CYMABAY THERAPEUTICS, INC. ' s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Some of the statements under in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements. See "Cautionary Language Regarding Forward Looking Statements" at the beginning of this Annual Report for cautionary information regarding forward-looking statements. OverviewCymaBay Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing and providing access to innovative therapies for patients with liver and other chronic diseases with high unmet medical need. Our lead product candidate, seladelpar, is a potent and selective agonist of peroxisome proliferator activated receptor delta (PPAR d ), a nuclear receptor that regulates genes directly or indirectly involved in the synthesis of bile acids/sterols, metabolism of lipids and glucose, inflammation and fibrosis. We have been developing seladelpar for the treatment of: • primary biliary cholangitis (PBC), an autoimmune disease that causes progressive destruction of the bile ducts in the liver resulting in impaired bile flow (cholestasis) and inflammation; and • nonalcoholic steatohepatitis (NASH), a prevalent and serious chronic liver disease caused by excessive fat accumulation in the liver that results in inflammation and cellular injury that can progress to fibrosis and cirrhosis, and potentially liver failure and death. Seladelpar has received an orphan designation from the FDA and EMA. Seladelpar also received Breakthrough Therapy Designation from the FDA for early stage PBC and PRIority MEdicine status from the EMA. In late 2019, we terminated our NASH Phase 2b study and our ongoing PBC studies. The decision to halt development of seladelpar was based on initial histological observations in the NASH Phase 2b study that were observed in the first blinded tranche of liver biopsies in the trial. These observations were characterized by an interface hepatitis presentation, with or without biliary injury. Although these patients had stable or improving biochemical markers of liver disease, the decision to halt development was based on a need to understand the significance of the observations, and possible impact on patients, before dosing additional patients with seladelpar. TheU.S. Food and Drug Administration (FDA) agreed with this decision and subsequently placed a formal clinical hold on seladelpar. Thereafter, inDecember 2019 , we announced a restructuring plan to reduce our workforce by approximately 60% to control our operating costs, and we commenced a process to evaluate strategic alternatives to maximize stockholder value, pending further investigation of the histological observations. InMay 2020 , an independent expert panel completed a review of the findings and unanimously concluded that the data in aggregate did not support liver injury related to seladelpar. We subsequently discussed the data, the panel's conclusions, and other matters with the FDA and inJuly 2020 , the FDA lifted the clinical hold, thereby permitting us to reinstate clinical development of seladelpar. Specifically, we made the strategic decision to refocus our strategy primarily on clinical development of seladelpar in PBC and to explore the potential to partner seladelpar in NASH in a combination study with other complimentary agents. In addition, we plan to evaluate opportunities to develop other internal programs and possibly acquire or in-license new compounds or programs. 56
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Index to Financial Statements Seladelpar Primary Biliary Cholangitis (PBC) Following the decision to reinstate clinical development of seladelpar, in late 2020, we commenced startup and site feasibility activities for RESPONSE, a new global Phase 3 registration study to evaluate seladelpar in patients with PBC. The Phase 3 study is a 52-week, placebo-controlled, randomized, global, registration study evaluating the safety and efficacy of seladelpar in patients with PBC. The study is intended to enroll 180 patients, who have an inadequate response to, or intolerance to, ursodeoxycholic acid, in a 2:1 randomization to oral, once daily seladelpar 10 mg or placebo. The primary outcome measure will be the responder rate at 52 weeks. A responder is defined as a patient who achieves an alkaline phosphatase level less than 1.67 times the upper limit of normal with at least a 15% decrease from baseline and has a normal level of total bilirubin. Additional key outcomes of efficacy will compare the rate of normalization of alkaline phosphatase at 52 weeks and the level of pruritus at six months for patients with moderate to severe pruritus at baseline assessed by a numerical rating scale recorded with an electronic diary. In addition to RESPONSE we also commenced startup activities in late 2020 for ASSURE, a new long-term safety study, which is open to patients who were eligible for our previous long-term extension study that was terminated early in late 2019, including those patients from our previously completed Phase 2 open label study and our Phase 3 ENHANCE study, as well as patients who complete treatment in RESPONSE in the future. Previously, inOctober 2018 , we commenced enrollment of ENHANCE, a global Phase 3 registration study to evaluate seladelpar in patients with PBC and inOctober 2019 , the trial was fully enrolled with 265 patients, but we terminated the trial early inDecember 2019 after the seladelpar program was placed on clinical hold. InAugust 2020 , we shared data accumulated through trial termination for ENHANCE, which we believe demonstrated seladelpar to be safe, well-tolerated, and efficacious in patients with PBC. Nonalcoholic Steatohepatitis (NASH) InMay 2018 , we initiated a randomized, placebo-controlled Phase 2b proof-of-concept study to evaluate seladelpar at three doses in biopsy-proven NASH. The primary efficacy outcome is the change from baseline in liver fat content at 12 weeks measured by magnetic resonance imaging using the proton density fat fraction method (MRI-PDFF). The study also included pathology assessments of liver biopsy samples at baseline and at 52 weeks to examine the potential of seladelpar treatment to resolve NASH and/or decrease fibrosis. InFebruary 2019 , we announced full enrollment of 181 patients with liver biopsy proven NASH at specializedU.S. investigational