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, 2020 . 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," "contemplate," "continue," "could," "estimate," "expect," "forecast," "goal," "intend," "may," "plan," "potential," "predict," "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 proposed transaction withMerck Sharp & Dohme Corp. ; •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, ACE-1334, and our other potential therapeutic candidates; •our and Bristol Myers Squibb'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 our ability 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/or 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 change 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. 18 -------------------------------------------------------------------------------- Table of Contents 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, 2020 and this Quarterly Report on Form 10-Q to better understand the risks and uncertainties inherent in our business and 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: pulmonary and hematology. Merger Agreement withMerck Sharp & Dohme Corp. OnSeptember 29, 2021 , we entered into an Agreement and Plan of Merger (which we refer to as the "Merger Agreement") withMerck Sharp & Dohme Corp. , or Merck, and Merck's acquisition subsidiary, under which Merck is to acquire Acceleron in a cash transaction for an approximate total equity value of$11.5 billion . OnOctober 12, 2021 , pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Merck's acquisition subsidiary commenced a tender offer to purchase all of our issued and outstanding shares of common stock in exchange for$180.00 per share, net to the seller in cash, without interest and less applicable tax withholdings. The closing of the tender offer remains subject to the satisfaction of certain conditions, including the tender of shares representing at least a majority of the total number of our outstanding shares, receipt of applicable regulatory approvals, and other customary conditions. If the tender offer closes, Merck's acquisition subsidiary will be merged into Acceleron, and any remaining Acceleron shares (other than shares of common stock held by us as treasury stock, or owned by Merck or Merck's acquisition subsidiary, or held by stockholderswho are entitled to demand, andwho properly demand, appraisal rights under Section 262 of the General Corporation Law of theState of Delaware , or the DGCL) will be converted into the right to receive the same$180.00 per share price payable in the tender offer. The Merger Agreement contemplates that the merger will be effected pursuant to Section 251(h) of the DGCL, which permits completion of the merger without a shareholder vote promptly following consummation of the tender offer. The transaction is not subject to a financing condition. The Merger Agreement includes restrictions on the conduct of our business prior to the completion of the merger, generally requiring us to use commercially reasonable efforts to carry on our business in the ordinary course. Without limiting the generality of the foregoing, we are subject to a variety of specified restrictions. Unless we obtain Merck's prior written consent (which consent may not be unreasonably withheld, conditioned or delayed) and except (i) as expressly permitted by the Merger Agreement, (ii) as required by applicable law, (iii) as set forth in the confidential disclosure letter delivered by Acceleron to Merck, or (iv) for certain specified measures that may be taken in connection with or in response to the COVID-19 pandemic, we may not, among other things and subject to certain exceptions and aggregate limitations, incur additional indebtedness, issue additional shares of our common stock outside of our equity incentive plans, repurchase our common stock, pay dividends, acquire assets, securities or property, dispose of businesses or assets, enter into material contracts or make certain additional capital expenditures. In connection with the termination of the Merger Agreement under specified circumstances, including termination by Acceleron in order to accept and enter into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement), we will be required to pay a termination fee of$345.0 million by wire transfer of immediately available funds. The Merger Agreement also provides that if the tender offer or merger are not consummated due to the failure of certain antitrust conditions to be satisfied, then Merck will be required to pay us a reverse termination fee of$650.0 million or$750.0 million , depending on the time of termination. The termination fees, if paid, constitute the sole and exclusive remedy of the party receiving the fee in respect of the Merger Agreement. The transaction is expected to close in the fourth quarter of 2021. If the transaction is completed, it is expected that our common stock will be removed from listing on the Nasdaq Global Market and from registration under Section 12(b) of the Securities Exchange Act of 1934, as amended. 