News Column

FIVE PRIME THERAPEUTICS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 7, 2014

You should read the following management's discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto for the year ended December 31, 2013, included in our Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission (SEC) on March 26, 2014.

Overview

Five Prime Therapeutics, Inc. (we, us, our, FivePrime, or the Company) is a clinical-stage biotechnology company focused on discovering and developing novel protein therapeutics. Protein therapeutics are antibodies or drugs developed from extracellular proteins or protein fragments that block disease processes, including cancer and inflammatory diseases. We have developed a library of more than 5,700 human extracellular proteins, which we believe represent substantially all of the body's medically important targets for protein therapeutics. We screen this comprehensive library with our proprietary high-throughput protein screening technologies to identify new targets for protein therapeutics. This platform has allowed us to develop a pipeline of novel product candidates for cancer and inflammatory diseases and to generate over $270.7 million under our collaboration arrangements through June 30, 2014.

We have no products approved for commercial sale and have not generated any revenue from product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. We have incurred losses in each period since our inception in 2002, with the exception of the fiscal year ended 2011, due to collaboration revenues from product candidates under collaboration agreements with third parties. For the six months ended June 30, 2014 and for the year ended December 31, 2013, we reported a net loss of $18.5 million and $28.9 million, respectively. As of June 30, 2014, we had an accumulated deficit of $170.1 million.

Our management's discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, which we prepared in accordance with GAAP for interim periods and with Regulation S-X promulgated under the Securities and Exchange Act of 1934, as amended, or the Exchange Act.

Second Quarter 2014 and Other Recent Highlights

In April 2014, we amended our research collaboration and license agreement, referred to as the respiratory diseases collaboration, with Glaxo Group Limited, or GSK UK, that we originally entered into in April 2012 to identify new therapeutic approaches to treat refractory asthma and chronic obstructive pulmonary disease function. Pursuant to the respiratory diseases collaboration, GSK UK has an option to elect to include additional screening assays under the research plan. The amendment allows GSK UK to terminate any additional screening assay it elects under the research plan within six months of so electing. Concurrent with the amendment, GSK UK exercised its option and expanded the research plan to include two additional screening assays. In connection with GSK UK's exercise of its option, we are entitled to receive up to $1.0 million in additional research funding in 16 equal quarterly payments for each additional screening assay, for a total of up to $2.0 million in additional research funding for both additional screening assays in the event that GSK UK does not terminate either additional screening assay by October 2014.

GlaxoSmithKline, or GSK US, continues to actively enroll patients in all three arms of the Phase 1b clinical trial of FP-1039/GSK3052230 and add sites globally. Arm C of this trial, in which FP-1039 is being combined with front-line chemotherapy for malignant pleural mesothelioma, is open and patients have been enrolled.

During the second quarter, we completed testing of multiple ascending doses of FPA008 in healthy volunteers in our Phase 1 clinical trial of FPA008. By the end of 2014, we expect to report pharmacokinetic, safety and biomarker data from healthy volunteers and begin dosing patients with rheumatoid arthritis in this Phase 1 trial.

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We completed GMP manufacturing of FPA144 drug substance to supply our planned Phase 1 clinical trial and selected a central lab partner for the molecular diagnostic tests that will be used in the Phase 1 clinical trial.

Product Pipeline

The following table summarizes key information about our three most advanced product candidates: STAGE OF DEVELOPMENT AND ANTICIPATED PRODUCT CANDIDATE INDICATION COMMERCIAL RIGHTS MILESTONES FP-1039 FGFR1 gene-amplified GlaxoSmithKline: tumors, e.g., U.S., EU and Canada Phase 1b squamous non-small clinical trial cell lung cancer Five Prime: underway, (NSCLC), and FGF-2 Co-promote in U.S.; consisting of Arms overexpressing retained rest of A and B in squamous tumors, e.g., world rights NSCLC and Arm C in malignant pleural MPM mesothelioma (MPM) Phase 1b clinical results from the dose escalation parts of the squamous non-small cell lung cancer arms A & B are expected by the end of 2014. FPA008 Rheumatoid arthritis; Five Prime: Global Phase 1 clinical other inflammatory trial underway and fibrotic diseases and cancer Preliminary Phase 1 clinical trial data from healthy volunteers expected by end of 2014 Advancement to dosing in RA patients expected by the end of 2014. Expect to announce a second indication by year end FPA144 FGFR2 gene-amplified Five Prime: Global or FGFR2b protein Phase 1 clinical over-expressing trial planned to tumors, e.g., gastric commence by the end cancer of 2014 16



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Table of Contents Financial Overview Collaboration Revenue



We have not generated any revenue from product sales. Our revenue to date has been derived from upfront payments, research and development funding and milestone payments under collaboration and license agreements with our collaboration partners, including GSK US, GSK UK,UCB, Pfizer Inc., or Pfizer, and Bristol-Myers Squibb Company, or BMS.

