Item 2. Management’s Discussion and Analy sis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018. This discussion and other parts of this Quarterly Report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Atara Biotherapeutics is a leading T-cell immunotherapy company developing novel treatments for patients with cancer, autoimmune and viral diseases. The Company's off-the-shelf, or allogeneic, T-cells are bioengineered from donors with healthy immune function and allow for rapid delivery from inventory to patients without a requirement for pretreatment. Atara's T-cell immunotherapies are designed to precisely recognize and eliminate cancerous or diseased cells without affecting norma l, healthy cells. Atara's most advanced T-cell immunotherapy in development, tabelecleucel (formerly known as ATA129), is being developed for the treatment of patients with Epstein-Barr virus, or EBV, associated post-transplant lymphoproliferative disorder, or EBV+ PTLD, who have failed rituximab, as well as other EBV associated hematologic and solid tumors, including nasopharyngeal carcinoma, or NPC. Off-the-shelf ATA188 and autologous, or patient-derived, ATA190, the Company's T-cell immunotherapies using a complementary targeted antigen recognition technology, target specific EBV antigens believed to be important for the potential treatment of multiple sclerosis, or MS. Atara's clinical pipeline also includes ATA520 targeting Wilms Tumor 1, or WT1, ATA230 directed against cytomegalovirus, or CMV, and ATA621 directed against the BK and JC viruses.

Our technology allows for rapid delivery of a T-cell immunotherapy product that has been manufactured in advance and stored in inventory, with each manufactured lot of cells providing therapy for numerous potential patients. This differs from autologous treatments, in which each patient’s own cells must be extracted, modified outside the body and then delivered back to the patient. We utilize a proprietary cell selection algorithm to select the appropriate set of cells for use based on a patient’s unique immune profile, and, unlike many other T-cell programs, there is neither a requirement for pre-treatment before our cells are administered nor is there extended monitoring following administration. For example, in our ongoing trials with our most advanced product candidate, tabelecleucel, patients are monitored for one to two hours following receipt of tabelecleucel. Our T-cell immunotherapy platform is applicable to a broad array of targets and diseases. With more than 200 patients treated across the platform, we have observed clinical proof of concept across both viral and non-viral targets in conditions ranging from liquid and solid tumors to infectious and autoimmune diseases. We have also observed a safety profile characterized by few treatment-related serious adverse events, or SAEs, and no evidence of cytokine release syndrome to date.

Our T-cell immunotherapy product candidates are engineered from cells donated by healthy individuals with normal immune function. Once cells are collected from a donor, they are bioengineered to expand those T-cells that recognize the antigens of interest. The resulting expanded T-cells are then characterized and held as inventory. From inventory, these cells can be selected, distributed and prepared for infusion in a partially human leukocyte antigen, or HLA, matched patient in approximately 3-5 days. Following administration, our T-cells home to their target, undergo target-controlled proliferation, eliminate diseased cells and eventually recede. Target-controlled proliferation means that our T-cells expand in number when they encounter diseased cells in a patient’s body that express the antigen the cells are designed to recognize.

We have two technology platforms. One of our technology platforms was developed from more than a decade of experience at MSK. The other was developed at QIMR Berghofer, in Australia. We licensed rights to certain know-how and T-cell product candidates from MSK in June 2015. In May 2018, we entered into an agreement to expand our collaboration with MSK to the development of chimeric antigen receptor T-cell (CAR-T) immunotherapies. Our most advanced product candidate, tabelecleucel, targets EBV. Tabelecleucel received Breakthrough Therapy Designation, or BTD, from the U.S. Food and Drug Administration, or FDA, and Priority Medicines, or PRIME, designation from the European Medicines Agency, or EMA, and is currently being evaluated as monotherapy in two Phase 3 trials for the treatment of patients with EBV+ PTLD. We believe that tabelecleucel has the potential to be the first commercially available off-the-shelf T-cell immunotherapy and the first FDA and EMA approved therapy for EBV+ PTLD. With a European conditional marketing authorization application planned for the first half of 2019 and U.S. biologics licensing applications planned following the completion of one of our ongoing Phase 3 trials, we are currently developing the infrastructure to commercialize tabelecleucel globally in EBV+ PTLD. We are also evaluating the potential utility of tabelecleucel in patients with other EBV associated cancers, such as NPC, to continue its development into solid tumors. Additional product candidates derived from the collaboration with MSK are being developed to treat various cancers and severe viral infections.

