AKAO 2017 Annual Report

91 • third-party supplier expenses including the cost of acquiring and manufacturing clinical trial, pre- approval commercial supply and other materials; and • facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, amortization or depreciation of leasehold improvements, equipment and laboratory supplies and other expenses. Advance payments for goods or services that will be used or rendered for future research and development activities are capitalized as prepaid expenses and recognized as an expense as the goods are delivered or the related services are performed. Prior to the approval of plazomicin, all commercial manufacturing of inventory has been recognized as research and development expense. We expect to continue to incur substantial expenses for the foreseeable future related to our research and development activities as we continue research programs and the development of our product candidates. Further, we expect to continue to incur substantial research and development expenses in the future as we continue to support plazomicin, C-Scape development and our pre-clinical pipeline. General and Administrative Expenses General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, finance, audit and tax services, IT software, projects and services, commercialization activities, rent and other general operating expenses not otherwise included in research and development. For the years ended December 31, 2017, 2016 and 2015, general and administrative expenses were $41.9 million, $17.1 million and $12.4 million, respectively. We anticipate general and administrative expenses will continue to increase in future periods, reflecting an expanding infrastructure in preparation for commercialization of plazomicin, if approved. Comparison of Years Ended December 31, 2017 and 2016 Year Ended December 31, 2017 2016 Change (in thousands) Contract revenue ............................................................................... $ 11,175 $ 41,773 $ (30,598) Operating expenses: Research and development .......................................................... 95,598 73,999 21,599 General and administrative .......................................................... 41,903 17,122 24,781 Loss from operations......................................................................... (126,326) (49,348) (76,978) Interest expense................................................................................. (2,855) (2,320) (535) Change in warrant and derivative liabilities...................................... 1,928 (19,859) 21,787 Other income, net .............................................................................. 1,635 300 1,335 Net loss.............................................................................................. $ (125,618) $ (71,227) $ (54,391) Contract Revenue Contract revenue in each period related solely to funding pursuant to our Revenue Contracts. Contract revenue decreased $30.6 million to $11.2 million for the year ended December 31, 2017 from $41.8 million for the year ended December 31, 2016. This decrease was primarily due to lower BARDA contract revenues. Research and Development Expenses Research and development expenses increased $21.6 million to $95.6 million for the year ended December 31, 2017 from $74.0 million for the comparable period in 2016. This was primarily due to increases of $26.0 million in personnel and facility related costs as net headcount increased by 77 employees in our research and development organization since 2016, $4.3 million for stock compensation expense, of which $0.7 million of expense related to equity awards held by our former Chief Medical Officer that were modified in connection with his resignation in March 2017, $7.1 million in external expenses related to C-Scape, mainly attributable to costs for our Phase 1 study, $0.4 million in external non-clinical costs for other research programs, partially offset by a decrease of $11.9 million