19 -------------------------------------------------------------------------------- Table of Contents 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 Bristol Myers Squibb, or BMS, (which acquired Celgene Corporation inNovember 2019 ), 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 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. InJune 2020 , we presented results of the PULSAR Phase 2 trial of sotatercept in patients with PAH on stable background PAH-specific therapies during the "Breaking News: Clinical Trials in Pulmonary Medicine" session of theAmerican Thoracic Society , or ATS, 2020Virtual Conference . Study investigators reported that the trial met its primary endpoint, pulmonary vascular resistance, and its key secondary endpoint, six-minute walk distance, and showed concordance of results across multiple additional endpoints and regardless of baseline characteristics. Sotatercept was generally well tolerated in the trial and adverse events observed in the study were generally consistent with previously published data on sotatercept in clinical trials in other patient populations. We presented additional cardiac and pulmonary function data at the virtual 2020 American Heart Association Scientific Sessions inNovember 2020 showing improvement in right ventricular-pulmonary arterial (RV-PA) coupling, which represents the match between the output of the RV and the resistance of the pulmonary vasculature, as well as improvement in RV function. InMay 2021 , we presented interim results from the ongoing 18-month open-label extension of the PULSAR trial at the ATS 2021International Conference showing consistent or improved patient responses in multiple efficacy endpoints when treated with sotatercept for up to 48 weeks. We initiated our registrational Phase 3 trial, the STELLAR trial, in patients with PAH at the end of 2020, and we recently initiated the early intervention Phase 3 HYPERION trial in patients with intermediate- and high-risk PAH and the later intervention Phase 3 ZENITH trial inWorld Health Organization (WHO ) functional class III or IV PAH patients at high risk of mortality. Start-up activities are underway for the Phase 2 CADENCE trial in patients with pulmonary hypertension due to left heart disease, which we plan to initiate by the end of 2021. We have completed enrollment in an exploratory study called SPECTRA to provide us with greater understanding of sotatercept's potential impact on PAH. We presented preliminary interim results inNovember 2020 at the virtual 2020 American Heart Association Scientific Sessions, and we presented additional preliminary interim results at the ATS 2021International Conference , in each case showing improvements in multiple hemodynamic measures in the first 10 patients evaluated among the total of 21 trial participants. We also previously announced that theU.S. Food and Drug Administration , or FDA, has granted Breakthrough Therapy designation to sotatercept for the treatment of patients with PAH, and that theEuropean Medicines Agency , or EMA, has granted Priority Medicines, or PRIME, designation to sotatercept for the treatment of patients with PAH. InDecember 2020 , theEuropean Commission granted Orphan Drug designation to sotatercept for the treatment of patients with PAH. If sotatercept is approved and commercialized to treat PAH, then we will recognize revenue from global net sales and owe BMS a royalty in the low 20% range. In addition to sotatercept, we are currently advancing our second pulmonary therapeutic candidate, ACE-1334. ACE-1334 is a wholly owned TGF-beta superfamily-based ligand trap designed to bind and inhibit TGF-beta 1 and 3 ligands but not TGF-beta 2. We recently completed an ascending-dose Phase 1 clinical trial in healthy volunteers, and the FDA has granted Fast Track designation to ACE-1334 in patients with systemic sclerosis-associated interstitial lung disease, or SSc-ILD, as well as Orphan Drug designation for the treatment of systemic sclerosis. SSc-ILD is a rare, progressive, autoimmune connective tissue disorder characterized by immune dysregulation. We initiated a Phase 1b/Phase 2 clinical trial with ACE-1334 in patients with SSc-ILD inOctober 2021 . 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. REBLOZYL is currently approved to treat certain adult patients with beta-thalassemia or MDS inthe United States ,European Union andCanada , as further described in the "Business" section in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . For additional patient populations, 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, and a Phase 3 clinical trial, the COMMANDS trial, in first-line, lower-risk MDS patients. InJune 2021 , we and BMS announced the first results from the BEYOND trial showing that luspatercept-aamt plus best supportive care improved anemia in 77% of patients compared to placebo, and luspatercept-aamt was generally well tolerated. Topline results from the COMMANDS trial are expected in or after 2022. In myelofibrosis, BMS is conducting a Phase 2 clinical trial with luspatercept-aamt in patients with myelofibrosis-associated anemia, and has initiated the Phase 3 INDEPENDENCE study in patients with myelofibrosis-associated anemiawho are being treated with JAK inhibitor therapy and require RBC transfusions. 