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In October 2015 and September 2016, we licensed rights to certain know-how and technology from QIMR Berghofer that are complementary to those we licensed from MSK. This know-how and technology uses targeted antigen recognition to create off-the-shelf T-cell immunotherapy product candidates applicable to a variety of diseases, including autoimmune conditions such as MS. We are also working with QIMR Berghofer on the development of EBV and other virally targeted T-cells. Through this technology, we are expanding the role of immunotherapy beyond oncology and viral infections to autoimmune disease. Our most advanced off-the-shelf T-cell product candidate utilizing this t echnology, ATA188, targets select antigens of EBV and is currently being evaluated in a Phase 1 trial in an initial cohort for the treatment of patients with progressive MS. In connection with the initial license from QIMR Berghofer, we received an option to exclusively license an autologous version of ATA188, also known as ATA190, which recently demonstrated clinical activity in a Phase 1 trial in progressive MS. We expect to broadly explore the utility of our targeted antigen recognition technology in EBV and other virally driven diseases, and additional product candidates derived from our collaboration with QIMR Berghofer are being developed.

In August 2015, we entered into a Development and Manufacturing Services Agreement (the “Manufacturing Agreement”) with Cognate Bioservices, Inc. (“Cognate”).  The Manufacturing Agreement was amended in December 2017 to provide for additional rights for Atara in relation to the conduct of the services and amended again in May 2018 to modify certain financial provisions with respect to manufacturing services.  Pursuant to the Manufacturing Agreement, Cognate provides process development and manufacturing services for certain of our product candidates. Atara may terminate the Manufacturing Agreement for convenience on 6 months written notice to Cognate, or immediately if Cognate is unable to perform the Services or fails to obtain or maintain certain necessary approvals. The Manufacturing Agreement includes standard mutual termination rights for uncured breach or insolvency, or a force majeure event preventing the performance of Services for at least ninety days.  The Manufacturing Agreement also includes standard provisions in the case of termination or cancellation of any specific manufacturing services.

We believe that Atara is a leading allogeneic T-cell immunotherapy company with a robust oncology pipeline and potentially transformative T-cell immunotherapies for MS and other viral diseases. With tabelecleucel poised to potentially become the first off-the-shelf T-cell therapy approved in the U.S. and E.U. and a robust pipeline of high potential candidates, our ambition is to be recognized as the leader in off-the-shelf T-cell immunotherapy.

Tabelecleucel for EBV+ PTLD following HCT or SOT

Since its discovery as the first human oncovirus, EBV has been implicated in the development of a wide range of diseases, including lymphomas and other cancers. EBV is widespread in human populations and persists as a lifelong, asymptomatic infection. In healthy individuals, a small percentage of T-cells are devoted to keeping EBV in check. In contrast, immunocompromised patients, such as those undergoing hematopoietic cell transplants, or HCT, or solid organ transplants, or SOT, have a reduced ability to control EBV. Left without appropriate immune surveillance, EBV transformed cells can, in some patients, proliferate and cause an aggressive, life-threatening cancer called EBV+ PTLD .

Our most advanced T-cell immunotherapy product candidate, tabelecleucel, is an allogeneic EBV-specific T-cell immunotherapy that is currently being investigated for the treatment of patients with EBV+ PTLD who have failed rituximab . In February 2015, the FDA granted tabelecleucel BTD in the treatment of patients with EBV+ PTLD  after HCT who have failed rituximab . BTD is an FDA process designed to accelerate the development and review of drugs intended to treat a serious condition when early trials show that the drug may be substantially better than current treatment. In October 2016, tabelecleucel was accepted into the EMA PRIME regulatory pathway for the same indication, providing enhanced regulatory support. In addition, tabelecleu cel has received orphan status in the United States and European Union for the treatment of patients with  EBV+ PTLD  following HCT or SOT. In December 2016, we announced that we had reached agreement with the FDA on the designs of two Phase 3 trials for tabelecleucel intended to support approval in two separate indications, the treatment of EBV+ PTLD  following HCT and SOT in patients who have failed rituximab . In December 2017, following discussion with the FDA of manufacturing and comparability data generated on material manufactured by our contract manufacturing organization, we initiated these trials in the United States. We expect to expand these trials geographically to include clinical sites outside the United States.

