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'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 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 and Quarterly Report on Form 10-Q for the quarterly period endedMarch 31, 2020 to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. 19 -------------------------------------------------------------------------------- Table of Contents 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). InNovember 2019 , theU.S. Food and Drug Administration , or FDA, approved REBLOZYL for the treatment of anemia in adult patients with beta-thalassemiawho require regular RBC transfusions. InApril 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. InJune 2020 , theEuropean Commission , which has the authority to approve medicines for theEuropean Union , approved REBLOZYL based on the recommendation of theEuropean Medicines Agency , or EMA, 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. InSeptember 2020 ,Health Canada approved REBLOZYL for the treatment of adult patients with transfusion-dependent anemia associated with beta-thalassemia. 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 or after 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 inDecember 2019 at the 61stAmerican 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 first quarter of 2021 the Phase 3 INDEPENDENCE study in patients with myelofibrosis-associated anemiawho are being treated with JAK inhibitor therapy and require RBC transfusions. 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 inthe United States andEurope , 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$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. 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 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. 20
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InJune 2020 , we presented topline 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. The 18-month extension period of the PULSAR trial is ongoing and we plan to initiate our registrational Phase 3 trial, the STELLAR trial, in patients with PAH by year-end 2020. We also plan to initiate an early intervention Phase 3 trial, the HYPERION trial, and a later intervention Phase 3 trial, the ZENITH trial, in expanded PAH patient populations in mid-2021. We are currently enrolling an exploratory study called SPECTRA to provide us with greater understanding of sotatercept's potential impact on PAH, with preliminary interim results expected to be presented inNovember 2020 at the virtual 2020 American Heart Association Scientific Sessions, and additional results expected in the first half of 2021. We also previously 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 ofSeptember 30, 2020 , 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$409.4 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 potentially from the sale of equity, debt financings or other sources, including 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. To date, we have only generated limited revenue from royalties on the sale of REBLOZYL since receiving our first regulatory approval from the FDA inNovember 2019 . Our ability to generate product revenue and become profitable depends 21 -------------------------------------------------------------------------------- Table of Contents upon our and our partners' ability to successfully commercialize products. 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 potentially begin to commercialize any additional 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 and Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2020 . Financial Operations Overview Impact of COVID-19 on our Business A novel strain of coronavirus (COVID-19) was declared a global pandemic by theWorld Health Organization (WHO ) inMarch 2020 and has caused an economic downturn on a global scale, as well as significant volatility in the financial markets. As ofSeptember 30, 2020 , we have not experienced a significant financial or supply chain impact directly related to the pandemic, but have experienced some disruptions to clinical operations with regard to timelines to complete patient enrollment in our ongoing Phase 2 SPECTRA trial, and may experience similar disruptions in our planned Phase 3 sotatercept clinical trials. We have also experienced disruptions in our commercialization efforts for REBLOZYL with regard to customer engagement and in-person promotion. In addition, as various geographies inthe United States and worldwide adapt to surging COVID-19 infections, we may experience additional setbacks to our operations 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 II, Item 1A of the Company's Quarterly Report on Form 10-Q for the fiscal quarter endedMarch 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 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 22 -------------------------------------------------------------------------------- Table of Contents 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 throughSeptember 30, 2020 , we have incurred$929.3 million in research and development expenses. We plan to increase our research and development expenses for the foreseeable future as we continue the development of our TGF-beta platform therapeutic candidates, the discovery and development of preclinical therapeutic candidates, and the development of our clinical programs. Research and development expenses associated with luspatercept-aamt, and, outside of the PH field, sotatercept, are generally reimbursed 100% by BMS. These reimbursements are recorded as revenue. We are expensing the costs of Phase 2 clinical trials for luspatercept-aamt, sotatercept, and ACE-083, of which the luspatercept-aamt trials are reimbursed by BMS. Our Phase 2 clinical trials for ACE-083 are being discontinued. With respect to the luspatercept-aamt clinical trials directly conducted by BMS, we do not incur and are not reimbursed for expenses related to these development activities. We manage certain activities such as clinical trial operations, manufacture of therapeutic candidates, and preclinical animal toxicology studies through third-party CROs. The only costs we track by each therapeutic candidate are external costs such as services provided to us by CROs, manufacturing of preclinical and clinical drug product, and other outsourced research and development expenses. We do not assign or allocate to individual development programs internal costs such as salaries and benefits, facilities costs, lab supplies, and the costs of preclinical research and studies, except for luspatercept-aamt costs for the purposes of billing BMS. Our external research and development expenses during the three and nine months endedSeptember 30, 2020 and 2019 are as follows: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2020 2019 2020 2019 Luspatercept-aamt (1)$ 808 $ 1,027 $ 2,154 $ 3,288 Sotatercept (2) 13,914 3,762 31,638 11,900 ACE-083 (3) 569 11,064 7,093 21,614 Total direct research and development expenses 15,291 15,853 40,885 36,802 Other expenses (4) 25,456 21,777 75,778 68,323 Total research and development expenses$ 40,747 $ 37,630 $ 116,663 $ 105,125
(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)Other expenses include employee and unallocated contractor-related expenses,
facility expenses, lab supplies, and miscellaneous research 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.