20 -------------------------------------------------------------------------------- Table of Contents We believe that there is a global annual peak sales opportunity for REBLOZYL in excess of$4 billion for all currently approved indications and those in development, including future clinical development expansion. BMS is responsible for paying 100% of the development costs for all clinical trials for luspatercept-aamt. We may receive a maximum of$100.0 million for remaining potential regulatory and commercial milestone payments. We have a co-promotion right inNorth America and our commercialization costs provided in the commercialization plan and budget approved by theJoint 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. Funding and Expense As ofSeptember 30, 2021 , our operations have been funded primarily by$105.1 million in equity investments from venture investors,$1.3 billion from public investors,$164.1 million in equity investments from our collaboration partners and$510.5 million in upfront payments, milestones, royalties, and net research and development payments from our collaboration partners. 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; •prepare for the potential launch and commercialization of sotatercept in the PH field; •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 royalty revenue from the sale of our first and only commercial product, REBLOZYL, and, subject to any applicable restrictions in the Merger Agreement, potentially from the sale of equity, debt financings or other sources, including potential additional collaborations. However, we may not generate sufficient royalty revenue and 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 generate significant revenue or 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. 21
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Financial Operations Overview
Impact of COVID-19 on our Business
A novel strain of coronavirus (COVID-19) was declared a global pandemic by the
World Health Organization (WHO ) in March 2020 and has caused an economic
downturn on a global scale, as well as significant volatility in the financial
markets. As of September 30, 2021 , we have not experienced material financial,
development, or supply chain impacts directly related to the pandemic, but we
may experience disruptions in our ongoing and planned sotatercept and ACE-1334
clinical trials. We have experienced disruptions in our commercialization
efforts for REBLOZYL with regard to customer engagement and in-person promotion.
New patient visits for MDS patients in general have also decreased as compared
to pre-COVID levels. Although some restrictions on our in-person promotion
efforts were reduced earlier this year, these restrictions began to return
recently due to an increase in COVID cases and related hospitalizations
attributed to the spread of the delta variant. In addition, as various
geographies in the United States and worldwide adapt to surging COVID-19
infections from the delta variant or other new variants, we may experience
additional setbacks to our operations, including our clinical trial initiations
and enrollment, that could have a material impact on our business.
For a discussion of the risks presented by the COVID-19 pandemic to our results,
see Risk Factors in Part I, Item 1A of the Company's Annual Report on Form 10-K
for the year ended December 31, 2020 .
Revenue
Collaboration Revenue
Our revenue to date has been predominantly derived from collaboration revenue,
which includes license and milestone revenue, cost-sharing revenue, and
royalties, generated through collaboration and license agreements with partners
for the development and commercialization of our therapeutic candidates.
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. Royalty
revenue is recognized in the period that 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, including costs incurred under agreements with contract manufacturing
organizations, or CMOs, 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 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;
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•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 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 through September 30, 2021 , we have incurred $1.2 billion 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 cost-sharing revenue. We are expensing the
costs of clinical trials for sotatercept and ACE-1334. With respect to the
luspatercept-aamt 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 and CMOs. 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 by CMOs, 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 and nine months ended September 30,
2021 and 2020 are as follows (certain prior year amounts have been reclassified
to conform with current year presentation):
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Sotatercept (1) $ 22,125 $ 13,914 $ 60,753 $ 31,638
ACE-083 (2) 52 569 223 7,093
ACE-1334 (3) 1,962 330 4,898 3,710
Total direct research and development
expenses 24,139 14,813 65,874 42,441
Other expenses (4) 35,578 25,934 107,272 74,222
Total research and development expenses $ 59,717 $ 40,747 $ 173,146 $ 116,663 (1)These expenses are associated with our development of sotatercept in PAH.
(2)Development of ACE-083 was discontinued. All remaining material expenses were incurred as of the end of 2020.
(3)These expenses are associated with our development of ACE-1334 in SSc-ILD.
(4)Other expenses include employee and unallocated contractor-related expenses,
facility expenses, lab supplies, and miscellaneous expenses, including expenses
associated with preclinical and other development programs.