Summary Revenue by Collaboration Partner

The following is a comparison of collaboration revenue for the three and the six months ended June 30, 2014 and 2013:

THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, (in millions) 2014 2013 2014 2013 R&D Funding Glaxo Group Limited $ 1.0$ 0.8$ 1.7$ 1.5 GlaxoSmithKline LLC 0.3 0.9 0.8 1.7 UCB Pharma S.A. 0.1 - 0.1 - Bristol-Myers Squibb Company 0.8 - 0.8 - Other - - 0.1 0.1 Ratable Revenue Recognition Glaxo Group Limited 0.6 0.6 1.3 1.3 GlaxoSmithKline LLC 0.3 0.6 0.9 1.2 UCB Pharma S.A. 0.8 0.6 1.4 0.7 Bristol-Myers Squibb Company 1.1 - 1.3 - Milestone and Contingent Payments GlaxoSmithKline LLC - - 0.1 - Total $ 5.0$ 3.5$ 8.5$ 6.5



We expect that any revenue we generate will fluctuate from period to period as a result of the timing and amount of milestones and other payments from our existing collaborations or any new collaborations we may enter into.

Research and Development

Research and development expenses consist of costs we incur in performing internal and collaborative research and development activities. Expenses incurred related to collaborative research and development agreements approximate the revenue recognized under these agreements. Research and development costs consist of salaries and benefits, including associated stock-based compensation, lab supplies and facility costs, as well as fees paid to other entities that conduct certain research and development activities, including manufacturing, on our behalf.

We are conducting research and development activities on several oncology and inflammatory disease targets.

We have a research and development team that designs, manages and evaluates the results of all of our research and development activities. We conduct nearly all of the core target discovery and early research and preclinical activities internally and rely on third parties, such as clinical research organizations, or CROs, and clinical manufacturing organizations, or CMOs, for the execution of certain of our research and development activities, such as toxicology studies, drug substance and drug product manufacturing and the conduct of clinical trials. We account for research and development costs on a program-by-program basis. In the early phases of research and discovery, our costs are often related to improving our discovery platform or preliminary screening activities and are not necessarily allocable to a specific target. We assign costs for such activities to a distinct non-program related project code. We allocate research management, overhead, common usage laboratory supplies and facility costs on a full-time equivalent basis.

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The following is a comparison of research and development expenses for the three and the six months ended June 30, 2014 and 2013:

THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, (in millions) 2014 2013 2014 2013 Product programs: FP-1039 $ 0.2$ 0.3$ 0.3$ 0.5 FPA008 1.6 2.7 3.8 4.9 FPA144 5.1 1.8 6.7 2.6 Early preclinical programs, collectively - 0.2 0.3 2.1 Subtotal pipeline 6.9 5.0 11.1 10.1 Product and discovery collaborations 3.3 2.9 6.0 4.8 Early research and discovery 1.7 0.7 3.7 1.6



Total research and development expenses $ 11.9$ 8.6$ 20.8$ 16.5

We expect our research and development expenses to increase as we expand our internal cancer immunotherapy discovery and research efforts, advance our development programs further and advance additional drug candidates into clinical development, in particular as we increase the number and size of our clinical trials. We began a Phase 1 clinical trial for FPA008 in October 2013 and expect to begin a Phase 1 clinical trial for FPA144 in selected patients by the end of 2014. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. We or our partners may never succeed in achieving marketing approval for any of our drug candidates. Numerous factors may affect the probability of success for each drug candidate, including preclinical data, clinical data, competition, manufacturing capability and commercial viability.

FP-1039, our most-advanced product candidate, which is being funded and performed by GlaxoSmithKline, entered Phase 1b clinical development in July 2013, FPA008 entered Phase 1 clinical development in October 2013 and our other product candidates are in preclinical development; therefore the successful development of our drug candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each drug candidate and are difficult to predict for each product. Given the uncertainty associated with clinical trial enrollments and the risks inherent in the development process, we are unable to determine the duration and completion costs of the current or future clinical trials of our drug candidates or if, or to what extent, we will generate revenues from the commercialization and sale of any of our drug candidates. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the outcome of research, nonclinical and clinical activities of each drug candidate, as well as ongoing assessment as to each drug candidate's commercial potential. We will need to raise additional capital or may seek additional product collaborations in the future in order to complete the development and commercialization of our drug candidates.