The Phase 3 MATCH trial ( EBV+ PTLD  following HCT) is a multicenter, open label, single arm trial designed to enroll approximately 35 patients with  EBV+ PTLD  following HCT who have failed rituximab . The Phase 3 ALLELE trial ( EBV+ PTLD  following SOT) is a multicenter, open label trial with two non-comparative cohorts. Each cohort is designed to enroll approximately 35 patients. The first cohort will include patients who previously received rituximab monotherapy, and the second cohort will include patients who previously received rituximab plus chemotherapy. Both cohorts are enrolling concurrently. The primary endpoint of both the MATCH and ALLELE trials is confirmed best objective response rate, or ORR, defined as the percent of patients achieving either a complete or partial response to treatment with tabelecleucel confirmed after the initial tumor assessment showing a response. Secondary endpoints for both trials include duration of response, overall survival, safety, quality of life metrics, and other measures to evaluate its health economic impact. A safety committee will meet periodically to monitor for safety. Initial results from the first tabelecleucel Phase 3 study, or cohort in the case of ALLELE, are expected to be available in the first half of 2019.

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We are also pursuing marketing app roval of tabelecleucel in the European Union. In March 2016, the EMA issued a positive opinion for orphan drug designation for tabelecleucel for the treatment of patients with  EBV+ PTLD . In October 2016, the EMA Committee for Medicinal Products for Human U se and the Committee for Advanced Therapies granted tabelecleucel access to the EMA’s recently established PRIME regulatory initiative for the treatment of patients with EBV+ PTLD  following HCT who have failed rituximab . PRIME provides early enhanced regul atory support to facilitate regulatory applications and accelerate the review of medicines that address a high unmet need. In January 2017, we received parallel scientific advice from the EMA’s Scientific Advice Working Group and several national Health Te chnology Assessment agencies in the EU, including those in the United Kingdom, Germany and France. Based on these discussions, we plan to submit an application for Conditional Marketing Authorization, or CMA, of tabelecleucel in the treatment of patients w ith EBV+ PTLD  following HCT who have failed rituximab in the first half of 2019. The CMA will be based on clinical data from Phase 1 and 2 trials conducted at MSK and supported by available data from our Phase 3 MATCH and ALLELE trials in patients with EBV + PTLD  after HCT and SOT who have failed rituximab , which will be ongoing at the time of filing.

Tabelecleucel for nasopharyngeal carcinoma, or NPC

NPC, is a type of head and neck cancer that is primarily EBV associated. Standard treatment for NPC includes radiation therapy with or without platinum-based chemotherapy. In the setting of metastatic disease after the failure of chemotherapy, median survival is approximately five to 11 months based on historical data, and there are no approved therapeutic agents available to treat this disease today. In April 2017, we entered into an agreement with Merck (known as MSD outside of the United States and Canada) to provide drug supply for a trial sponsored and conducted by us to evaluate tabelecleucel in combination with Merck’s anti-PD-1 (programmed death receptor-1) therapy, KEYTRUDA ® (pembrolizumab), in patients with platinum-resistant or recurrent EBV-associated NPC. The Phase 1/2 trial will evaluate the safety, pharmacokinetics, pharmacodynamics, and preliminary efficacy of the combination and is planned for initiation in the second half of 2018.

ATA188 and ATA190 for multiple sclerosis

MS is a chronic disorder of the central nervous system, or CNS, that disrupts the myelination and normal functioning of the brain, optic nerves and spinal cord through inflammation and tissue loss. The evolution of MS results in an increasing loss of both physical and cognitive (e.g., memory) function. This has a substantial negative impact on the approximately 2.3 million people worldwide affected by MS.

There are two categories of MS: progressive MS, or PMS; and relapsing-remitting MS, or RRMS. PMS is a severe form of MS with few therapeutic options. Within PMS there are two types of MS: secondary progressive MS, or SPMS; and primary progressive MS, or PPMS. According to the National Multiple Sclerosis Society, there are approximately one million people affected by PMS. Both types of PMS are characterized by persistent progression and worsening of MS symptoms and physical disability over time. PPMS occurs when the patient has a disease course characterized by steady and progressive worsening after disease onset. SPMS initially begins as RRMS, but once patients have continuous progression of their disease, they have developed SPMS. This is distinct from RRMS, where patients have flares of the disease that are followed by periods of recovery and quiescence during which the disease does not progress.