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. Selling, general and administrative expenses also
include directors' fees, professional fees for accounting and legal services,
other miscellaneous costs associated with supporting our sales, marketing and
investor relations activities, and allocated facilities, depreciation, and other
expenses, such as rent and maintenance of facilities, insurance and other
supplies.
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.
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Other Income (Expense), Net
Other income (expense), net consists primarily of interest income earned on
cash, cash equivalents and investments. Prior to 2021, other income (expense),
net also consists of the re-measurement gain or loss associated with the change
in the fair value of our common stock warrant liabilities.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations are based on our condensed consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these condensed 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 condensed consolidated financial statements. On an ongoing
basis, we evaluate our estimates and judgments, including those related to
revenue recognition and accrued and prepaid 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 and nine months ended September 30, 2021 , 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 ended December 31, 2020 . For further
information on our critical and other significant accounting policies, 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 ended December 31, 2020 .
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Results of Operations
Comparison of the Three Months Ended
Three Months Ended
Increase (Decrease)
September 30,
(in thousands) 2021 2020 $ %
Revenue:
Collaboration revenue:
Cost-sharing, net $ 2,156 $ 3,298 $ (1,142) (35) %
Royalty 32,043 19,263 12,780 66 %
Total revenue (all amounts are with a related party) 34,199 22,561 11,638 52 %
Costs and expenses:
Research and development 59,717 40,747 18,970 47 %
Selling, general and administrative 45,112 21,042 24,070 114 %
Total costs and expenses 104,829 61,789 43,040 70 %
Loss from operations (70,630) (39,228) (31,402) 80 %
Other income, net 180 (6) 186 (3,100) %
Loss before income taxes (70,450) (39,234) (31,216) 80 %
Income tax provision (15) (11) (4) 36 %
Net loss $ (70,465) $ (39,245) $ (31,220) 80 %
Revenue. We recognized revenue of $34.2 million in the three months ended
September 30, 2021 , compared to $22.6 million in the same period in 2020. All of
the revenue in both periods was derived from the BMS agreements. This $11.6
million increase is primarily related to increased royalty revenue from REBLOZYL
sales recognized in 2021 of $12.8 million . As noted by our collaboration
partner, net sales of REBLOZYL for the third quarter of $160 million included
approximately $20 million to $25 million of sales from an inventory build due to
the transition to wholesaler distribution and approximately $13.5 million of net
sales outside of the United States .
Research and Development Expenses. Research and development expenses were $59.7
million in the three months ended September 30, 2021 , compared to $40.7 million
in the same period in 2020. This $19.0 million increase is primarily related to
growth in order to support our wholly-owned therapeutic candidates and
preclinical programs and includes:
•an increase in external clinical trial expense of $11.4 million primarily
related to increased clinical activities for the sotatercept clinical trials;
•an increase in personnel and facilities-related expense of $7.4 million related
to increased headcount to support our growth; and
•an increase in in-licensing and other miscellaneous research expenses of $2.6
million ; offset by
•a decrease in contract manufacturing, drug supply, and development expenses of
$2.4 million related to our ongoing clinical and preclinical programs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $45.1 million in the three months ended
September 30, 2021 , compared to $21.0 million in the same period in 2020. The
$24.1 million increase is primarily due to the following factors:
•an increase in fees for professional services and other transaction costs of
$11.6 million in connection with the Merger Agreement;
•an increase in consulting and other miscellaneous expenses of $5.2 million
primarily related to the preparation for the potential future commercial launch
of sotatercept and other activities related to the execution of our global
strategy; and
•an increase in personnel and facilities-related expense of $6.5 million related
to increased headcount to support our growth.
