AKAO 2017 Annual Report

18 million in grant funding (“Grant Funds”) over a three-year research term, of which approximately $3.2 million was received in May 2017 (the “Advanced Funds”). As of December 31, 2017, $1.1 million has been recorded as revenue. Concurrently with the Grant Agreement, we entered into a Common Stock Purchase Agreement (the “Gates Purchase Agreement”) with the Gates Foundation, pursuant to which we agreed to sell 407,331 shares of our contingently redeemable common stock (the “Shares”) on May 5, 2017 to the Gates Foundation in a private placement at a purchase price per share equal to $24.55, for gross proceeds of $10.0 million (the “Gates Investment”). In connection with the Grant Agreement and the Gates Investment, on May 4, 2017, we entered into a strategic relationship with the Gates Foundation (the “Letter Agreement”), pursuant to which we agreed to use the proceeds from the Gates Investment and Grant Funds only to, among other things, conduct mutually agreed upon work, including the discovery of monoclonal antibody candidates targeting Acinetobacter baumannii with the goal of discovering drug candidates that can be administered to neonates at birth to protect against early and late onset neonatal sepsis in developing countries. We are responsible for all technical and research development activities under a scope of work proposed by us and accepted by the Gates Foundation. In addition, we agreed to publish or make the product and information from the program available and accessible at an affordable price to people in need within certain developing countries, and at the request of the Gates Foundation we will grant the Gates Foundation a non-exclusive license to commercialize selected drug candidates in certain developing countries, which may only be exercised in the event of certain defaults described in a letter agreement between the Gates Foundation and us (the “Global Access Commitments”). The Global Access Commitments will continue in effect until the earlier of 25 years from the closing of the Gates Investment or 7 years following the termination of all funding provided by the Gates Foundation, provided that the Global Access Commitments will continue for any products or services developed with funding provided by the Gates Foundation which continue to be developed or available in certain developing countries. If we default in our obligation to conduct certain mutually-agreed upon work or use the proceeds from the Gates Investment as described in the Letter Agreement, or otherwise trigger certain other events of default as described in the Letter Agreement, subject to a cure period, the Gates Foundation will have the right to request that (a) the Company redeem, or facilitate the purchase by a third party of the Shares then held by the Gates Foundation at a price per share equal to the greater of (i) the fair market value of the common stock (if the Shares are freely tradable, the closing price of our common stock on the trading day prior to the redemption or purchase, as applicable), or (ii) an amount equal to $24.55 plus a compounded annual return of 5% from the date of issuance of the Shares, or (b) if the Shares then held by the Gates Foundation are not freely tradable, we will register the resale of the Shares held by the Gates Foundation on an effective registration statement, subject to certain conditions and qualifications. Payments under the Grant Agreement with the Gates Foundation are based on milestone, target or reporting deliverables. Payments are based on direct program costs incurred or committed plus an indirect overhead fee. The Advance Funds are replenished by the Gates Foundation each calendar year, or sooner, following our submission of a progress report, including expenses expected to be incurred for the research activities. The Grant Funds are restricted for mutually agreed upon work under the Grant Agreement and are required to be kept in a separate account. If the Gates Foundation terminates the agreement based on the term in the Grant Agreement, we are obligated to return any unused or committed Grant Funds. Biomedical Advanced Research and Development Authority (“BARDA”) Our program to develop plazomicin for the treatment of serious bacterial infections due to MDR Enterobacteriaceae, including CRE, as well as for disease caused by certain bacterial biothreat pathogens, was partially funded under a contract with BARDA (“BARDA-plazo Contract”), an agency of the U.S. Department of Health and Human Services. This contract was awarded in August 2010 and consists of a base amount as well as four options, all of which have been exercised. The base amount and the four-exercised options total $124.3 million of obligated funding, of which a total of $124.3 million has been recorded as revenues as of December 31, 2017. Overall, the BARDA-plazo Contract calls for the development, manufacturing, nonclinical and clinical evaluation of, and regulatory filings for, plazomicin as a countermeasure for diseases caused by antibiotic-resistant pathogens. These pathogens include bacteria associated with serious hospital-acquired infections, such as CRE, as well as biothreats, such as F. tularensis , which causes tularemia, and Y. pestis , which causes plague. As the prime