The following discussion should be read in conjunction with our financial statements and accompanying footnotes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. See "Special Note Regarding Forward-Looking Statements." Because of many factors, including those factors set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Overview

We are a cardio-metabolic nonalcoholic steatohepatitis, or NASH, company developing pioneering medicines designed to restore metabolic balance and improve overall health for NASH patients. Our lead product candidate, Efruxifermin, or EFX, formerly known as AKR-001, is a proprietary fibroblast growth factor 21, or FGF21, analog with unique properties that we believe has the potential to address the core processes underlying NASH pathogenesis, with the potential to restore healthy fat metabolism in the liver, reduce hepatocyte stress, mitigate inflammation and resolve fibrosis. FGF21 is an endocrine hormone that acts on the liver, pancreas, muscle and adipose tissue to regulate the metabolism of lipids, carbohydrates and proteins. Acting as a paracrine hormone, FGF21 also plays a critical role in protecting cells against stress. These attributes make FGF21 agonism a compelling therapeutic mechanism, but native FGF21 is limited by its short half-life in the bloodstream. EFX has been engineered with the objective of increasing human FGF21's half-life sufficiently to enable dosing once-weekly or once every two weeks, while seeking to retain the native biological activity of FGF21.

In the second quarter of 2020 we reported data from the main portion of the BALANCED study, which enrolled 80 patients with biopsy-confirmed NASH. This main study was a multicenter, randomized, double-blind, placebo-controlled, dose-ranging study that evaluated three EFX dose groups after 16 weeks of treatment. A separate cohort evaluating treatment of 30 patients with compensated cirrhosis (F4), Child-Pugh Class A, is ongoing, with enrollment completed in September 2020.

In March 2020, we reported primary and secondary endpoint results related to liver fat reduction and ALT reduction for the main study. All EFX groups met the primary and secondary endpoints related to reductions in liver fat, as measured by magnetic resonance imaging-proton density fat fraction, or MRI-PDFF, and ALT, with 63% to 72% relative reductions in liver fat across EFX dose groups, compared to 0% for placebo. In addition, all EFX patients with week 12 MRI-PDFF results were designated treatment responders, having achieved at least a 30% relative reduction in liver fat. In June 2020, we announced additional results of a 16-week analysis of secondary and exploratory endpoints, including histological results from paired biopsies for treatment responders. Of the 40 EFX treatment responders who had end-of-treatment biopsies, we observed that 48% achieved improvement in liver fibrosis of at least one stage and no worsening of NASH and 28% achieved at least a two-stage improvement in liver fibrosis. Sixty-two percent of treatment responders in the 50mg dose group achieved one-stage improvement in liver fibrosis and no worsening of NASH. In addition, 48% of EFX patients achieved NASH resolution and no worsening of liver fibrosis, including 54% of patients in the 50mg dose group.

In September 2020, we received written guidance from the U.S. Food and Drug Administration, or FDA, in response to our Type C Meeting Request, which enables us to implement an innovative combined Phase 2b/3 study design for pivotal EFX trials in NASH patients. Under the planned adaptive trial design, we will evaluate the 28 and 50mg EFX doses in a 24-week Phase 2b portion of the trial to inform selection of a single dose for evaluation in the Phase 3 portion of the study. We are in the process of updating the EFX IND to enable the planned Phase 2b portion of our Phase 2b/3 adaptive clinical trial in biopsy-confirmed NASH patients. These ongoing updates have included, or will include, reports covering chronic toxicology studies as well as comparability assessments, release and stability testing for drug substance and drug product. We remain on track to initiate this study in the first half of 2021. In October 2020,



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the European Medicines Agency, or EMA, granted Priority Medicines, or PRIME, designation to EFX. This designation was granted based on the positive efficacy data from the BALANCED study. Based on available published data, we believe that EFX is the first drug candidate to receive a PRIME designation for treatment of NASH.