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Comparison of the Nine Months Ended September 30, 2021 and 2020
Nine Months Ended
Increase (Decrease)
September 30,
(in thousands) 2021 2020 $ %
Revenue:
Collaboration revenue:
Milestone $ - $ 25,000 $ (25,000) (100) %
Cost-sharing, net 6,812 9,800 (2,988) (30) %
Royalty 80,085 31,856 48,229 151 %
Total revenue (all amounts are with a related
party) 86,897 66,656 20,241 30 %
Costs and expenses:
Research and development 173,146 116,663 56,483 48 %
Selling, general and administrative 111,646 59,705 51,941 87 %
Total costs and expenses 284,792 176,368 108,424 61 %
Loss from operations (197,895) (109,712) (88,183) 80 %
Other income, net 466 1,108 (642) (58) %
Loss before income taxes (197,429) (108,604) (88,825) 82 %
Income tax provision (28) (31) 3 (10) %
Net loss $ (197,457) $ (108,635) $ (88,822) 82 %
Revenue. We recognized revenue of $86.9 million in the nine months ended
September 30, 2021 , compared to $66.7 million in the same period in 2020. All of
the revenue in both periods was derived from the BMS agreements. This $20.2
million increase is primarily related to increased royalty revenue from REBLOZYL
sales recognized in 2021 of $48.2 million , partially offset by decreased license
and milestone revenue of $25.0 million .
Research and Development Expenses. Research and development expenses were
$173.1 million in the nine months ended September 30, 2021 , compared to $116.7
million in the same period in 2020. This $56.5 million increase is primarily
related to growth in order to support our wholly-owned therapeutic candidates
and preclinical programs and includes:
•an increase in external clinical trial expense of $30.2 million related to
increased clinical activities for the sotatercept clinical trials;
•an increase in personnel and facilities-related expense of $26.5 million
related to increased headcount to support our growth; and
•an increase in in-licensing and other miscellaneous research expenses of $4.2
million ; offset by
•a decrease in contract manufacturing, drug supply, and development expenses of
$4.3 million related to our ongoing clinical and preclinical programs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $111.6 million in the nine months ended
September 30, 2021 , compared to $59.7 million in the same period in 2020. The
$51.9 million increase is primarily due to the following factors:
•an increase in fees for professional services and other transaction costs of
$11.6 million in connection with the Merger Agreement;
•an increase in consulting and other miscellaneous expenses of $17.1 million
primarily related to the preparation for the potential future commercial launch
of sotatercept and other activities related to the execution of our global
strategy; and
•an increase in personnel and facilities-related expense of $22.4 million
related to increased headcount to support our growth.
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Liquidity and Capital Resources
We have incurred losses and cumulative negative cash flows from operations since
our inception in June 2003 , and as of September 30, 2021 , we had an accumulated
deficit of $1.1 billion . We anticipate that we will continue to incur losses for
at 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 may need additional capital to fund our operations, which, subject to
any applicable restrictions in the Merger Agreement, we may raise through a
combination of the sale of equity, debt financings or other sources, including
potential additional collaborations.
As of September 30, 2021 , our operations have been primarily funded by $105.1
million in equity investments from venture investors, $1.3 billion from public
investors, $164.1 million in equity investments from our collaboration partners,
and $510.5 million in upfront payments, milestones, royalties, and net research
and development payments from our collaboration partners.
As of September 30, 2021 , we had $652.5 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.
In connection with the termination of the Merger Agreement under specified
circumstances, including termination by Acceleron in order to accept and enter
into a definitive agreement with respect to a Superior Proposal (as defined in
the Merger Agreement), we will be required to pay Merck a termination fee of
$345.0 million by wire transfer of immediately available funds. The Merger
Agreement also provides that if the tender offer or merger are not consummated
due to the failure of certain antitrust conditions to be satisfied, then Merck
will be required to pay us a reverse termination fee of $650.0 million or $750.0
million , depending on the time of termination. The termination fees, if paid,
constitute the sole and exclusive remedy of the party receiving the fee in
respect of the Merger Agreement.