There is a strong biologic connection between EBV and MS. EBV is present in nearly all patients with MS. For example, in an international study of patients with clinically isolated syndrome (CIS), a CNS demyelinating event isolated in time that is compatible with the possible future development of MS, only one patient out of 1,407 was seronegative for, or not infected with, EBV. In addition, in separate studies, clear differences in location and frequency of EBV infected B-cells and plasma cells were evident between the brains of MS patients and the brains of patients without MS. In these studies, the EBV infected B-cells and plasma cells were in close proximity to areas of active demyelination. Studies suggest that EBV positive B-cells and plasma cells in the CNS have the potential to catalyze an autoimmune response and the MS pathophysiology. In patients with MS, their T-cells may be unable to control EBV positive B-cells and plasma cells so that B-cells and plasma cells could then accumulate in the brain and generate antibodies that attack and destroy myelin, the protective layer that insulates nerves in the brain and spinal cord. This loss of myelin ultimately leads to MS symptoms. MS disease course has also been shown to correlate with measures of EBV activity. The role of B-cells in MS is supported by the recent approval by the FDA of ocrelizumab for PPMS which broadly targets B-cells through their expression of a cell surface marker known as CD20. Low vitamin D also suppresses T-cells and is associated with MS.

Our second T-cell immunotherapy product candidate, ATA188, is an off-the-shelf EBV-specific T-cell that utilizes a targeted antigen recognition technology that enables the T-cells we administer to selectively identify cells expressing the EBV antigens that we believe are important for the potential treatment of MS. We are also developing an autologous version of this product candidate that we call ATA190. ATA190 utilizes the same approach to targeted antigen recognition as ATA188. These product candidates are designed to selectively target only those cells which are EBV positive while sparing those that are not. We believe that eliminating only EBV positive B-cells, including plasma cells, has the potential to benefit some patients with MS through enhanced efficacy and a better side-effect profile. In October 2015, we obtained an exclusive, worldwide license to develop and commercialize allogeneic T-cell immunotherapy product candidates targeting EBV, including ATA188, utilizing technology and know-how developed by QIMR Berghofer. In connection with this license, we also received an option to exclusively license the autologous version of EBV product candidates, including ATA190, which we exercised in June 2018.

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In the fourth quarter of 2017, we initiated an open label, single arm, multi-center, multi-national Phase 1 trial with allogeneic ATA188 for patients with MS and in January 2018 announced that we received clearance of our investigational new drug, or IND, application from the FDA to proceed with patient enrollment at U.S. sites.  In the first quarter of 2018, we initiated this study in the U.S. The primary objective of this Phase 1 trial is to assess the safety of ATA188 in patients followed for at least one year after the firs t dose. Key secondary endpoints in the trial include measures of clinical improvement such as Expanded Disability Status Scale, or EDSS, and annualized relapse rate, or ARR, as well as MRI imaging. The trial is expected to enroll a total of 60 patients acr oss the United States, Australia and Europe: 30 patients with PMS, either PPMS or SPMS, and 30 patients with RRMS. We expect to announce initial results from our ATA188 Phase 1 trial in patients with PMS in the first half of 2019.

In addition, based on the Phase 1 clinical results observed to date with ATA190, we believe the continued development of ATA190 will enhance our understanding of the potential therapeutic utility of targeting EBV in the treatment of MS and further inform and complement our development of ATA188. We plan to initiate, in 2019, a randomized clinical study of ATA190 in patients with PMS.

ATA520 for hematologic malignancies

Our third T-cell immunotherapy product candidate, ATA520, is an off-the-shelf WT1 specific T-cell immunotherapy , that targets cancers expressing the antigen WT1 and is currently in Phase 1 clinical trials. WT1 is an intracellular protein that is overexpressed in a number of cancers, including hematological malignances as well as solid tumors. Given the advances of our EBV-related pipeline programs in NPC and MS, as well as the opportunity to pursue a conditional marketing authorization in the E.U. for tabelecleucel, we expect to initiate an additional clinical trial with ATA520 following the further process development of ATA520 as well as the clinical and regulatory advancement of tabelecleucel and our MS related programs.

