Edgar Filing: Sarepta Therapeutics, Inc.

srpt-10q_20160630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-14895

SAREPTA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware		93-0797222
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

215 First Street, Suite 415 Cambridge, MA		02142
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (617) 274-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller Reporting Company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock with $0.0001 par value		47,899,532
(Class)		(Outstanding as of August 3, 2016)

SAREPTA THERAPEUTICS, INC.

FORM 10-Q

INDEX

		Page
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets — As of June 30, 2016 and December 31, 2015	3

	Condensed Consolidated Statements of Operations and Comprehensive Loss — For the Three and Six Months Ended June 30, 2016 and 2015	4

	Condensed Consolidated Statements of Cash Flows — For the Six Months Ended June 30, 2016 and 2015	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

Item 4.	Controls and Procedures	24

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Mine Safety Disclosures	41

Item 5.	Other Information	41

Item 6.	Exhibits	41

Signatures		42

Exhibits		43

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SAREPTA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except shares and per share amounts)

	As of June 30, 2016			As of December 31, 2015
Assets
Current Assets:
Cash and cash equivalents	$	111,819		$	80,304
Short-term investments		11,396			112,187
Accounts receivable		3,982			3,977
Restricted investment		10,695			10,695
Other current assets		15,302			17,380
Total current assets		153,194			224,543
Restricted cash and investments		783			783
Property and equipment, net of accumulated depreciation of $27,148 and $24,594 as of June 30, 2016 and December 31, 2015, respectively		36,158			37,344
Patent costs, net of accumulated amortization of $2,903 and $2,620 as of June 30, 2016 and December 31, 2015, respectively		6,991			6,642
Other non-current assets		6,942			4,470
Total assets	$	204,068		$	273,782

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	17,133		$	20,234
Accrued expenses		35,064			29,053
Current portion of long-term debt		10,106			5,936
Current portion of notes payable		—			2,493
Deferred revenue		3,303			3,303
Other current liabilities		1,324			1,275
Total current liabilities		66,930			62,294
Long-term debt		10,111			14,969
Deferred rent and other		5,567			6,172
Total liabilities		82,608			83,435
Commitments and contingencies (Note 12)
Stockholders’ Equity:
Preferred stock, $.0001 par value, 3,333,333 shares authorized; none issued and outstanding		—			—
Common stock, $.0001 par value, 99,000,000 shares authorized; 47,870,205 and 45,629,529 issued and outstanding at June 30, 2016 and December 31, 2015, respectively		5			5
Additional paid-in capital		1,142,580			1,089,508
Accumulated other comprehensive income (loss)		1			(111	)
Accumulated deficit		(1,021,126	)		(899,055	)
Total stockholders’ equity		121,460			190,347
Total liabilities and stockholders’ equity	$	204,068		$	273,782

See accompanying notes to unaudited condensed consolidated financial statements.

SAREPTA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited, in thousands, except per share amounts)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Revenue from research contracts and other grants	$	—		$	—		$	—		$	—
Operating expenses:
Research and development		44,348			29,180			83,174			68,345
General and administrative		17,752			12,927			38,628			35,624
Total operating expenses		62,100			42,107			121,802			103,969
Operating loss		(62,100	)		(42,107	)		(121,802	)		(103,969	)

Other income (loss):
Interest (expense) income and other, net		(201	)		256			(269	)		559
Total other (loss) income		(201	)		256			(269	)		559

Net loss	$	(62,301	)	$	(41,851	)	$	(122,071	)	$	(103,410	)

Other comprehensive income (loss):
Unrealized gain (loss) on short-term securities - available-for-sale		6			(2	)		112			76
Total other comprehensive income (loss)		6			(2	)		112			76

Comprehensive loss	$	(62,295	)	$	(41,853	)	$	(121,959	)	$	(103,334	)
Net loss per share — basic and diluted	$	(1.35	)	$	(1.01	)	$	(2.66	)	$	(2.50	)

Weighted average number of shares of common stock outstanding for computing basic and diluted net loss per share		46,157			41,357			45,927			41,341

See accompanying notes to unaudited condensed consolidated financial statements.