Cash Flows
The following table sets forth the primary sources and uses of cash for each of
the periods set forth below (in thousands):
Nine Months Ended September 30,
(in thousands) 2021 2020
Net cash (used in) provided by:
Operating activities $ (223,227) $ (92,197)
Investing activities (131,556) 55,196
Financing activities 20,086 529,009Net (decrease) increase in cash, cash equivalents and restricted cash
Operating Activities Net cash used in operating activities was$223.2 million for the nine months endedSeptember 30, 2021 , compared to$92.2 million during the same period in 2020. Significant factors in this$131.0 million increase include: •an increase in net loss of$88.8 million primarily due to an increase in operating expenses related to increased headcount and facilities, prepayment of phase 3 clinical trial activities and the related expense, fees for professional services and other transaction costs in connection with the Merger Agreement, 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 royalty revenue associated with sales of REBLOZYL; •a net increase in operating assets and liabilities of$57.4 million , consisting primarily of an increase in prepaid expenses and other assets of$55.8 million ; offset by a net decrease in collaboration receivables and accounts payable of$5.9 million and$9.7 million , respectively; and •a net increase in other non-cash expenses of$15.2 million , largely related to an increase in stock-based compensation expense of$18.7 million , and offset by a net decrease in amortization and accretion of premiums and discounts on available-for-sale securities of$2.1 million . Investing Activities Net cash used in investing activities was$131.6 million for the nine months endedSeptember 30, 2021 , compared to net cash provided by investing activities of$55.2 million during the same period in 2020. Net cash used and provided by investing activities primarily consisted of the following amounts relating to activity within our investment portfolio: 27 -------------------------------------------------------------------------------- Table of Contents •for the nine months endedSeptember 30, 2021 , purchases of investments of$127.3 million net of maturities due to the execution of our investment strategy in accordance with our policy as we invest the money raised in ourJuly 2020 public offering in marketable securities; and •for the nine months endedSeptember 30, 2020 , net proceeds from sales and maturities of investments of$58.5 million in connection with managing our investment portfolio to meet our projected cash requirements. Financing Activities Net cash provided by financing activities was$20.1 million for the nine months endedSeptember 30, 2021 , compared to$529.0 million during the same period in 2020. Net cash provided by financing activities consisted primarily of the following: •for the nine months endedSeptember 30, 2021 ,$20.1 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 nine months endedSeptember 30, 2020 ,$492.4 million net cash proceeds from ourJuly 2020 public offering and the underwriter's full exercise of their option to purchase additional shares, as well as$36.6 million in cash proceeds from the exercise of stock options and the issuance of common stock related to the employee stock purchase plan. 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 expect our expenses to increase and to incur losses as we continue the development of, and seek regulatory approvals for, sotatercept in the PH field and any future therapeutic candidates, and as we 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, along with the expected royalty revenue from REBLOZYL sales, will be sufficient to fund our projected operating requirements for the foreseeable future. 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, if needed, may not be available on favorable terms, if at all. If we are unable to generate sufficient revenue or 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 outcome and timing of our proposed transaction with Merck;
•the achievement of milestones under our agreements 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;
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•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, including potential new facilities;
•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 costs of preparing for the potential launch and commercialization of sotatercept or our other 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 or wholly-owned intellectual property.
Net Operating Loss (NOL) Carryforwards
We had net deferred tax assets of approximately $282.2 million as of
December 31, 2020 , 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, 2020 , we had federal NOL carryforwards of approximately
$871.4 million and state NOL carryforwards of $788.3 million available to reduce
future taxable income, if any. Of these federal and state NOL carryforwards,
$438.0 million and $787.7 million , respectively, will expire at various times
through 2040. The federal NOL of $433.4 million and state NOL of $0.6 million
generated beginning in 2018 can be carried forward indefinitely. In general, if
we experience a greater than 50% 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, 2020 .
Contractual Obligations and Commitments
During the three months ended September 30, 2021 , there were no material changes
to our contractual obligations and commitments described under "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, 2020 .
Recent Accounting Pronouncements
For a summary of recently issued accounting pronouncements applicable to the
Company refer to Note 2, "Summary of Significant Accounting Policies" in the
Notes to our audited Consolidated Financial Statements included in our Annual
Report on Form 10-K for the year ended December 31, 2020 .
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
September 30, 2021 and December 31, 2020 , we had cash, cash equivalents and
investments of $652.5 million and $857.5 million , respectively. Our cash
equivalents are
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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 impact 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
Securities and Exchange Commission'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 September 30, 2021 , 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 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 the Securities and Exchange Commission'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 of
September 30, 2021 , 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 ended
September 30, 2021 , that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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