General and Administrative

General and administrative expenses consist primarily of salaries and related benefits, including associated stock-based compensation, related to our executive, finance, legal, business development, human resource and support functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses and professional fees for auditing, tax and legal services, including intellectual property-related legal services.

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We expect that our general and administrative expenses to increase as we incur additional costs associated with being a publicly traded company, including legal, auditing and filing fees, additional insurance premiums, investor relations expenses and general compliance and consulting expenses. Also, we expect our intellectual property-related legal expenses, including those related to preparing, filing, prosecuting and maintaining patent applications, to increase as our intellectual property portfolio expands.

Interest Income

Interest income consists of interest income earned on our cash and cash equivalents and marketable securities.

Other Income (Expense), Net

Other income (expense), net consists primarily of the revaluation of the preferred stock warrant liability and the gain or loss on the disposal of property and equipment, if any. Upon the completion of our IPO in September 2013, the preferred stock warrant liability was reclassified to additional paid-in capital and we no longer record any related periodic fair value adjustment.

Critical Accounting Policies and Estimates

Our management's discussion and analysis of financial condition and results of operations are based upon our unaudited condensed financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Our significant accounting policies are more fully described in Note 2 of the accompanying unaudited condensed financial statements and in Note 1 to our audited financial statements contained in our Annual Report on Form 10-K, or our Annual Report, as filed with the Securities and Exchange Commission, or SEC, on March 26, 2014. There have been no significant or material changes in our critical accounting policies during the six months ended June 30, 2014, as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Use of Estimates" in our Annual Report.

Results of Operations

Comparison for the Three Months Ended June 30, 2014 and 2013

THREE MONTHS ENDED JUNE 30, (in millions) 2014 2013 Collaboration revenue $ 5.0$ 3.5 Operating expenses: Research and development 11.9 8.6 General and administrative 3.0 2.4 Total operating expenses 14.9 11.0 Interest income - - Other income, net - 0.1 Net loss $ (9.9 )$ (7.3 ) 19



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Collaboration Revenue

Collaboration revenue increased by $1.5 million, or 42.9%, to $5.0 million for the three months ended June 30, 2014 from $3.5 million for three months ended June 30, 2013. This increase was primarily due to $1.9 million in revenue recognized under our immuno-oncology collaboration with BMS entered into in March 2014, a $0.3 million increase in revenue recognized under our fibrosis and CNS collaboration with UCB entered into in March 2013, a $0.2 million increase in revenue recognized under our respiratory diseases collaboration with GSK UK, offset by a $0.9 million decrease in revenue from our research collaboration and license agreement, referred to as the muscle diseases collaboration, with GSK US, the original term of which ended in July 2013.

Research and Development

Our research and development expenses increased by $3.3 million, or 38.4%, to $11.9 million for the three months ended June 30, 2014 from $8.6 million for the three months ended June 30, 2013. This increase was primarily due to an increase of $3.3 million, including $1.5 million of milestone costs under our exclusive license agreement with Galaxy Biotech, LLC, related to advancing our FPA144 program towards a phase 1 clinical trial and a $1.0 million increase in early research and discovery costs related to cancer immunotherapy. These increases were partially offset by a decrease of $1.1 million in costs related to our FPA008 program due to FPA008 manufacturing costs incurred during the three months ended June 30, 2013 that were not incurred during the three months ended June 30, 2014.

General and Administrative

Our general and administrative expenses increased by $0.6 million, or 25.0%, to $3.0 million for the three months ended June 30, 2014, from $2.4 million for the three months ended June 30, 2013, primarily due to a $0.4 million increase in public company-related expenses and $0.1 million increase in stock-based compensation costs.

Other Income, Net

Other income, net, was zero and $0.1 million for the three months ended June 30, 2014 and 2013, respectively. The $0.1 million other income in the second quarter of 2013 primarily relates to the re-measurement of the preferred stock warrant liability. The entire preferred stock warrant liability was reclassified to permanent equity as a result of the closing of our IPO in September 2013.

