ACCELERON PHARMA INC. The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Certain matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q, words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "goal," "intend," "may," "plan," "potential," "project," "should," "strategy," "target," "vision," "will," "would," or, in each case, the negative or other variations thereon or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things: • the impact on our business of the COVID-19 pandemic and the
government's efforts to contain it;
• our ongoing and planned preclinical studies and clinical trials;
• clinical trial data and the timing of results of our ongoing clinical trials;
• our plans to develop and commercialize sotatercept in pulmonary
hypertension and our other potential therapeutic candidates;
• our and Bristol Myers Squibb Company's, or BMS's, plans to develop and
commercialize REBLOZYL® (luspatercept-aamt) and sotatercept outside of
pulmonary hypertension;
• the potential benefits of strategic partnership agreements and ourability to enter into selective strategic partnership arrangements;
• the timing of anticipated milestone payments under our collaboration
agreements with BMS;
• the timing of, and our and BMS's ability to, obtain and maintain
regulatory approvals for our therapeutic candidates;
• the rate and degree of market acceptance and clinical utility of any
approved therapeutic candidate, particularly in specific patient
populations;
• our ability to quickly and efficiently identify and develop therapeutic
candidates;
• our manufacturing capabilities and strategy;
• our plans for commercialization and marketing;
• our intellectual property position; and
• our estimates regarding our results of operations, financial condition,
liquidity, capital requirements, prospects, growth and strategies.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and industry changes and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and events in the industry in which we operate may differ materially from the forward-looking statements contained herein. Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of such statements, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events. You should also read carefully the factors described in the section "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 to better understand the risks and uncertainties inherent in our business and 16
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underlying any forward-looking statements. You are advised, however, to consult
any further disclosures we make on related subjects in our subsequent Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, press releases, and our
website.
Overview
We are a biopharmaceutical company dedicated to the discovery, development and
commercialization of therapeutics to treat serious and rare diseases. Our
research focuses on key natural regulators of cellular growth and repair,
particularly the Transforming Growth Factor-Beta, or TGF-beta, protein
superfamily. By combining our discovery and development expertise, including our
proprietary knowledge of the TGF-beta superfamily, and our internal protein
engineering and manufacturing capabilities, we generate innovative therapeutic
candidates, all of which encompass novel potential first-in-class mechanisms of
action. If successful, these candidates could have the potential to
significantly improve clinical outcomes for patients across these areas of high,
unmet need.
We focus and prioritize our commercialization, research and development
activities within two key therapeutic areas: hematology and pulmonary.
Hematology
Our first commercial product, REBLOZYL® (luspatercept-aamt), is a first-in-class
erythroid maturation agent designed to promote red blood cell, or RBC,
production through a novel mechanism, and is partnered with BMS (which acquired
Celgene Corporation, or Celgene, in 2019). In November 2019 , the U.S. Food and
Drug Administration , or FDA, approved REBLOZYL for the treatment of anemia in
adult patients with beta-thalassemia who require regular RBC transfusions. In
April 2020 , the FDA also approved REBLOZYL for the treatment of anemia failing
an erythropoiesis stimulating agent and requiring two or more RBC units per
eight weeks in adult patients with very low- to intermediate-risk
myelodysplastic syndromes, or MDS, with ring sideroblasts or with a
myelodysplastic/myeloproliferative neoplasm with ring sideroblasts and
thrombocytosis. BMS has also submitted a Marketing Authorization Application, or
MAA, to the European Medicines Agency , or EMA, for REBLOZYL. We and BMS recently
announced that the Committee for Medicinal Products for Human Use, or CHMP, of
the EMA has issued a positive opinion, recommending the approval of REBLOZYL for
the treatment of adult patients with transfusion-dependent anemia due to very
low-, low- and intermediate-risk MDS with ring sideroblasts, who had an
unsatisfactory response or are ineligible for erythropoietin-based therapy, and
adult patients with transfusion-dependent anemia associated with beta
thalassemia. The CHMP recommendation will now be reviewed by the European
Commission , which has the authority to approve medicines for the European
Union . We expect the European Commission to issue a decision on the MAA for
REBLOZYL in the second half of 2020.