We believe EFX holds the potential to be a promising monotherapy for the treatment of NASH, if approved. NASH is a complex disease, and its treatment ideally would include intervening at all of the various stages of its pathogenesis. Based on the results of the BALANCED study to date, we believe EFX could potentially address all of the various stages of NASH pathogenesis in a single treatment: reducing steatohepatitis, resolving fibrosis and helping restore healthy metabolism to the whole body. Pending consultation with FDA we expect to begin the next clinical trial during the first half of 2021.

We were incorporated in January 2017 and have devoted substantially all of our efforts to organizing and staffing our company, business planning, raising capital, in-licensing rights to EFX, research and development activities for EFX, building our intellectual property portfolio and providing general and administrative support for these operations. To date, we have principally raised capital through the issuance of convertible preferred stock, the initial public offering of our common stock in June 2019 and an underwritten public offering of our common stock in July 2020.

We have incurred significant operating losses since inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of EFX and any future product candidates. Our net losses were $21.4 million and $49.5 million for the three and nine months ended September 30, 2020, respectively, and $15.6 million and $28.1 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $179.8 million. We expect to continue to incur significant expenses for at least the next several years as we advance EFX through later-stage clinical development, develop additional product candidates and seek regulatory approval of any product candidates that complete clinical development. In addition, if we obtain marketing approval for any product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, which may include collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, reduce or eliminate the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of September 30, 2020, we had cash, cash equivalents and short-term marketable securities of $291.9 million which we believe will be sufficient to fund our operating expenses and capital expenditure requirements for at least 12 months from the issuance date of these condensed consolidated financial statements.

Impact of the COVID-19 Pandemic

As of November 2020, a novel strain of coronavirus, or COVID-19, has spread globally. Efforts to contain the spread of COVID-19 have intensified and the United States, Europe and Asia have implemented severe travel restrictions, social distancing requirements, and stay-at-home orders, among other restrictions, which have led to delays in the commencement of non-COVID-19-related clinical trials. As a result, the COVID-19 pandemic has caused



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significant disruptions to the U.S., regional and global economies and has contributed to significant volatility and negative pressure in financial markets.

We have been carefully monitoring the COVID-19 pandemic and its potential impact on our business and have taken important steps to help ensure the safety of employees and their families and to reduce the spread of COVID-19. We have established, and maintained without interruption, a work-from-home policy for all employees. We have also maintained efficient communication with our manufacturing and supply partners as the COVID-19 situation has progressed. We have taken these precautionary steps while maintaining business continuity so that we can continue to progress our programs. Our financial results for the three and nine months ended September 30, 2020 were not significantly impacted by COVID-19, and the COVID-19 pandemic did not materially impact data collection for the main portion of the BALANCED study, which has been completed. To date, data collection in a separate cohort of the BALANCED study evaluating patients with compensated cirrhosis (F4), Child-Pugh Class A, and preparations for our upcoming Phase 2b/3 trial, have not been materially impacted by the COVID-19 pandemic.

Commercial-scale manufacture of GMP drug substance, or API, was completed in April 2020 without any impact from COVID-19. Manufacture of GMP drug product for our Phase 2b clinicial trial was completed in September 2020, also without any impact from COVID-19.

Notwithstanding the foregoing, the future impact of the COVID-19 pandemic on our industry, the healthcare system and our current and future operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. See "Item 1A. Risk Factors" for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition.

Components of our results of operations

Revenue

We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all. If our development efforts for EFX or additional product candidates that we may develop in the future are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements.