Comparison for the Six Months Ended June 30, 2014 and 2013

SIX MONTHS ENDED JUNE 30, (in millions) 2014 2013 Collaboration revenue $ 8.5$ 6.5 Operating expenses: Research and development 20.8 16.5 General and administrative 6.3 4.7 Total operating expenses 27.1 21.2 Interest income 0.1 - Other income, net - 0.4 Net loss $ (18.5 )$ (14.3 ) Collaboration Revenue



Collaboration revenue increased by $2.0 million, or 30.8%, to $8.5 million for the six months ended June 30, 2014 from $6.5 million for six months ended June 30, 2013. This increase was primarily due to $2.1 million in revenue recognized under our immuno-oncology collaboration with BMS entered into in March 2014, a $0.8 million increase in revenue recognized under our fibrosis and CNS collaboration with UCB entered into in March 2013, a $0.2 million increase in revenue recognized under our respiratory diseases collaboration with GSK UK, offset by a $1.1 million decrease in revenue from our research collaboration and license agreement, referred to as the muscle diseases collaboration, with GSK US, the original term of which ended in July 2013.

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Research and Development

Our research and development expenses increased by $4.3 million, or 26.1%, to $20.8 million for the six months ended June 30, 2014 from $16.5 million for the six months ended June 30, 2013. This increase was primarily due to an increase of $4.1 million, including $1.5 million of milestone costs under our exclusive license agreement with Galaxy Biotech, LLC, related to advancing our FPA144 program towards a phase 1 clinical trial, a $2.1 million increase in early research and discovery costs related to cancer immunotherapy and a $1.2 million increase in our discovery collaboration costs due to entering into the immuno-oncology collaboration in March 2014 and the fibrosis and CNS collaboration in March 2013, offset by a decrease of $1.1 million in costs related to our FPA008 program due to manufacturing costs incurred during the first half of 2013 and a decrease of $1.8 million in costs incurred in our early preclinical programs due to a reduction in the number of programs we are actively pursuing.

General and Administrative

Our general and administrative expenses increased by $1.6 million, or 34.0%, to $6.3 million for the six months ended June 30, 2014, from $4.7 million for the six months ended June 30, 2013, primarily due to a $1.0 million increase in public company-related expenses and legal fees, including legal fees related to the immuno-oncology collaboration with BMS, and a $0.2 million increase in stock-based compensation costs.

Other Income, Net

Other income, net, was zero and $0.4 million for the six months ended June 30, 2014 and 2013, respectively. The $0.4 million other income through June 30, 2013 primarily relates to the re-measurement of the preferred stock warrant liability. The entire preferred stock warrant liability was reclassified to permanent equity as a result of the closing of our IPO in September 2013.

Liquidity and Capital Resources

On September 23, 2013, we completed our IPO, which resulted in the sale of 4,800,000 shares of our common stock at a price of $13.00 per share. On September 26, 2013 the underwriters of our IPO exercised their over-allotment option in full to purchase an additional 720,000 shares of common stock at a price of $13.00 per share. We received net proceeds from the IPO of $63.8 million after deducting underwriting discounts and commissions paid by us. In connection with the IPO, two outstanding preferred stock warrants net exercised and all of our outstanding convertible preferred stock automatically converted to common stock on a one-for one basis on September 23, 2013.

On February 12, 2014, we completed our Follow-on Public Offering, which resulted in the sale of 3,450,000 shares, at a price of $12.50 per share, including the full exercise of the underwriters' option to purchase an additional 450,000 shares of common stock. We received net proceeds from the offering of $40.1 million after deducting underwriting discounts, offering expenses and commissions paid by us.

On March 14, 2014, we entered into the immuno-oncology collaboration with BMS to carry out a research program to discover and further understand targets in two immune checkpoint pathways using our target discovery platform and discover and pre-clinically develop compounds suitable for development for human therapeutic uses against targets in these checkpoint pathways. Under the immuno-oncology collaboration agreement, BMS made an upfront payment of $20.0 million to us in April 2014. In connection with the immuno-oncology collaboration agreement, BMS purchased 994,352 shares of our common stock at a price of $21.16, for an aggregate purchase price of $21.0 million.

Since our inception and through June 30, 2014, we have raised an aggregate of $469.4 million to fund our operations, including $186.2 million under our collaboration agreements, $66.7 million from our IPO, $40.5

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million from our Follow-on Public Offering, $84.5 million from the sale of common stock and convertible preferred stock to discovery collaboration partners, $89.9 million from the sale of convertible preferred stock to parties other than our discovery collaboration partners and $1.6 million from the sale of our common stock other than in connection with our IPO or Follow-On Public Offering. As of June 30, 2014, we had $13.1 million in cash and cash equivalents and $127.5 million of marketable securities invested in a U.S. Treasury money market fund, U.S. Treasuries and U.S. government agencies securities with maturities of 18 months or less.