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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.
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. All remaining outstanding warrants were remeasured using the
Black-Scholes model upon their expiration on July 9, 2020 . At September 30,
2020 , there were no warrants outstanding.
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 with U.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 and nine months ended September 30, 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 ended December 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 ended December 31, 2019 .
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Results of Operations
Comparison of the Three Months Ended
Three Months Ended
September 30, Increase
(in thousands) 2020 2019 (Decrease)
Revenue:
Collaboration revenue:
Cost-sharing, net 3,298 4,208 (910)
Royalty 19,263 - 19,263
Total revenue (all amounts are with a related party) 22,561 4,208 18,353
Costs and expenses:
Research and development 40,747 37,630 3,117
Selling, general and administrative 21,042 15,501 5,541
Total costs and expenses 61,789 53,131 8,658
Loss from operations (39,228) (48,923) 9,695
Other (expense) income, net (6) 3,520 (3,526)
Loss before income taxes (39,234) (45,403) 6,169
Income tax (provision) benefit (11) 34 (45)
Net loss $ (39,245) $ (45,369) $ 6,124
Revenue. We recognized revenue of $22.6 million in the three months ended
September 30, 2020 , compared to $4.2 million in the same period in 2019. All of
the revenue in both periods was derived from the BMS agreements. This $18.4
million increase is primarily related to royalty revenue from REBLOZYL sales
recognized in 2020 of $19.3 million , offset by decreased cost-sharing revenue
due to a decrease in reimbursable commercial fees, trial management fees, and
development costs of $0.9 million .
Research and Development Expenses. Research and development expenses were $40.7
million in the three months ended September 30, 2020 , compared to $37.6 million
in the same period in 2019. This $3.1 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 $3.6 million related
to increased headcount to support our growth;
•an increase in contract manufacturing, drug supply, and toxicology expenses of
$0.1 million related to our ongoing clinical and preclinical programs; and
•an increase in miscellaneous research expense of $1.1 million ; offset by
•a decrease in external clinical trial expense of $1.7 million due to the
discontinuation of our ACE-083 program, as well as decreased clinical activities
for the luspatercept Phase 2 clinical trials.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $21.0 million in the three months ended
September 30, 2020 , compared to $15.5 million in the same period in 2019. The
$5.5 million increase is primarily due to the following factors:
•an increase in personnel expense and facilities-related expense of $2.1 million
related to increased headcount to support our growth;
•an increase in selling expense of $2.1 million to support the launch of
REBLOZYL, which was approved for its second indication by the FDA in April 2020 ,
as well as market research and market development activities for sotatercept;
and
•an increase in other miscellaneous expenses of $1.3 million .
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Other Income, Net. Other expense, net was $6.0 thousand in the three months
ended September 30, 2020 , compared to other income, net of $3.5 million for the
same period in 2019. This $3.5 million decrease was primarily due to a $0.6
million decrease in sublease income, a $0.3 million decrease in the expense
associated with marking the common warrant liability to market upon auto
exercise in July 2020 , and a $2.5 million decrease in the interest earned on our
investment portfolio as a result of a decrease in the balance of our
investments.
Income Tax Provision. Income tax provision is attributable to the realization of
current year losses that offset unrealized gains from our investment portfolio.
Comparison of the Nine Months Ended September 30, 2020 and 2019
Nine Months Ended
September 30, Increase
(in thousands) 2020 2019 (Decrease)
Revenue:
Collaboration revenue:
Milestone $ 25,000 $ 25,000 $ -
Cost-sharing, net 9,800 9,655 145
Royalty 31,856 - 31,856
Total revenue (all amounts are with a related party) 66,656 34,655 32,001
Costs and expenses:
Research and development 116,663 105,125 11,538
Selling, general and administrative 59,705 40,394 19,311
Total costs and expenses 176,368 145,519 30,849
Loss from operations (109,712) (110,864) 1,152
Other income, net 1,108 9,523 (8,415)
Loss before income taxes (108,604) (101,341) (7,263)
Income tax (provision) benefit (31) 58 (89)
Net loss $ (108,635) $ (101,283) $ (7,352)
Revenue. We recognized revenue of $66.7 million in the nine months ended
September 30, 2020 , compared to $34.7 million in the same period in 2019. All of
the revenue in both periods was derived from the BMS agreements. This $32.0
million increase is primarily related to royalty revenue from REBLOZYL sales
recognized in 2020.