ATA230 for CMV viremia and disease

Our fourth T-cell immunotherapy product candidate, ATA230, is an off-the-shelf CMV specific T-cell immunotherapy , that is in Phase 2 clinical trials for refractory CMV infection that occurs in some patients who have received an HCT or SOT or are otherwise immunocompromised. Recently, the FDA granted orphan drug designation for ATA230 for the treatment of CMV viremia and disease in immunocompromised patients as well as Rare Pediatric Disease Designation for the treatment of congenital CMV infection. The EMA has also granted us orphan status for ATA230 for CMV infection in patients with impaired cell-mediated immunity. Given the opportunity to pursue a CMA in the E.U. for tabelecleucel, we have decided to prioritize our EBV related programs ahead of ATA230 at this time, and plan to further evaluate our development strategy for ATA230 later in 2018.

ATA621 for BK and JC virus associated diseases

Through our ongoing collaboration with QIMR Berghofer, we recently developed a new T-cell immunotherapy product candidate, ATA621, for BK and JC virus associated diseases. These two viruses are closely related and there are no available antiviral agents approved for use in BK or JC associated diseases. JC virus is associated with progressive multifocal leukoencephalopathy, or PML, which occurs in transplant, HIV and cancer patients as well as in patients treated with other immunosuppressive therapies, including certain therapies utilized for the treatment of MS. BK virus is associated with hemorrhagic cystitis, or BKVHC, which mainly occurs following HCT or cyclophosphamide treatment as well as BK virus associated nephropathy, or BKVAN, which is a disease most commonly associated with kidney transplant. We are currently conducting IND enabling manufacturing process development and plan to initiate a Phase 1 trial with ATA621 in 2019.

Financial Overview

We have a limited operating history. Since our inception in 2012, we have devoted substantially all of our resources to identify, acquire and develop our product candidates, including conducting preclinical studies and clinical trials and providing general and administrative support for these operations.

We have never generated revenues and have incurred losses since inception. We do not expect to receive any revenues from any product candidates that we develop until we obtain regulatory approval and commercialize our products or enter into collaborative agreements with third parties.

Our net losses were $92.3 million and $53.1 million for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018, we had an accumulated deficit of $389.0 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative expenses associated with our operations. As of June 30, 2018, our cash, cash equivalents and short-term investments totaled $417.0 million, which we intend to use to fund our operations.

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Research and Development Expenses

The largest component of our total operating expenses since inception has been our investment in research and development activities, including the preclinical and clinical development of our product candidates. Research and development expenses consist primarily of compensation and benefits for research and development employees, including stock-based compensation; expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical trials and preclinical studies; the costs of acquiring and manufacturing clinical trial materials and other supplies; payments under licensing and research and development agreements; other outside services and consulting costs; and an allocation of facilities, information technology and overhead expenses. Research and development costs are expensed as incurred.

We plan to increase our research and development expenses as we continue the development of our product candidates. Our current planned research and development activities include the following:

In addition, we believe it is important to invest in the development of new product candidates to continue to build the value of our product candidate pipeline and our business. We plan to continue to advance our most promising early product candidates into preclinical development with the objective to advance these early-stage programs to human clinical trials over the next several years.

Our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

The process of conducting the necessary clinical research to obtain FDA approval is costly and time consuming and the successful development of our product candidates is highly uncertain. The risks and uncertainties associated with our research and development projects are discussed more fully in the section of this report titled “1A.  Risk Factors.” As a result of these risks and uncertainties, we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects, or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.

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General and Administrative Expenses

General and administrative expenses consist primarily of compensation and benefits for general and administrative employees, including stock-based compensation; outside professional service costs, including legal, patent, human resources, audit and accounting services; other outside services and consulting costs; and allocated information technology and facilities costs. We anticipate that our general and administrative expenses will continue to increase in the future as we increase our headcount to support our continued research and development and the potential commercialization of one or more of our product candidates.  

Interest and Other Income, net

Interest and other income, net consists primarily of interest earned on our cash, cash equivalents and short-term investments.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no significant changes during the six months ended June 30, 2018 to our critical accounting policies and significant judgments and estimates as disclosed in our management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2017.