SAREPTA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	For the Six Months Ended June 30,
	2016			2015
Cash flows from operating activities:
Net loss	$	(122,071	)	$	(103,410	)
Adjustments to reconcile net loss to cash flows from operating activities:
Depreciation and amortization		2,873			2,571
Amortization of premium on available-for-sale securities, loss from sale of available-for-sale securities and non-cash interest		394			613
Loss on abandonment of patents		24			132
Stock-based compensation		13,665			20,086
Changes in operating assets and liabilities, net:
Net increase in accounts receivable		(5	)		—
Net (increase) decrease in other assets		(394	)		8,695
Net increase (decrease) in accounts payable, accrued expenses, deferred revenue and other liabilities		1,542			(566	)
Net cash used in operating activities		(103,972	)		(71,879	)

Cash flows from investing activities:
Purchase of property and equipment		(1,587	)		(1,169	)
Patent costs		(768	)		(640	)
Purchase of available-for-sale securities		—			(49,631	)
Sale and maturity of available-for-sale securities		100,712			98,650
Net cash provided by investing activities		98,357			47,210

Cash flows from financing activities:
Proceeds from borrowings, net of debt issuance costs		—			19,734
Repayments of long-term debt and notes payable		(2,551	)		(49	)
Proceeds from exercise of options, purchase of stock under the Employee Stock Purchase Program and sales of common stock		39,681			971
Net cash provided by financing activities		37,130			20,656

Increase (decrease) in cash and cash equivalents		31,515			(4,013	)

Cash and cash equivalents:
Beginning of period		80,304			73,551
End of period	$	111,819		$	69,538

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	828		$	37
Supplemental schedule of non-cash investing activities and financing activities:
Property and equipment included in accrued expenses	$	99		$	—
Accrual for senior secured term loan principal payment	$	833		$	—
Accrual for debt issuance costs related to the senior secured term loan	$	400		$	540
Patent costs included in accrued expenses	$	259		$	170
Accrual for offering costs related to the June 2016 equity offering	$	170		$	—
Shares withheld for taxes	$	104		$	—
Capitalized interest	$	—		$	99

See accompanying notes to unaudited condensed consolidated financial statements.

SAREPTA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BUSINESS AND BASIS OF PRESENTATION

Business

Sarepta Therapeutics, Inc. (together with its wholly-owned subsidiaries “Sarepta” or the “Company”) is a biopharmaceutical company focused on the discovery and development of unique RNA-targeted therapeutics for the treatment of rare, infectious and other diseases. Applying its proprietary, highly-differentiated and innovative platform technologies, the Company is able to target a broad range of diseases and disorders through distinct RNA-targeted mechanisms of action. The Company is primarily focused on rapidly advancing the development of its potentially disease-modifying Duchenne muscular dystrophy (“DMD”) drug candidates, including its lead DMD product candidate, eteplirsen, designed to skip exon 51.

On April 25, 2016, the U.S. Food and Drug Administration (“FDA”) Peripheral and Central Nervous System Advisory Committee (“PCNSC”) met to review the new drug application (“NDA”) for eteplirsen as a treatment for DMD in patients with mutations that are amenable to exon 51 skipping. The PCNSC voted 6 to 7 against the finding of substantial evidence from adequate and well-controlled studies that show that eteplirsen induces production of dystrophin to a level that is reasonably likely to predict clinical benefit (FDA Question #2). The PCNSC voted 3 to 7, with three abstentions, against finding substantial evidence based on the clinical results of the single historically-controlled study that eteplirsen is effective for treatment of DMD (FDA Question #7). In three additional voting questions, the panel voted 5 to 7, with one abstention, against whether decisions to administer the 6-minute walk test (vs. conclusions that the patient could no longer walk) were sufficiently objective and free of bias and subjective decision-making by patients, their caregivers, and/or health care professionals to allow for a valid comparison between patients in Study201/202 and an external control group (FDA Question #4). The panel voted on the impact of the North Star Ambulatory Assessment with one panel member voting that it strengthened the persuasiveness of the findings in Study 201/202, with five voting that it weakened the persuasiveness, and seven voting that it had no effect (FDA Question #5). The panel also voted on the impact of the other tests of physical performance (e.g., rise time, 10-meter run/walk) on the persuasiveness of the findings in Study 201/202, with the result of one panel member voting that they strengthened the persuasiveness, two voting that they weakened the persuasiveness, and ten voting that they had no effect (FDA Question # 6). The FDA is not bound by the PCNSC’s recommendation but takes its advice into consideration when reviewing New Drug and Biologic License Applications in general. The Prescription Drug User Fee Act action (“PDUFA”) date for eteplirsen was May 26, 2016.

