AIMab7195 (formerly XmAb7195) or certain variants of AIMab7195, each of
which is referred to as an AIMab7195 Product. We will be solely responsible for
costs related to the development of AIMab7195.



We are obligated to pay Xencor an aggregate of up to $380.0 million in milestone
payments, which includes $17.0 million in development milestones, $53.0 million
in regulatory milestones and $310.0 million in sales milestone, and to issue an
additional number of shares of our Common Stock having an aggregate value of
$5.0 million in connection with the achievement of the first development
milestone with respect to an AIMab7195 Product. We will also pay a royalty to
Xencor equal to a percentage of net sales of AIMab7195 Products in the high
single-digit to mid-teen range. Our contractual obligations under the License
Agreement are not reflected in the table above.

In connection with our entry into the License Agreement, we also agreed to assume Xencor's rights and obligations under its license of the AIMab7195 cell line from Catalent Pharma Solutions LLC, which manufactures AIMab7195 using their proprietary GPEx® technology.

We enter into agreements in the normal course of business with vendors for other
services and products for operating purposes, including contract research
organizations for clinical trials and vendors for manufacturing-related
expenses, which are cancelable at any time by us, generally upon 30 days prior
written notice. These payments are not included in this table of contractual
obligations.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements and do not have variable interests in variable interest entities.

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