Income Taxes

On December 22, 2017, President Trump signed into law new tax legislation, or the Tax Act, which significantly reforms the Internal Revenue Code of 1986, as amended. As of June 30, 2018, we have made a reasonable estimate of the effects on our existing deferred taxes and related disclosures for the reduction in corporate tax rate and adjustments to the expected deductibility of executive compensation. Due to current year taxable losses and our federal valuation allowance position, we did not recognize any income tax expense or benefit as a result of enactment of the Tax Act. Due to accumulated foreign deficits the Company does not expect a current inclusion in U.S. federal taxable income for the transition tax on earnings of controlled foreign corporations.

The SEC staff has issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. We consider the key estimates on the deferred tax remeasurement and the impact of the changes to the deductibility of executive compensation to be provisional due to expected forthcoming guidance from federal and state tax authorities, our continuing analysis of final year-end data and tax positions, as well as further guidance expected for the associated income tax accounting. During the six months ended June 30, 2018, we did not make any adjustments to the provisional amounts included in the consolidated financial statements for the year ended December 31, 2017. We expect to complete our analysis within the measurement period in accordance with SAB 118.

Emerging Growth Company Status

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and therefore we may take advantage of certain exemptions from various public company reporting requirements. As an “emerging growth company”,

However, we are choosing to irrevocably opt out of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards. We will remain an “emerging growth company” for up to five years, although we will cease to be an “emerging growth company” upon the earliest of: (1) December 31, 2019; (2) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (3) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and (4) the date on which we are deemed to be a “large accelerated filer” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act. We will be deemed a “large accelerated filer” as of the end of the fourth quarter of 2018 as our public float as of June 29, 2018 was greater than $700 million.

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Tabelecleucel costs were $8.0 million and $17.1 million in the three and six-month periods ended June 30, 2018, as compared to $7.7 million and $14.9 million in the comparative 2017 periods. The increases between the periods were primarily due to clinical trial, manufacturing and outside service costs related to the two Phase 3 clinical trials of tabelecleucel in patients with EBV+ PTLD who have failed rituximab . We anticipate that tabelecleucel costs will continue to increase in 2018 due to enrollment in the two Phase 3 clinical trials.

ATA188, ATA190 and other program costs were $6.9 million and $11.2 million in the three and six-month periods ended June 30, 2018, as compared to $1.7 million and $3.9 million in the comparative 2017 periods. The increases between the periods were primarily related to clinical trial, manufacturing and other outside service costs related to the Phase 1 clinical trial of ATA188 for patients with MS and the exercise of the option to license ATA190, the autologous version of ATA188. We anticipate that ATA188, ATA190 and other program costs will continue to increase in 2018 due to an increase in manufacturing activity, the continued development of our manufacturing processes, and the development of products obtained from our collaboration with QIMR Berghofer.

Employee and overhead costs were $18.4 million and $33.5 million in the three and six-month periods ended June 30, 2018 as compared to $8.9 million and $17.1 million in the comparative 2017 periods. The increases between the three-month periods were primarily due to a $5.4 million increase in payroll and related costs driven by increased headcount, $2.1 million increase in professional services costs, $1.8 million increase in facility related costs and a $0.3 million increase in travel and other related costs. The increases between the six-month periods were primarily due to a $9.7 million increase in payroll and related costs driven by increased headcount, $3.2 million increase in professional services costs, $2.9 million increase in facility related costs and a $0.7 million increase in travel and other related costs. The increases between the periods were primarily related to our continuing expansion of research and development activities and we anticipate that employee and overhead costs will continue to increase in future periods as we continue to expand such activities.

General and administrative expenses

General and administrative expenses increased to $19.2 million and $33.2 million in the three and six-month periods ended June 30, 2018 as compared to $9.6 million and $18.2 million in the comparative 2017 periods. The increase between the three-month periods was primarily due to a $2.6 million increase in payroll and related costs driven by increased headcount, a $6.1 million increase in professional services costs, and a $0.9 million increase in travel and facility related costs. The increases between the six-month periods was primarily due to a $8.3 million increase in professional services costs, a $5.2 million increase in payroll and related costs driven by increased headcount, and a $1.4 million increase in travel and facility related costs. The increases between the periods were primarily related to the expansion of our operations and we expect that general and administrative costs will continue to increase in 2018 as we continue to expand.