However, on May 25, 2016, the Company announced that the FDA notified it that the FDA is continuing its review and internal discussions related to the Company’s pending NDA for eteplirsen and will not be able to complete its work by the PDUFA goal date of May 26, 2016. The FDA has communicated that they will continue to work past the PDUFA goal date and strive to complete their work in as timely a manner as possible. On June 6, 2016, the Company announced that the FDA requested that the Company provide dystrophin data, as measured by western blot, from biopsies already obtained from the ongoing confirmatory study of eteplirsen, as part of its ongoing evaluation of the eteplirsen NDA.

The Company is also researching and developing therapeutics using its technology for the treatment of drug resistant bacteria and infectious, rare and other human diseases.

The Company has not generated any revenue from product sales to date and there can be no assurance that revenue from product sales will be achieved. Even if it does achieve revenue from product sales, the Company is likely to continue to incur operating losses in the near term.

As of June 30, 2016, the Company had approximately $134.7 million of cash, cash equivalents and investments, consisting of $111.8 million of cash and cash equivalents, $11.4 million of short-term investments and $11.5 million of restricted cash and investments. The Company believes that its balance of cash, cash equivalents and investments as of June 30, 2016 is sufficient to fund its current operational plan for the next twelve months, though it may pursue additional cash resources through public or private financings, seek additional government funding and establish collaborations with or license its technology to other companies.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), reflect the accounts of Sarepta Therapeutics, Inc. and its wholly-owned subsidiaries. All inter-company transactions between and among its consolidated subsidiaries have been eliminated. Management has determined that the Company operates in one segment: the development of pharmaceutical products. The information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Estimates and Uncertainties

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenue, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the valuation of stock-based awards, research and development expenses and income taxes.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, “Improvements to Employee Share-Based Payment Accounting”. The amendments in this update simplify several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU No. 2016-09 will be effective for fiscal years beginning after December 15, 2016, with early adoption permitted. As of June 30, 2016, the Company has not elected to early adopt this guidance or determined the effect that the adoption of this guidance will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which supersedes Topic 840, “Leases”. Under the new guidance, a lessee should recognize assets and liabilities that arise from its leases and disclose qualitative and quantitative information about its leasing arrangements. ASU No. 2016-02 will be effective for fiscal years beginning after December 15, 2018, with early adoption permitted. As of June 30, 2016, the Company has not elected to early adopt this guidance or determined the effect that the adoption of this guidance will have on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. This update requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued and to provide related disclosures. ASU No. 2014-15 will be effective for the annual period ending after December 15, 2016, with early adoption permitted. As of June 30, 2016, the Company has not elected to early adopt this guidance, and based on the Company's financial condition as of the date these financial statements were issued or available for issuance, the Company does not expect the adoption of this guidance to have any impact on the current period financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, “Revenue Recognition”. Under the new guidance, a company is required to recognize revenue when it transfers goods or renders services to customers at an amount that it expects to be entitled to in exchange for these goods or services. The new standard allows for either a full retrospective with or without practical expedients or a retrospective with a cumulative catch upon adoption transition method. This guidance is effective for the fiscal years beginning after December 15, 2016, with early adoption not permitted. In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date”, which states that the mandatory effective date of this new revenue standard will be delayed by one year, with early adoption only permitted in fiscal year 2017. During the second quarter of 2016, the FASB issued three amendments to the new revenue standard to address some application questions: ASU No. 2016-10, “Identifying Performance Obligations and Licensing”, ASU No. 2016-11, “Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09”, and ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients”. These three amendments will be effective upon adoption of Topic 606. As of June 30, 2016, the Company has not yet determined which adoption method it will utilize or the effect that the adoption of this guidance will have on its consolidated financial statements.