Research and Development Expenses. Research and development expenses were
$116.7 million in the nine months ended September 30, 2020 , compared to $105.1
million in the same period in 2019. This $11.6 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 $7.5 million related
to increased headcount to support our growth;
•an increase in contract manufacturing, drug supply and toxicology expenses of
$10.9 million related to our ongoing clinical and preclinical programs; and
•an increase in miscellaneous research expense of $2.6 million ; offset by
•a decrease in external clinical trial expense of $9.4 million due to the
discontinuation of our ACE-083 program, as well as decreased clinical activities
for the luspatercept Phase 2 clinical trials.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $59.7 million in the nine months ended
September 30, 2020 , compared to $40.4 million in the same period in 2019. The
$19.3 million increase is primarily due to the following factors:
•an increase in personnel expense and facilities-related expense of $11.9
million related to increased headcount to support our growth;
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•an increase in selling expense of $5.5 million to continue supporting the
launch of REBLOZYL, which was approved for its second indication by the FDA in
April 2020 , as well as market research and market development activities for
sotatercept; and
•an increase in other miscellaneous expenses of $1.9 million .
Other Income, Net. Other income, net was $1.1 million in the nine months ended
September 30, 2020 , compared to $9.5 million for the same period in 2019. This
$8.4 million decrease was primarily due to a $2.0 million decrease in the
expense associated with marking the common warrant liability to market, a $0.7
million decrease in sublease income, and a $5.6 million decrease in the interest
earned on our investment portfolio as a result of a decrease in the balance of
our investments.
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 September 30, 2020 , we had an accumulated
deficit of $820.0 million . 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 we may
raise through a combination of the sale of equity, debt financings or other
sources, including potential additional collaborations.
As of September 30, 2020 , 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 $409.4 million in upfront payments, milestones, royalties, and net research
and development payments from our collaboration partners.
As of September 30, 2020 , we had $887.4 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):
Nine Months Ended September 30,
(in thousands) 2020 2019
Net cash (used in) provided by:
Operating activities $ (92,197) $ (77,553)
Investing activities 55,196 (153,004)
Financing activities 529,009 256,047
Net increase in cash, cash equivalents and restricted cash Operating Activities Net cash used in operating activities was$92.2 million for the nine months endedSeptember 30, 2020 , compared to$77.6 million during the same period in 2019. Significant factors in this$14.6 million increase include: •an increase in net loss of$7.4 million primarily 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 royalty revenue associated with sales of REBLOZYL; •a net increase in operating assets and liabilities of$13.3 million , consisting primarily of an increase in collaboration receivables of$14.2 million ; and •a net increase in other non-cash expenses of$6.0 million largely related to an increase in stock-based compensation expense and expense associated with the remeasurement of the fair value of the common warrant liability upon auto-exercise inJuly 2020 . Investing Activities 27 -------------------------------------------------------------------------------- Table of Contents Net cash provided by investing activities was$55.2 million for the nine months endedSeptember 30, 2020 , compared to net cash used in investing activities of$153.0 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 nine months endedSeptember 30, 2020 , proceeds from maturities of investments of$58.5 million net of purchases, in connection with managing our investment portfolio to meet our projected cash requirements; and •for the nine months endedSeptember 30, 2019 , purchases of investments of$150.8 million net of maturities, 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$529.0 million for the nine months endedSeptember 30, 2020 , compared to$256.0 million during the same period in 2019. Net cash provided by financing activities consisted primarily of the following: •for the nine months endedSeptember 30, 2020 ,$492.4 million in 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; and •for the nine months endedSeptember 30, 2019 ,$248.1 million in net cash proceeds from ourJanuary 2019 public offering and the underwriter's full exercise of their option to purchase additional shares, as well as$7.9 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 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 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 achievement of milestones under our agreement with BMS;
•the amount of royalties we receive on sales of REBLOZYL;
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Table of Contents •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 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 intellectual property.
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 September 30, 2020 , 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, 2019 .
Recent Accounting PronouncementsFor information on recent accounting pronouncements, see Note 11 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
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We are exposed to market risk related to changes in interest rates. As of
September 30, 2020 and December 31, 2019 , we had cash, cash equivalents and
investments of $887.4 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 September 30, 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 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 SEC'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, 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 ended
September 30, 2020 , that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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