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Liquidity and Capital Resources

Sources of Liquidity

Since our inception in 2012, we have funded our operations primarily through the issuance of common and preferred stock. In January 2018, we completed an underwritten public offering of 7,675,072 shares of common stock at an offering price of $18.25 per share and received net proceeds of $131.4 million, after deducting underwriting discounts and commissions and offering expenses payable by us. Further, in March 2018, we completed an underwritten public offering of 4,928,571 shares of common stock at an offering price of $35.00 per share and received net proceeds of $161.9 million, after deducting underwriting discounts and commissions and offering expenses payable by us.  

In March 2017, we entered into the ATM Facility with Cowen for the sale, in our sole discretion, of shares of our common stock, having an aggregate offering price of up to $75.0 million through Cowen, as our sales agent. We pay Cowen a commission of up to 3.0% of the gross sales proceeds of any common stock sold under the ATM Facility. The issuance and sale of these shares by us pursuant to the ATM Facility are deemed “at the market” offerings and are available under the Securities Act of 1933, as amended.

During the three and six months ended June 30, 2018, we sold an aggregate of 1,007,806 shares of common stock under the ATM facility, at an average price of approximately $48.52 per share, for gross proceeds of $48.9 million and net proceeds of $47.6 million, after deducting commissions and other offering expenses. As of June 30, 2018, $6.1 million of common stock remained available to be sold under this facility, subject to certain conditions as specified in the agreement.

We have incurred losses and negative cash flows from operations in each year since inception. As of June 30, 2018, we had an accumulated deficit of $389.0 million. We do not expect to receive any revenues from any product candidates that we develop until we obtain regulatory approval and commercialize our products. As such, we anticipate that we will continue to incur losses the foreseeable future. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.

Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our cash, cash equivalents and short-term investments are held in bank and custodial accounts and consist of money market funds, U.S. Treasury, government agency and corporate debt obligations, commercial paper and asset-backed securities . Management expects that existing cash, cash equivalents and short-term investments as of June 30, 2018 will be sufficient to fund our planned operations to mid-2020.  

Our cash, cash equivalents and short-term investments balances as of the dates indicated were as follows:

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Operating activities

Net cash used in operating activities was $74.3 million in the 2018 period as compared to $42.3 million in the 2017 period. The decrease of $31.9 million was primarily due to a $39.2 million increase in net loss and a $1.2 million decrease in the amortization of investment premiums and discounts, partially offset by a $3.8 million increase in operating assets and liabilities, a $4.0 million increase in stock-based compensation, a $0.6 million increase in depreciation expense, and a $0.1 million increase in non-cash interest expense.

Investing activities

Net cash used in investing activities in the 2018 period consisted primarily of $357.6 million used to purchase available-for-sale securities and $27.3 million in purchases of property and equipment, partially offset by $52.0 million received from maturities and $79.1 million from sales of available-for-sale securities. Net cash provided by investing activities during the 2017 period consisted primarily of $115.4 million received from maturities and $51.7 mi llion from sales of available-for-sale securities, partially offset by $112.4 million used to purchase available-for-sale securities and $4.3 million in purchases of property and equipment.

Financing activities

Net cash provided by financing activities in the 2018 period consisted of $293.3 million of aggregate net proceeds from the underwritten public offerings in January and March 2018, $47.6 million of net proceeds from the ATM facility and $14.9 million of net proceeds from employee stock transactions, partially offset by $3.4 million of taxes paid related to the net share settlement of restricted stock and $0.3 million on principal payments on our capital lease obligations. Net cash provided by financing activities in the 2017 period consisted of $9.3 million of net proceeds from the ATM facility and $0.5 million of net proceeds from employee stock transactions, partially offset by $0.3 million of taxes paid related to the net share settlement of restricted stock.

Operating Capital Requirements and Plan of Operations

To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product candidates. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of and seek regulatory approvals for our product candidates, and begin to commercialize any approved products. We are subject to all of the risks inherent in the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We anticipate that we will need to raise substantial additional funding in connection with our continuing and expected expansion of our operations.

We expect that our existing cash, cash equivalents and short-term investments will be sufficient to fund our planned operations to mid-2020. In order to complete the process of obtaining regulatory approval for our lead product candidate and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our lead product candidate, if approved, we will require substantial additional funding.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

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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 in the rules and regulations of the SEC.

Contractual Obligations and Commitments

Future minimum payments under our operating, capital and finance leases as of June 30, 2018 was $20.1 million.