3. SIGNIFICANT AGREEMENT

University of Western Australia

In April 2013, the Company and the University of Western Australia (“UWA”) entered into an agreement under which an existing exclusive license agreement between the Company and UWA was amended and restated (the “Amended and Restated UWA License Agreement”). The Amended and Restated UWA License Agreement grants the Company specific rights to the treatment of DMD by inducing the skipping of certain exons and eteplirsen falls under the scope of the license agreement. Under the Amended and Restated UWA License Agreement, the Company may be required to pay a low-single-digit percentage royalty on net sales of products covered by issued patents licensed from UWA during the term of the Amended and Restated UWA License Agreement. However, the Company has the option to purchase future royalties up-front. Under this option, the Company may be required to make a one-time royalty payment of $30.0 million to UWA.

In June 2016, the Company and UWA entered into the first amendment to the Amended and Restated UWA License Agreement (the “First Amendment”). Under the First Amendment, the Company was obligated to make an up-front payment of $7.0 million to UWA upon execution of the amendment. Under the terms of the First Amendment, UWA has waived certain rights and amended the

timing of certain payments under the Amended and Restated UWA License Agreement. The Company is still obligated to make $20.0 million payments to UWA upon successful achievement of certain commercial milestones.

For the three and six months ended June 30, 2016, the Company recorded $7.0 million relating to the up-front payment to UWA as research and development expense in the unaudited condensed consolidated statement of operations and comprehensive loss.

4. FAIR VALUE MEASUREMENTS

The Company has certain financial assets that are recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

Level 1 — quoted prices for identical instruments in active markets;

Level 2 — quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3 — valuations derived from valuation techniques in which one or more significant value drivers are unobservable.

The tables below present information about the Company’s financial assets that are measured and carried at fair value and indicate the level within the fair value hierarchy of valuation techniques it utilizes to determine such fair value:

	Fair Value Measurement as of June 30, 2016
	Total		Level 1		Level 2		Level 3
	(in thousands)
Money market funds	$	25,102	$	25,102	$	—	$	—
Commercial paper		4,998		—		4,998		—
Government and government agency bonds		3,068		—		3,068		—
Corporate bonds		3,330		—		3,330		—
Certificates of deposit		11,343		11,343		—		—
Total assets	$	47,841	$	36,445	$	11,396	$	—

	Fair Value Measurement as of December 31, 2015
	Total		Level 1		Level 2		Level 3
	(in thousands)
Money market funds	$	32,850	$	32,850	$	—	$	—
Commercial paper		48,899		—		48,899		—
Government and government agency bonds		50,918		—		50,918		—
Corporate bonds		17,370		—		17,370		—
Certificates of deposit		11,343		11,343		—		—
Total assets	$	161,380	$	44,193	$	117,187	$	—

The Company’s assets with fair value categorized as Level 1 within the fair value hierarchy include money market funds and certificates of deposit. Money market funds are publicly traded mutual funds and are presented as cash equivalents on the unaudited condensed consolidated balance sheets as of June 30, 2016.

The Company’s assets with fair value categorized as Level 2 within the fair value hierarchy consist of commercial paper, government and government agency bonds and corporate bonds. These assets have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, through income-based approaches utilizing observable market data.

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts for long-term debt approximate fair value based on market activity for other debt instruments with similar characteristics and comparable risk.

5. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

It is the Company’s policy to mitigate credit risk in its financial assets by maintaining a well-diversified portfolio that limits the amount of exposure as to maturity and investment type. The weighted average maturity of the Company’s available-for-sale securities as of June 30, 2016 and December 31, 2015 was approximately 9 and 4 months, respectively.

The following tables summarize the Company’s cash, cash equivalents and short-term investments for each of the periods indicated:

	As of June 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
	(in thousands)
Cash and money market funds	$	111,819	$	—	$	—	$	111,819
Commercial paper		4,998		—		—		4,998
Government and government agency bonds		3,067		1		—		3,068
Corporate bonds		3,330		—		—		3,330
Total assets	$	123,214	$	1	$	—	$	123,215
As reported:
Cash and cash equivalents	$	111,819	$	—	$	—	$	111,819
Short-term investments		11,395		1		—		11,396
Total assets	$	123,214	$	1	$	—	$	123,215

	As of December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	(in thousands)
Cash and money market funds	$	75,304	$	—	$	—		$	75,304
Commercial paper		48,936		—		(37	)		48,899
Government and government agency bonds		50,966		—		(48	)		50,918
Corporate bonds		17,396		—		(26	)		17,370
Total assets	$	192,602	$	—	$	(111	)	$	192,491
As reported:
Cash and cash equivalents	$	80,304	$	—	$	—		$	80,304
Short-term investments		112,298		—		(111	)		112,187
Total assets	$	192,602	$	—	$	(111	)	$	192,491

6. OTHER CURRENT ASSETS AND OTHER NON-CURRENT ASSETS

The following table summarizes the Company’s other current assets for each of the periods indicated:

	As of June 30, 2016		As of December 31, 2015
	(in thousands)
Manufacturing-related deposits	$	11,471	$	13,070
Prepaid expenses		2,726		3,109
Other		1,105		1,201
Total other current assets	$	15,302	$	17,380

The following table summarizes the Company’s other non-current assets for each of the periods indicated:

	As of June 30, 2016		As of December 31, 2015
	(in thousands)
Prepaid clinical expenses	$	4,248	$	4,228
Manufacturing-related deposits		2,451		—
Other		243		242
Total other non-current assets	$	6,942	$	4,470

7. ACCRUED EXPENSES

The following table summarizes the Company’s accrued expenses for each of the periods indicated:

	As of June 30, 2016		As of December 31, 2015
	(in thousands)
Accrued clinical and preclinical costs	$	12,283	$	9,587
Accrued up-front license payment to UWA (Note 3)		7,000		—
Accrued employee compensation costs		5,567		8,189
Accrued contract manufacturing costs		3,755		4,830
Accrued professional fees		2,600		4,258
Accrued research costs		1,310		629
Other		2,549		1,560
Total accrued expenses	$	35,064	$	29,053

8. EQUITY FINANCING

In June 2016, the Company sold approximately 2.1 million shares of common stock through an underwritten public offering at a price of $17.84 per share. The implied underwriting discount and commission was $1.60 per share. The Company received aggregate gross proceeds from the offering of approximately $37.5 million and related offering costs were approximately $0.2 million.

9. RESTRUCTURING

On March 8, 2016, the Company announced a long-term plan to consolidate all of the Company’s operations to Massachusetts and reduce its workforce by approximately 19% as part of a strategic plan to increase operational efficiency. Over the course of the year, the Company plans to close its facility in Corvallis, Oregon, which primarily focused on early-stage research and research manufacturing. As part of the consolidation, research activities and some employees will transition to the Company’s facilities in Andover and Cambridge, Massachusetts. The consolidation efforts are planned to occur in four waves - May, October, November and December of 2016, with an estimated completion date of December 30, 2016.