BMS is currently conducting a Phase 2 clinical trial with luspatercept-aamt in
non-transfusion-dependent beta-thalassemia patients, referred to as the BEYOND
trial, with topline results currently expected by the end of 2020 or early 2021,
and a Phase 3 clinical trial, the COMMANDS trial, in first-line, lower-risk MDS
patients, with topline results expected in 2022. In myelofibrosis, BMS is
conducting a Phase 2 clinical trial in patients with myelofibrosis-associated
anemia, and initial results from this trial were presented in December 2019 at
the 61st American Society of Hematology Annual Meeting and Exposition showing
that luspatercept-aamt improved anemia in patients receiving and not receiving
RBC transfusions, with more profound effects in patients treated with
ruxolitinib, a small molecule JAK inhibitor. Based on these data, we and BMS
announced plans to initiate by the end of 2020 the Phase 3 INDEPENDENCE study in
patients with myelofibrosis-associated anemia who are being treated with JAK
inhibitor therapy and require RBC transfusions.
If approved in the United States and Europe , we believe that there is an annual
peak sales opportunity for REBLOZYL in excess of $2 billion in lower-risk MDS
and beta-thalassemia, and upon successful development and approval in the United
States and Europe , an additional $1 billion in myelofibrosis and other future
development opportunities. We and BMS are evaluating luspatercept-aamt for the
treatment of anemia in potential new indications that could provide additional
sales opportunities.
BMS is responsible for paying 100% of the development costs for all clinical
trials for luspatercept-aamt. We may receive a maximum of $125.0 million for
remaining potential regulatory and commercial milestone payments. We have a
co-promotion right in North America and our commercialization costs provided in
the commercialization plan and budget approved by the Joint Commercialization
Committee , or JCC, are entirely funded by BMS. Activities that we elect to
conduct outside of the approved development or commercialization budgets to
support REBLOZYL are at our own expense. We are eligible to receive tiered
royalty payments from BMS on net sales of REBLOZYL in the low-to-mid 20% range.
Pulmonary
We are actively developing our lead pulmonary program, sotatercept, for the
treatment of patients with pulmonary arterial hypertension, or PAH. Sotatercept
is generally partnered with BMS, but we retain the exclusive rights to fund,
develop, and lead the global commercialization of sotatercept in pulmonary
hypertension, which we refer to as the PH field, and that includes
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PAH. PAH is a rare and chronic, rapidly progressing disorder characterized by the constriction of small pulmonary arteries, resulting in abnormally high blood pressure in the pulmonary arteries. InJanuary 2020 , we announced that the PULSAR Phase 2 clinical trial of sotatercept for the treatment of patients with PAH met its primary and key secondary endpoints, as well as other secondary endpoints. The 18-month extension period of the PULSAR trial is ongoing. We are also currently enrolling an exploratory study called SPECTRA to provide us with greater understanding of sotatercept's potential impact on PAH, with preliminary results expected in 2020. We also recently announced that the FDA has granted Breakthrough Therapy designation to sotatercept for the treatment of patients with PAH, and that the EMA has granted Priority Medicines, or PRIME, designation to sotatercept for the treatment of patients with PAH. If sotatercept is commercialized to treat PAH and we recognize such revenue, then we will owe BMS a royalty in the low 20% range on global net sales. In certain circumstances, BMS may recognize revenue related to the commercialization of sotatercept in PAH, and in this scenario we will be eligible to receive a royalty from BMS such that the economic position of the parties is equivalent to the scenario in which we recognize such revenue. Funding and Expense As ofMarch 31, 2020 , our operations have been primarily funded by$105.1 million in equity investments from venture investors,$773.8 million from public investors,$154.1 million in equity investments from our collaboration partners and$361.2 million in upfront payments, milestones, and net research and development payments from our collaboration partners. We expect to continue to incur significant expenses and operating losses over at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities, if and as we: • conduct clinical trials for sotatercept in the PH field or any future therapeutic candidates;
• continue our preclinical studies and potential clinical development
efforts of our existing preclinical therapeutic candidates;
• continue research activities for the discovery of new therapeutic candidates;
• manufacture therapeutic candidates for our preclinical studies and
clinical trials, and potentially for commercialization;
• establish and maintain a sales, marketing and distribution
infrastructure to commercialize any products for which we have or may
obtain regulatory approval;
• acquire or in-license other therapeutic candidates and patents;
• seek regulatory approval for our therapeutic candidates; and
• attract and retain skilled personnel.