Operating expenses

Research and development expenses

Research and development expenses consist primarily of costs incurred in connection with the development of EFX, as well as unrelated discovery program expenses. We expense research and development costs as incurred. These expenses include:

employee-related expenses, including salaries, related benefits and stock-based

? compensation expense, for employees engaged in research and development

functions;

expenses incurred under agreements with contract research organizations, or

CROs, that are primarily engaged in the oversight and conduct of our clinical

trials; contract manufacturing organizations, or CMOs, that are primarily

? engaged to provide drug substance and product for our clinical trials, research

and development programs, as well as investigative sites and consultants that

conduct our clinical trials, nonclinical studies and other scientific

development services;

? the cost of acquiring and manufacturing nonclinical and clinical trial

materials, including manufacturing registration and validation batches;

? costs related to compliance with quality and regulatory requirements; and

? payments made under third-party licensing agreements.




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Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

Product candidates in later stages of clinical development, such as EFX, generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned clinical development activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of EFX and any future product candidates.

Our clinical development costs may vary significantly based on factors such as:

? per patient trial costs;

? the number of sites included in the trials;

? the countries in which the trials are conducted;

? the length of time required to enroll eligible patients;

? the number of patients that participate in the trials;

? the number of doses that patients receive;

? the drop-out or discontinuation rates of patients enrolled in clinical trials;

? potential additional safety monitoring requested by regulatory agencies;

? the duration of patient participation in the trials and follow-up;

any setbacks or delays to the initiation or completion of preclinical or

? non-clinical studies, product development or clinical trials due to the

COVID-19 pandemic;

the cost and timing of manufacturing our product candidates, including on

? account of any disruption or delays to the supply of our product candidates due

to the COVID-19 pandemic;

? the phase of development of our product candidates; and

? the efficacy and safety profile of our product candidates.

The successful development and commercialization of product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

? the timing and progress of nonclinical and clinical development activities;

? the number and scope of nonclinical and clinical programs we decide to pursue;

? the ability to raise necessary additional funds;

? the progress of the development efforts of parties with whom we may enter into

collaboration arrangements;

? our ability to maintain our current development program and to establish new

ones;

? our ability to establish new licensing or collaboration arrangements;

the successful initiation and completion of clinical trials with safety,

? tolerability and efficacy profiles that are satisfactory to the FDA or any

comparable foreign regulatory authority;

? the receipt and related terms of regulatory approvals from applicable

regulatory authorities;

? the availability of drug substance and drug product for use in production of

our product candidate;

establishing and maintaining agreements with third-party manufacturers for

? clinical supply for our clinical trials and commercial manufacturing, if our

product candidate is approved;

? our ability to obtain and maintain patents, trade secret protection and

regulatory exclusivity, both in the United States and internationally;

? our ability to protect our rights in our intellectual property portfolio;

? the commercialization of our product candidate, if and when approved;

? obtaining and maintaining third-party insurance coverage and adequate


   reimbursement;


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? the acceptance of our product candidate, if approved, by patients, the medical

community and third-party payors;

? competition with other products;

the impacts of a pandemic, epidemic or outbreak of an infectious disease,

including COVID-19, on our supply of product candidate and ability to

? successfully initiate and complete preclinical and non-clinical studies and

clinical trials, to receive regulatory approval for our product candidate and

to commercialize our product candidate, if approved; and

? a continued acceptable safety profile of our therapy following approval.

A change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates.

General and administrative expenses

General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, corporate and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; marketing expenses and other operating costs.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support development of EFX and our continued research activities. We also anticipate that we will incur increased accounting, audit, legal, tax, regulatory, compliance, and director and officer insurance costs, as well as investor and public relations expenses associated with maintaining compliance with exchange listing and SEC requirements.

Other income

Other income consists primarily of interest income earned on our cash, cash equivalents and short-term marketable securities.