The restructuring costs consist of costs associated with its workforce reduction and facility consolidation. The workforce reduction costs primarily relate to employee severance and benefits. Facility consolidation costs are primarily associated with non-cancelable lease obligations as well as accelerated depreciation for certain assets whose expected useful lives are shortened due to the consolidation. The Company has not determined the financial impact related to the non-cancelable lease obligation for the Corvallis facility but is currently obligated to make $4.3 million of lease payments after the estimated completion date of the consolidation plan. The Company estimates restructuring expenses of $1.8 million related to accelerated depreciation and workforce reduction costs, the latter of which will be accrued as earned over the service period for each employee.

For the three and six months ended June 30, 2016, the Company recognized $0.6 million and $1.2 million of restructuring expenses, respectively, $0.5 million and $1.1 million, respectively, of which related to workforce reduction.

The following table summarizes the restructuring costs by function for the periods indicated:

	For the Three Months Ended June 30, 2016						For the Six Months Ended June 30, 2016
	(in thousands)
	Cash		Non-cash⁽¹⁾		Total		Cash		Non-cash⁽²⁾		Total
Research and development	$	463	$	48	$	511	$	820	$	193	$	1,013
General and administration		73		42		115		104		42		146
Total restructuring expenses	$	536	$	90	$	626	$	924	$	235	$	1,159

(1)

The non-cash restructuring expense relates to accelerated depreciation for certain assets.

(2)

The non-cash restructuring expense relates to acceleration of stock option vesting and accelerated depreciation for certain assets.

The following table summarizes the restructuring reserve for the periods indicated:

	For the Three Months Ended June 30, 2016			For the Six Months Ended June 30, 2016
	(in thousands)
Restructuring reserve beginning balance	$	388		$	—
Restructuring expenses incurred during the period		552			924
Adjustments to prior period estimates, net		(16	)		—
Amounts paid during the period		(553	)		(553	)
Restructuring reserve ending balance	$	371		$	371

10. STOCK-BASED COMPENSATION

The following table summarizes the Company’s stock awards granted for each of the periods indicated:

	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2016				2015				2016					2015
	Grants		Weighted Average Grant Date Fair Value		Grants		Weighted Average Grant Date Fair Value		Grants			Weighted Average Grant Date Fair Value		Grants		Weighted Average Grant Date Fair Value
Stock options		7,600	$	15.61		367,167	$	15.69		1,213,376	⁽¹⁾	$	11.94		1,974,711	$	11.34
Restricted stock awards		—	$	—		110,783	$	13.54		25,775	⁽²⁾	$	13.71		116,783	$	13.56

(1)

Included in 2016 stock option grants are 287,500 options with performance conditions that are not probable of being achieved as of June 30, 2016. When and if deemed probable that certain performance milestones will be achieved within the required time frame, the Company will recognize up to $3.4 million of stock-based compensation related to these grants. The remaining stock options granted during the periods presented in the table have only service-based criteria and vest over four years.

(2)	Included in 2016 restricted stock awards (“RSA”) are 18,755 shares granted to certain employees in lieu of a portion of their 2015 annual bonus payments. These RSA grants have six-month vesting schedules. The remaining RSAs will be fully vested by June 2017.

Stock-based Compensation Expense

For the three months ended June 30, 2016 and 2015, total stock-based compensation expense was $6.8 million and $5.9 million, respectively. For the six months ended June 30, 2016 and 2015, total stock-based compensation was $13.5 million and $20.1 million, respectively. Included in the amount for the six months ended June 30, 2015 is $8.6 million of stock-based compensation expense incurred in connection with the resignation of the Company’s former Chief Executive Officer (“CEO”). The following table summarizes stock-based compensation expense by function included within the unaudited condensed consolidated statements of operations and comprehensive loss:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
	(in thousands)
Research and development	$	2,404	$	2,562	$	4,853	$	5,008
General and administrative		4,426		3,368		8,667		15,078
Total stock-based compensation expense	$	6,830	$	5,930	$	13,520	$	20,086

The following table summarizes stock-based compensation expense by grant type included within the unaudited condensed consolidated statements of operations and comprehensive loss:

	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2016		2015	2016	2015
	(in thousands)
Stock options	$	5,772