If we obtain regulatory approval for sotatercept in the PH field, or any future therapeutic candidate, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such costs are not paid by future partners. We will seek to fund our operations through the sale of equity, debt financings or other sources, including potential additional collaborations. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such other arrangements as, and when, needed, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our therapeutic candidates. To date, we have only generated limited revenue from royalties on the sale of our first and only commercial product, REBLOZYL, since receiving our first regulatory approval from the FDA inNovember 2019 . Our ability to generate product revenue and become profitable depends upon our and our partners' ability to successfully commercialize products. We expect to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for, our therapeutic candidates and potentially begin to commercialize any approved products. For a description of the numerous risks and uncertainties associated with product development, see "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Financial Operations Overview Revenue Collaboration Revenue 18
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Our revenue to date has been predominantly derived from collaboration revenue, which includes license and milestone revenues and cost-sharing revenue, generated through collaboration and license agreements with partners for the development and commercialization of our therapeutic candidates. We have generated limited revenue from royalties on the sale of products. Cost-sharing revenue represents amounts reimbursed by our collaboration partners for expenses incurred by us for research and development activities and co-promotion activities under our collaboration agreements. Cost-sharing revenue is recognized in the period that the related activities are performed. We recognize revenue from royalties when the related sales occur. Costs and Expenses Research and Development Expenses Research and development expenses consist primarily of costs directly incurred by us for the development of our therapeutic candidates, which include: • direct employee-related expenses, including salaries, benefits, travel
and stock-based compensation expense of our research and development
personnel;
• expenses incurred under agreements with clinical research
organizations, or CROs, and investigative sites that will conduct our
clinical trials;
• the cost of acquiring and manufacturing preclinical and clinical study
materials and developing manufacturing processes;
• allocated facilities, depreciation, and other expenses, which include
rent and maintenance of facilities, insurance and other supplies;
• expenses associated with obtaining and maintaining patents; and
• costs associated with preclinical activities and regulatory compliance.
Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites. We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our therapeutic candidates or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our therapeutic candidates for which we or any partner obtain regulatory approval. We or our partners may never succeed in achieving regulatory approval for any of our therapeutic candidates beyond the initial approvals of REBLOZYL. The duration, costs and timing of clinical trials and development of our therapeutic candidates will depend on a variety of factors, including: • the scope, rate of progress, and expense of our ongoing, as well as any
additional, clinical trials and other research and development
activities;
• future clinical trial results;
• potential changes in government regulation; and
• the timing and receipt of any regulatory approvals.
A change in the outcome of any of these variables with respect to the development of a therapeutic candidate could mean a significant change in the costs and timing associated with the development of that therapeutic candidate. For example, if the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of the clinical development of our therapeutic candidates, or if we experience significant delays in the enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. From inception throughMarch 31, 2020 , we have incurred$850.3 million in research and development expenses. We plan to increase our research and development expenses for the foreseeable future as we continue the development of our TGF-beta platform therapeutic candidates, the discovery and development of preclinical therapeutic candidates, and the development of our clinical programs. Research and development expenses associated with luspatercept-aamt, and, outside of the PH field, sotatercept, are generally reimbursed 100% by BMS. These reimbursements are recorded as revenue. We are expensing the costs of Phase 2 clinical trials for luspatercept-aamt, sotatercept, and ACE-083, of which the luspatercept-aamt trials are reimbursed by BMS. Our Phase 2 clinical trials for ACE-083 are being discontinued. With respect to the luspatercept-aamt 19
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clinical trials directly conducted by BMS, we do not incur and are not reimbursed for expenses related to these development activities. We manage certain activities such as clinical trial operations, manufacture of therapeutic candidates, and preclinical animal toxicology studies through third-party CROs. The only costs we track by each therapeutic candidate are external costs such as services provided to us by CROs, manufacturing of preclinical and clinical drug product, and other outsourced research and development expenses. We do not assign or allocate to individual development programs internal costs such as salaries and benefits, facilities costs, lab supplies and the costs of preclinical research and studies, except for luspatercept-aamt costs for the purposes of billing BMS. Our external research and development expenses during the three months endedMarch 31, 2020 and 2019 are as follows: Three Months Ended March 31, (in thousands) 2020 2019 Luspatercept-aamt(1)$ 419 $ 1,339 Sotatercept(2) 8,980 4,091 ACE-083(3) 4,187 4,250 ACE-2494(4) 6 769
Total direct research and development expenses 13,592 10,449 Other expenses(5)
24,071 22,322
Total research and development expenses
(1) These expenses associated with luspatercept-aamt are reimbursed 100% by BMS.
(2) These expenses are associated with our development of sotatercept in PAH.
(3) Development of ACE-083 is being discontinued. We expect to incur all
remaining material expense by the end of 2020.
