AKAO 2017 Annual Report

89 The initial fair value of the warrants was determined using a calibration model that involved using Black- Scholes, which requires inputs such as the risk-free interest rate, expected share price volatility, underlying price per share of our common stock and remaining term of the warrants. The warrants are subject to remeasurement at each balance sheet date, using Black-Scholes, with any changes in the fair value of the outstanding warrants included in “change in warrant and derivative liabilities” in the condensed consolidated statements of operations. Redeemable Common Stock We have redeemable common stock which is considered to be temporary equity and is therefore presented as a mezzanine section between liabilities and equity on our consolidated balance sheet. Subsequent adjustment of the amount presented in temporary equity is required only if we estimate that it is probable that the instrument will become redeemable. Financial Overview and Results of Operations General We have not generated net income from operations and, at December 31, 2017, we had an accumulated deficit of $372.8 million, primarily as a result of research and development and general and administrative expenses. While we may in the future generate revenue from a variety of sources, including product sales, license fees, milestone payments and research and development payments in connection with strategic partnerships, our current revenue is generated solely from research and development funding pursuant to government and non-profit foundation contracts. Our product candidates are still in clinical and preclinical development and may never be successfully developed or commercialized. Other than the contract revenue from government and non-profit foundation funding, we do not expect to derive any revenue from any product candidates that we develop until we obtain regulatory approval and commercialize such products, which we do not expect will occur before 2018, if at all, or until such time that we potentially enter into collaboration agreements with third parties for the development and commercialization of such product candidates. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future, and there can be no assurance that we will ever generate significant revenue or profits. Contract Revenue Our contract revenue represents services performed for the development of our product candidates under non- profit foundation and U.S. government contracts (collectively, the “Revenue Contracts”). For the years ended December 31, 2017, 2016 and 2015, contract revenue was $11.2 million, $41.8 million and $26.1 million, respectively. We have derived all of our revenue to date from funding provided under the Revenue Contracts in connection with the development of our product candidates. Bill & Melinda Gates Foundation In May 2017, we entered into an agreement with the Gates Foundation to discover drug candidates against gram-negative bacterial pathogens intended to prevent neonatal sepsis. The Gates Foundation awarded up to approximately $10.5 million in grant funding over a three-year research term, of which, approximately $3.2 million of funding was received in May 2017 and $2.1 million remains as of December 31, 2017. For the year ended December 31, 2017, total revenue recognized under the Gates Foundation contract was $1.1 million. We did not recognize any revenue from the Gates Foundation in 2016 and 2015. BARDA We have received funding for our lead product candidate, plazomicin, under a contract with BARDA, an agency of the U.S. Department of Health and Human Services for the development, manufacturing, nonclinical and clinical evaluation of, and regulatory filings for, plazomicin as a countermeasure for disease caused by antibiotic- resistant pathogens and biothreats. Our BARDA contract (the “BARDA-plazo Contract”) provides for payments to us based on direct costs incurred and allowances for overhead, plus a fee, where applicable. The total committed funding under our BARDA contract is $124.3 million, including $20.0 million for Option 3, exercised by BARDA on May 26, 2016. The exercised Option 3 funding relates to the support of our Phase 3 EPIC study and the