Results of operations

Comparison of the three months ended September 30, 2020 and 2019

The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019:






                                   Three Months Ended
                                     September 30,
                                  2020             2019       $ Change     % Change

                                 (in thousands, except percentages)
Operating expenses:
Research and development      $      17,379     $   13,885    $   3,494          25 %
General and administrative            4,159          2,424        1,735          72 %
Total operating expenses             21,538         16,309        5,229          32 %
Loss from operations               (21,538)       (16,309)      (5,229)          32 %
Other income                            135            755        (620)        (82) %
Net loss                      $    (21,403)     $ (15,554)    $ (5,849)          38 %




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Research and development expenses

The following table summarizes our research and development expenses incurred during the three months ended September 30, 2020 and 2019:






                                             Three Months Ended
                                               September 30,
                                              2020         2019        $ Change     % Change

                                                  (in thousands, except percentages)
Research and development expenses:
Direct EFX program expenses                $   16,212    $  13,146    $    3,066          23 %
Personnel and related costs                     1,167          739           428          58 %

Total research and development expenses $ 17,379 $ 13,885 $ 3,494 25 %

Research and development expenses were $17.4 million and $13.9 million for the three months ended September 30, 2020 and 2019, respectively, an increase of $3.5 million. Direct costs for our EFX program increased $3.1 million, attributed primarily to a $5.2 million increase in third-party contract manufacturing and a $0.5 million increase in external CRO costs associated with our ongoing Phase 2a BALANCED trial, partially offset by a decrease of $2.5 million for a clinical milestone paid to Amgen in July 2019 that was not repeated in the 2020 period. Personnel and related costs increased $0.4 million, due primarily to increased stock-based compensation. We expect that our research and development expenses will increase substantially in connection with our planned manufacturing and clinical development activities in the near term and in the future.

General and administrative expenses

General and administrative expenses were $4.2 million and $2.4 million for the three months ended September 30, 2020 and 2019, respectively, an increase of $1.7 million. Personnel and related costs increased $0.9 million, due primarily to increased stock-based compensation. Legal, accounting, other professional service fees and insurance increased $0.8 million due to outsourced services needed to operate as a public company. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support development of EFX and our continued research activities.

Other income

Other income for the three months ended Septemer 30, 2020 is comprised primarily of $0.1 million of interest income from our cash, cash equivalents and short-term marketable securities compared to $0.8 million for the three months ended September 30, 2019.

Comparison of the nine months ended September 30, 2020 and 2019

The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019:






                                   Nine Months Ended
                                    September 30,
                                  2020            2019        $ Change     % Change

                                 (in thousands, except percentages)
Operating expenses:
Research and development      $     39,207     $   23,908    $   15,299          64 %
General and administrative          11,164          5,522         5,642         102 %
Total operating expenses            50,371         29,430        20,941          71 %
Loss from operations              (50,371)       (29,430)      (20,941)          71 %
Other income                           875          1,286         (411)        (32) %
Net loss                      $   (49,496)     $ (28,144)    $ (21,352)          76 %




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Research and development expenses

The following table summarizes our research and development expenses incurred during the nine months ended September 30, 2020 and 2019:






                                             Nine Months Ended
                                              September 30,
                                             2020         2019      $ Change     % Change

                                                 (in thousands, except percentages)
Research and development expenses:
Direct EFX program expenses                $  35,904    $ 21,840    $  14,064          64 %
Personnel and related costs                    3,303       2,068        1,235          60 %

Total research and development expenses $ 39,207 $ 23,908 $ 15,299 64 %

Research and development expenses were $39.2 million and $23.9 million for the nine months ended September 30, 2020 and 2019, respectively, an increase of $15.3 million. Direct costs for our EFX program increased $14.1 million, primarily attributed to a $14.3 million increase in third-party contract manufacturing and an increase of $2.8 million related to external CRO costs associated with our ongoing Phase 2a BALANCED trial, partially offset by a decrease of $2.5 million for a clinical milestone paid to Amgen in July 2019 that was not repeated in the 2020 period. Personnel and related costs, including stock-based compensation, increased $1.2 million due to additional personnel to support our clinical and manufacturing activities. We expect that our research and development expenses will increase substantially in connection with our planned clinical development activities in the near term and in the future.