(4) Development of ACE-2494 has been discontinued. All remaining material
expense was incurred by the end of 2019.
(5) Other expenses include employee and unallocated contractor-relatedexpenses, facility expenses, lab supplies, and miscellaneous expenses.
Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation and travel expenses for our employees in executive, commercial, operational, finance and human resource functions and other selling, general and administrative expenses including directors' fees and professional fees for accounting and legal services. We continue to incur expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing andSecurities and Exchange Commission , orSEC , requirements, director and officer insurance premiums, and investor relations costs associated with being a public company. We anticipate that our selling, general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our therapeutic candidates. Additionally, if and when we believe regulatory approval of a therapeutic candidate appears likely, to the extent that we are undertaking commercialization of such therapeutic candidate ourselves, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations. Other Income (Expense), Net Other income (expense), net consists primarily of the re-measurement gain or loss associated with the change in the fair value of our common stock warrant liabilities and interest income earned on cash, cash equivalents and investments. 20
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To estimate the fair value of our liability classified warrants, we use either the Monte Carlo simulation framework, which incorporates future financing events over the remaining life of the warrants to purchase common stock, or for certain re-measurement dates, due to the warrants being deeply in the money, the Black-Scholes option pricing model. We base the estimates in the pricing models, in part, on subjective assumptions, including stock price volatility, risk-free interest rate, dividend yield, and the fair value of the common stock underlying the warrants. The Black-Scholes option pricing model was used atMarch 31, 2020 . Critical Accounting Policies and Estimates Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition and accrued clinical expenses. We base our estimates on historical experience, known trends and events, and various other factors that are believed 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 or conditions. During the three months endedMarch 31, 2020 , there have been no material changes to our critical accounting policies as reported in our Annual Report on the Form 10-K for the year endedDecember 31, 2019 . For further information on our critical and other significant accounting policies, including the adoption of ASC 326, see the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedDecember 31, 2019 . 21
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Results of Operations
Comparison of the Three Months Ended
Three Months Ended
March 31, Increase
(in thousands) 2020 2019 (Decrease)
Revenue:
Collaboration revenue:
Cost-sharing, net $ 2,824 $ 2,780 $ 44
Royalty revenue 1,520 - 1,520Total revenue (all amounts are with a related party) 4,344 2,780
1,564
Costs and expenses:
Research and development 37,663 32,771 4,892
Selling, general and administrative 18,253 10,814 7,439
Total costs and expenses 55,916 43,585 12,331
Loss from operations (51,572 ) (40,805 ) (10,767 )
Other income, net 648 2,772 (2,124 )
Loss before income taxes (50,924 ) (38,033 ) (12,891 )
Income tax benefit (15 ) (20 ) 5
Net loss $ (50,939 ) $ (38,053 ) $ (12,886 )
Revenue. We recognized revenue of $4.3 million in the three months ended
March 31, 2020 , compared to $2.8 million in the same period in 2019. All of the
revenue in both periods was derived from the BMS agreements. This $1.5 million
increase is primarily related to royalty revenue from REBLOZYL sales recognized
in 2020.
Research and Development Expenses. Research and development expenses were $37.7
million in the three months ended March 31, 2020 , compared to $32.8 million in
the same period in 2019. This $4.9 million increase is primarily related to
growth in order to support our wholly-owned therapeutic candidates and
preclinical programs and includes:
•an increase in personnel and facilities-related expense of $1.6 million related
to increased headcount to support our growth;
•an increase in contract manufacturing and drug supply expense of $6.6 million
related to our ongoing clinical and preclinical programs; offset by
•a decrease in external clinical trial expense of $3.6 million due to the
discontinuation of our ACE-083 program and wind down of our luspatercept-aamt
clinical programs and transfer to BMS.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $18.3 million in the three months ended March 31,
2020 , compared to $10.8 million in the same period in 2019. The $7.5 million
increase is primarily due to the following factors:
•an increase in selling expense of $1.9 million to continue supporting the
launch of REBLOZYL, our first commercial product approved by the FDA on November
8, 2019 ; and
•an increase in personnel expense and facilities-related expense of $5.4 million
related to increased headcount to support our growth.
Other Income, Net. Other income, net was $0.6 million in the three months ended
March 31, 2020 , compared to $2.8 million for the same period in 2019. This $2.2
million decrease was primarily due to a $1.4 million increase in the expense
associated with marking the common warrant liability to market and a $0.8
million decrease in the interest earned on our investment portfolio as a result
of a decrease in interest rates.
