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
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
In
In
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the
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
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
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
Impact of the COVID-19 Pandemic
As of
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significant disruptions to the
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
Commercial-scale manufacture of GMP drug substance, or API, was completed in
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
? 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
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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
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
The following table summarizes our results of operations for the three months
ended
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 % 32
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Research and development expenses
The following table summarizes our research and development expenses incurred
during the three months ended
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
Research and development expenses were
General and administrative expenses
General and administrative expenses were
Other income
Other income for the three months ended Septemer 30, 2020 is comprised primarily
of
Comparison of the nine months ended
The following table summarizes our results of operations for the nine months
ended
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 % 33
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Research and development expenses
The following table summarizes our research and development expenses incurred
during the nine months ended
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
Research and development expenses were
General and administrative expenses
General and administrative expenses were
Other income
Other income for the nine months ended
Liquidity and capital resources
From our inception through
The following table summarizes our cash flows for the periods indicated:
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Table of Contents 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
Cash flows from operating activities
Cash used in operating activities for the nine months ended
Cash used in operating activities for the nine months ended
Cash flows from investing activities
Cash used in investing activities for the nine months ended
There were no cash flows from investing activities for the nine months ended
Cash flows from financing activities
Cash provided by financing activities for the nine months ended
Cash provided by financing activities for the nine months ended
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
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
In
On
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
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
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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