General and administrative expenses

General and administrative expenses were $11.2 million and $5.5 million for the nine months ended September 30, 2020 and 2019, respectively, an increase of $5.6 million. Personnel and related costs increased $2.6 million, due primarily to increased stock-based compensation of $2.2 million. Legal, accounting, other professional service fees and insurance increased $3.0 million due to outsourced services needed to operate as a public company. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support development of EFX and our continued research activities.

Other income

Other income for the nine months ended September 30, 2020 is comprised primarily of $0.9 million of interest income from our cash, cash equivalents and short-term marketable securities compared to $1.3 million for the nine months ended September 30, 2019.

Liquidity and capital resources

From our inception through September 30, 2020, we have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of products for several years, if at all. To date, we have funded our operations primarily with proceeds from the sale of our redeemable convertible preferred stock, the initial public offering of our common stock in June 2019 and a secondary public offering of our common stock in July 2020. Through September 30, 2020, we had received gross proceeds of $412.7 million from sales of our redeemable convertible preferred stock, the initial public offering of our common stock in June 2019 and the follow-on public offering of our common stock in July 2020. As of September 30, 2020, we had cash, cash equivalents and short-term marketable securities of $291.9 million. We have invested our cash resources primarily in liquid money market accounts, U.S. treasury securities and corporate debt securities.

The following table summarizes our cash flows for the periods indicated:





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                                                                 Nine Months Ended
                                                                   September 30,
                                                                 2020          2019

                                                                   (in thousands)
Net cash used in operating activities                         $ (47,409)    $ (23,978)
Net cash used in investing activities                           (27,660)             -
Net cash provided by financing activities                        203,048        95,873

Net increase in cash, cash equivalents and restricted cash $ 127,979 $ 71,895

Cash flows from operating activities

Cash used in operating activities for the nine months ended September 30, 2020 was $47.4 million, consisting of a net loss of $49.5 million and changes in our operating assets and liabilities of $2.1 million, offset by non-cash charges of $4.2 million, consisting primarily of stock-based compensation expense. The change in operating assets and liabilities was primarily due to the timing of prepayments and payments to our CMOs and CROs.

Cash used in operating activities for the nine months ended September 30, 2020 was $24.0 million, consisting of a net loss of $28.1 million and changes in our operating assets and liabilities of $3.0 million, offset by non-cash charges of $1.1 million, consisting primarily of stock-based compensation expense. The change in operating assets and liabilities was primarily due to a combined reduction in prepaid expenses and other assets, accounts payable and accrued expenses and other current liabilities, all of which are related to the timing of payments and prepayments to our CRO and contract manufacturing vendors.

Cash flows from investing activities

Cash used in investing activities for the nine months ended September 30, 2020 was $27.7 million, consisting of $78.5 million from the sales and maturities of short-term marketable securities offset by $106.0 million in purchases of short-term marketable securities.

There were no cash flows from investing activities for the nine months ended September 30, 2019.

Cash flows from financing activities

Cash provided by financing activities for the nine months ended September 30, 2020 was $203.0 million, consisting of $202.6 million of follow-on public offering proceeds, net of underwriting discounts, commissions and offering costs, and $0.4 million in proceeds from the exercise of stock options and the issuance of employee stock purchase plan shares.

Cash provided by financing activities for the nine months ended September 30, 2019 was $95.9 million, consisting of $98.4 million of IPO proceeds, net of underwriting discounts and commissions, offset by $2.9 million of related offering costs and $0.4 million in proceeds from the exercise of stock options.