Income Tax Provision. Income tax provision is attributable to the realization of
current year losses that offset unrealized gains from our investment portfolio.
Liquidity and Capital Resources
We have incurred losses and cumulative negative cash flows from operations since
our inception in June 2003 , and as of March 31, 2020 , we had an accumulated
deficit of $762.3 million . We anticipate that we will continue to incur losses
for at
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least the next several years. We expect that our research and development and selling, 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 the sale of equity, debt financings or other sources, including potential additional collaborations. As ofMarch 31, 2020 , our operations have been primarily funded by$105.1 million in equity investments from venture investors,$773.8 million from public investors,$154.1 million in equity investments from our collaboration partners and$361.2 million in upfront payments, milestones, and net research and development payments from our collaboration partners. As ofMarch 31, 2020 , we had$415.6 million in cash, cash equivalents and investments. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Cash Flows The following table sets forth the primary sources and uses of cash for each of the periods set forth below (in thousands): Three Months Ended March 31, (in thousands) 2020 2019 Net cash (used in) provided by: Operating activities$ (46,545 ) $ (26,308 ) Investing activities 77,481 (152,570 ) Financing activities 8,873 249,316
Net increase in cash, cash equivalents and restricted cash
Operating Activities Net cash used in operating activities was$46.5 million for the three months endedMarch 31, 2020 , compared to$26.3 million during the same period in 2019. Significant factors in this$20.2 million increase include: •an increase in net loss of$12.9 million due to an increase in operating expenses related to increased headcount and facilities, external expenses for contract manufacturing, consulting, and other external expenses to support our wholly-owned therapeutic programs, as well as expenses for commercial activities for REBLOZYL, offset by an increase in revenue related to royalty revenue associated with sales of REBLOZYL; and •a net decrease in operating assets and liabilities of$7.5 million , consisting primarily of a decrease in collaboration receivables of$4.1 million and an increase in accrued expenses of$2.6 million . Investing Activities Net cash provided by investing activities was$77.5 million for the three months endedMarch 31, 2020 , compared to net cash used in investing activities of$152.6 million during the same period in 2019. Net cash provided by and used in investing activities primarily consisted of the following amounts relating to activity within our investment portfolio: •for the three months endedMarch 31, 2020 , net proceeds from sales and maturities of investments of$77.9 million in connection with managing our investment portfolio to meet our projected cash requirements; and •for the three months endedMarch 31, 2019 , net purchases of investments of$152.0 million due to the execution of our investment strategy in accordance with our policy as we began to invest the money raised in ourJanuary 2019 public offering in marketable securities. Financing Activities Net cash provided by financing activities was$8.9 million for the three months endedMarch 31, 2020 , compared to$249.3 million during the same period in 2019. Net cash provided by financing activities consisted primarily of the following: •for the three months endedMarch 31, 2020 ,$8.9 million in cash proceeds from the exercise of stock options and the issuance of common stock related to the employee stock purchase plan; and •for the three months endedMarch 31, 2019 ,$248.2 million from ourJanuary 2019 public offering and the underwriters full exercise of the over-allotment option in the offering, as well as$1.2 million in cash proceeds from the exercise of stock options and the issuance of common stock related to the employee stock purchase plan. 23
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Operating Capital Requirements To date, we have only generated limited revenue from royalties on the sale of our first and only commercial product, REBLOZYL, since receiving our first regulatory approval from the FDA inNovember 2019 . We anticipate that we will continue to generate losses for the foreseeable future as we continue the development of, and seek and obtain regulatory approvals for, sotatercept in the PH field and any future therapeutic candidates, and begin to commercialize any approved products. We are subject to all of the risks inherent in the development of therapeutic candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Based on our current operating plan and projections, we believe that our current cash, cash equivalents and investments, will be sufficient to fund our projected operating requirements until such time as we expect to receive significant royalty revenue from REBLOZYL sales. Independent of the timing or significance of REBLOZYL royalty revenue, however, we may raise additional funds for future development, operations and activities, particularly if there are changes in our operating plan or projections, we add additional programs to our pipeline, or our programs advance in development faster than anticipated. Until we can generate a sufficient amount of revenue from our products, if ever, we expect to fund our operations through a combination of equity offerings, debt financings or other sources, including potential additional collaborations. Additional capital may not be available on favorable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our therapeutic candidates. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders and increased fixed payment obligations, and these securities may have rights senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We may not be able to enter into new collaboration arrangements for any of our proprietary therapeutic candidates. Any of these events could significantly harm our business, financial condition and prospects. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to: • the achievement of milestones and royalties under our agreement with BMS;
• the amount of royalties we receive on sales of REBLOZYL;
• the terms and timing of any other collaborative, licensing and other
arrangements that we may establish;
• the initiation, progress, timing and completion of preclinical studies
and clinical trials for our therapeutic candidates and potential
therapeutic candidates;
• the number and characteristics of therapeutic candidates that we pursue;
• the progress, costs and results of our clinical trials;
• the outcome, timing and cost of regulatory approvals;
• delays that may be caused by changing regulatory requirements;
• the cost and timing of hiring new employees to support our continued growth;
• the costs involved in filing and prosecuting patent applications and
enforcing and defending patent claims;
• the costs and timing of procuring clinical and commercial supplies of
our therapeutic candidates;
• the extent to which we acquire or invest in businesses, products or
technologies; and
• the costs involved in defending and prosecuting litigation regarding
in-licensed intellectual property.