In addition to our existing cash and cash equivalents, we are eligible to receive research and development funding and to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain nonclinical, clinical, regulatory and sales-based events and royalty payments under our collaboration agreements. Our ability to earn these milestone and contingent payments and the timing of achieving these milestones is primarily dependent upon the outcome of our collaborators' research and development activities and is uncertain at this time. Our rights to payment under our collaboration agreements are our only committed external source of funds.

Funding Requirements

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third party clinical and preclinical research and development services, including manufacturing, laboratory and related supplies, legal, patent and other regulatory expenses and general overhead costs. We believe our use of CROs and contract manufacturers provides us with flexibility in managing our spending and limits our cost commitments at any point in time.

Because our product candidates are in various stages of clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Until such time, if ever, that we can generate substantial product revenues, we expect to finance our cash needs through collaboration arrangements and, if necessary, equity or debt financings. Except for any obligations of our collaborators to reimburse us for research and development expenses or to make milestone or royalty payments under our agreements with them, we will not have any committed external source of liquidity. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interests of our stockholders will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our existing cash and cash equivalents and marketable securities as of June 30, 2014, and funding that we expect to receive under our existing collaborations will enable us to fund our operating expenses and capital expenditure requirements for more than two years, without giving effect to any potential contingent payments we may receive under our existing collaboration agreements or any new collaboration agreements that we may enter into. We have based this estimate on assumptions that may prove to be wrong and we could use our capital resources sooner than we expect. Additionally, the process of testing drug candidates in clinical trials is costly and the timing of progress and expenses in these trials is uncertain.

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Cash Flows

The following is a summary of cash flows for the six months ended June 30, 2014 and 2013: SIX MONTHS ENDED JUNE 30, (in millions) 2014 2013 Net cash provided by (used in) operating activities $ 6.5$ (8.6 ) Net cash (used in) provided by investing activities (61.5 ) 6.6 Net cash provided by (used in) financing activities 60.0 (0.5 )



Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $6.5 million during the six months ended June 30, 2014. The net loss of $18.5 million was offset by non-cash charges of $0.8 million for depreciation and amortization, $1.4 million for stock-based compensation expense and $0.6 million for amortization of premium on marketable securities. The net change in operating assets and liabilities was $22.2 million, including $19.7 million of deferred revenue primarily related to the $20 million payment by a collaborative partner in April 2014. Net cash used in operating activities was $8.6 million during the six months ended June 30, 2013. The net loss of $14.3 million was offset by non-cash charges of $0.9 million for depreciation and amortization, $1.0 million for stock-based compensation expense, $0.2 million for amortization of premium on marketable securities and a $0.4 million non-cash gain for the revaluation of preferred stock warrant liabilities. The net change in operating assets and liabilities was $4.0 million, including $4.2 million of deferred revenue primarily related to the $6.0 million upfront payment and $2.2 million technology access fee received from the fibrosis and CNS collaboration in March 2013.

The increase in cash provided by operating activities for the six months ended June 30, 2014, as compared to June 30, 2013, was primarily due to our entry into the immuno-oncology collaboration with BMS in March 2014, in connection with which we received an upfront fee of $20.0 million in April 2014.

Net Cash (Used in) Provided by Investing Activities

Net cash (used in) provided by investing activities for the periods presented primarily relates to the purchases and maturities of marketable securities. Purchases of property and equipment were $1.0 million for the six month period ended June 30, 2014 and $0.5 million for the six months ended June 30, 2013. The property and equipment purchases consisted primarily of purchases of laboratory equipment to support our research and development activities.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities was $60.0 million during the six months ended June 30, 2014 primarily related to the Follow-on Public Offering of our common stock, which resulted in the sale of 3,450,000 shares of common stock at a price of $12.50 per share, which resulted in cash proceeds of $40.1 million after deducting underwriting discounts and commissions and expenses. Also, in connection with the immuno-oncology collaboration, BMS purchased 994,352 shares of our common stock at a price of $21.16, for an aggregate purchase price of $21.0 million in March 2014, of which $2.4 million was considered to be an implied premium and was allocated to the deliverables under the immuno-oncology collaboration, resulting in $18.6 million being allocated to common stock. Additionally, we received $1.2 million from employee stock option exercises for the six months ended June 30, 2014.

Net cash used in financing activities of $0.5 million during the six months ended June 30, 2013 primarily reflects financing costs relating to our initial public offering less cash received from employee stock option exercises.

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Contractual Obligations and Contingent Liabilities

During the six months ended June 30, 2014, there were no material changes to our contractual obligations and commitments described under Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

JOBS Act

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

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