Funding requirements

Our primary uses of capital are, and we expect will continue to be, research and development services, compensation and related expenses and general overhead costs. We expect to continue to incur significant expenses and operating losses for the foreseeable future. In addition, since the closing of our IPO, we have incurred and expect to continue to incur additional costs associated with operating as a public company. We anticipate that our expenses will increase significantly in connection with our ongoing activities. The timing and amount of our operating expenditures will depend largely on:

? the initiation, progress, timing, costs and results of nonclinical studies and

clinical trials for EFX or any future product candidates we may develop;




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timing delays, if any, with respect to preclinical and clinical development of

? EFX or any future product candidates we may develop as a result of a pandemic,

epidemic or outbreak of an infectious disease, including COVID-19;

? our ability to maintain our license to EFX from Amgen;

the outcome, timing and cost of seeking and obtaining regulatory approvals from

the FDA and comparable foreign regulatory authorities, including the potential

? for such authorities to require that we perform more nonclinical studies or

clinical trials than those that we currently expect or change their

requirements on studies or trials that had previously been agreed to;

the cost to establish, maintain, expand, enforce and defend the scope of our

intellectual property portfolio, including the amount and timing of any

? payments we may be required to make, or that we may receive, in connection with

licensing, preparing, filing, prosecuting, defending and enforcing any patents

or other intellectual property rights;

? the effect of competing technological and market developments;

market acceptance of any approved product candidates, including product

? pricing, as well as product coverage and the adequacy of reimbursement by

third-party payors;

? the cost of acquiring, licensing or investing in additional businesses,

products, product candidates and technologies;

? the cost and timing of selecting, auditing and potentially validating a

manufacturing site for commercial scale manufacturing;

the cost of establishing sales, marketing and distribution capabilities for any

? product candidates for which we may receive regulatory approval and that we

determine to commercialize; and

? our need to implement additional internal systems and infrastructure, including

financial and reporting systems.

We expect that we will require additional funding to complete the clinical development of EFX, commercialize EFX, if we receive regulatory approval, and pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approval for EFX or other product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize EFX ourselves.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual obligations and other commitments

We have entered into agreements with CROs and CMOs to provide services in connection with our nonclinical studies and clinical trials and to manufacture clinical development materials. As of September 30, 2020, we had non-cancelable purchase commitments under these agreements totaling $14.2 million.

Apart from the contracts with non-cancelable purchase commitments, we have entered into other contracts in the normal course of business with certain CROs, CMOs, and other third parties for nonclinical research studies and testing, clinical trials and manufacturing services. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior notice. Payments due upon cancellation consist only of payments for services



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provided and expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation.

Under the Amgen Agreement, we are obligated to make aggregate remaining milestone payments of up to $37.5 million upon the achievement of specified remaining clinical and regulatory milestones and aggregate milestone payments of up to $75.0 million upon the achievement of specified commercial milestones for all products licensed under the agreement. Commencing on the first commercial sale of licensed products, we are obligated to pay tiered royalties on escalating tiers of annual net sales of licensed products ranging from low to high single-digit percentages. The amount and timing of any contingent payment obligations to Amgen are not currently known. The first clinical milestone, in the amount of $2.5 million, was paid to Amgen in July 2019.

In February 2020, we entered into a seven-year lease agreement for 6,647 square feet of new office space in South San Francisco, California. Under the agreement, we are required to make approximately $2.3 million in minimum payments during the lease term. Commencement of the lease began on July 10, 2020 when we took occupancy of the leased space.

On May 7, 2020, the Company entered into an agreement to effectuate an early termination of the 2018 office lease agreement in South San Francisco, California, without penalty. This early termination was effective on June 30, 2020 and reduced the Company's future minimum lease payments by approximately $0.2 million.

Critical accounting policies and significant judgments and estimates

This discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with United States generally accepted accounting principles. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. Our critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations- Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2019 which was filed with the Securities and Exchange Commission on March 16, 2020. Other than the adoption of Accounting Standards Update No. 2016 02, Leases (Topic 842) as discussed in Note 2, there were no material changes to our critical accounting policies through September 30, 2020 from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2019.

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.

Recent accounting pronouncements

See Note 2 to our condensed consolidated financial statements included in Part I, Item 1, "Notes to Unaudited Condensed Consolidated Financial Statements," of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our business.

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