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Net Operating Loss (NOL) Carryforwards
We had net deferred tax assets of approximately $226.0 million as of
December 31, 2019 , which have been fully offset by a valuation allowance due to
uncertainties surrounding our ability to realize these tax benefits. The
deferred tax assets are primarily composed of federal and state tax net
operating loss, or NOL, carryforwards, research and development tax credit
carryforwards, and deferred revenue, accruals, and other temporary differences.
As of December 31, 2019 , we had federal NOL carryforwards of approximately
$666.3 million and state NOL carryforwards of $689.8 million available to reduce
future taxable income, if any. Of these federal and state NOL
carryforwards, $438.0 million and $689.4 million , respectively, will expire at
various times through 2039. The federal NOL of $228.3 million and state NOL of
$0.4 million generated beginning in 2018 can be carried forward indefinitely. In
general, if we experience a greater than 50 percent aggregate change in
ownership of certain significant stockholders over a three-year period, or a
Section 382 ownership change, utilization of our pre-change NOL carryforwards
are subject to an annual limitation under Section 382 of the Internal Revenue
Code of 1986, as amended, and similar state laws. Such limitations may result in
expiration of a portion of the NOL carryforwards before utilization and may be
substantial. If we experience a Section 382 ownership change in connection with
our public offerings or as a result of future changes in our stock ownership,
some of which changes are outside our control, the tax benefits related to the
NOL carryforwards may be limited or lost. For additional information about our
taxes, see Note 13 to the financial statements in our Annual Report on Form 10-K
for the year ended December 31, 2019 .
Contractual Obligations and Commitments
During the three months ended
Recent Accounting PronouncementsFor information on recent accounting pronouncements, see Recent Accounting Pronouncements in the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
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
Securities and Exchange Commission .
Item 3. Quantitative and Qualitative Disclosures About Market Risks
We are exposed to market risk related to changes in interest rates. As of
March 31, 2020 and December 31, 2019 , we had cash, cash equivalents and
investments of $415.6 million and $453.8 million , respectively. Our cash
equivalents are invested primarily in bank deposits and money market mutual
funds. Our primary exposure to market risk is interest rate sensitivity, which
is affected by changes in the general level of U.S. interest rates. Our
investments are subject to interest rate risk and could fall in value if market
interest rates increase. Due to the duration of our investment portfolio and the
low risk profile of our investments, we do not believe an immediate 100 basis
point change in interest rates would have a material effect on the fair market
value of our portfolio. We have the ability to hold our investments until
maturity, and therefore we would not expect our operating results or cash flows
to be affected to any significant degree by the effect of a change in market
interest rates on our investments.
We contract with CROs and manufacturers internationally. Transactions with these
providers are predominantly settled in U.S. dollars and, therefore, we believe
that we have only minimal exposure to foreign currency exchange risks. We do not
hedge against foreign currency risks.
Item 4. Controls and Procedures
Management's Evaluation of our Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports that we file or submit under
the Securities Exchange Act of 1934, or the Exchange Act, is (1) recorded,
processed, summarized, and reported within the time periods specified in the
SEC's rules and forms, and (2) accumulated and communicated to our management,
including our principal executive officer and principal financial officer, to
allow timely decisions regarding required disclosure.
As of March 31, 2020 , management, with the participation of our Chief Executive
Officer and Chief Financial Officer, performed an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as defined in
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Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in theSEC's rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as ofMarch 31, 2020 , the design and operation of our disclosure controls and procedures were effective. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter endedMarch 31, 2020 , that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 26
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