centers. InJune 2019 , we announced results from the primary efficacy outcome, which were that treatment with seladelpar resulted in significant reductions in liver fat but that these changes were not significant when compared to placebo, which also had significant reductions. Treatment with seladelpar did, however, result in robust and clinically meaningful reductions in markers associated with liver injury. InNovember 2019 , we terminated this trial based on initial histological observations. Although these patients had stable or improving biochemical markers of liver disease, we halted dosing of patients with seladelpar due to the lack of understanding the significance of the observations, and possible impact on patients. Subsequent investigation indicated there was no seladelpar-induced liver injury in the Phase 2b study patients. As we continue to believe seladelpar may have therapeutic benefit in NASH patients, using the data accumulated to date from our Phase 2b study, we intend to explore the potential to partner seladelpar in NASH in a combination study with other complimentary agents. MBX-2982 MBX-2982 targets G protein-coupled receptor 119 (GPR119), a receptor that interacts with bioactive lipids known to stimulate glucose-dependent insulin secretion. InNovember 2020 , we announced a study to evaluate the potential for MBX-2982 to stimulate the release of the hormone glucagon in response to hypoglycemia in patients with type 1 diabetes (T1D). The Phase 2a proof-of-pharmacology study will assess whether MBX-2982 57
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Index to Financial Statements can enhance glucagon secretion during insulin-induced hypoglycemia in subjects with T1D. If successful, studies to evaluate MBX-2982 as a potential preventive therapy for hypoglycemia in patients with T1D may be warranted. The study is being led by theAdventHealth Translational Research Institute inOrlando, Florida and is fully funded byThe Leona M. and Harry B. Helmsley Charitable Trust . CymaBay retains full commercial rights to MBX-2982. We believe MBX-2982 may also have utility in various inflammatory diseases and are currently exploring potential opportunities to advance development. CB-0406 In 2020 we began to evaluate CB-0406, the active metabolite of arhalofenate, a pro-drug previously studied for chronic metabolic diseases, in a single and multiple ascending dose study in healthy subjects to establish its pharmacokinetics, safety and maximum tolerated dose. Decisions on any future development are contingent on it achieving a favorable profile with respect to safety and exposure. We believe CB-0406 may have utility in various inflammatory diseases and are currently exploring potential opportunities to advance development. COVID-19 Pandemic InMarch 2020 , theWorld Health Organization declared the global novel coronavirus disease (COVID-19) outbreak a pandemic. To date, our operations, financial condition and liquidity have not been significantly impacted by the COVID-19 outbreak. However, economic and health conditions inthe United States and across most of the globe have changed rapidly since the end of the first quarter of 2020. As a result of the COVID-19 pandemic, we may experience future disruptions that could impact aspects of our business, including our progress towards the initiation and completion of certain clinical studies, and other associated drug development activities. Possible disruptions are currently difficult to foresee. We continue to monitor areas of potential risk, which include but are not limited to the following: • Remote workforce operations-To date, our workforce has adapted to remotely working to maintain operations. Our increased reliance on personnel working from home could potentially negatively impact future productivity, or disrupt, delay, or otherwise adversely impact our business. In addition, remote operations could increase our cyber-security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations, or delay necessary interactions with regulators, contract manufacturers, contract research organizations, clinical trial sites, and other important agencies and contractors, which may result in increased costs to us. • Clinical trial and drug manufacturing operations-In collaboration with our clinical research organization partners, we sponsor clinical trials that take place at investigator sites inthe United States and internationally. We also partner with contract manufacturing organizations to develop, manufacture, and distribute our product candidate drug supplies. To date, these collective research and development personnel and vendors are adapting to COVID-19 related travel restrictions and reduced access to work facilities through the use of remote working technologies and other measures as they continue to progress toward completion of our existing clinical trials. However, in the future, as we look to enroll and complete the clinical development of seladelpar and initiate other programs, our research and development employees and contractors may not be able to sufficiently access their applicable work facilities as a result of continued facility closure orders and the possibility that governmental authorities might further modify such restrictions. Furthermore, patients we expect to enroll in our future clinical trials may also be impacted by any ongoing travel and facility access restrictions. Although we and our contractors continue to plan for and develop pandemic-related risk mitigation strategies, it is uncertain whether these plans will continue to be sufficient to fully offset the potential impact that travel and facility access restrictions (or other unanticipated impediments) may have on our ability to execute our research and development activities in a timely and cost-effective manner. 58
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• Drug regulator interactions-The FDA and comparable foreign regulatory
agencies may experience operational interruptions or delays, which could
impact timelines for regulatory meetings, submissions, trial initiations,
and regulatory approvals.
• Financial reporting and compliance-To date, there has been no adverse
impact on our ability to maintain our established financial reporting
functions and internal controls over financial reporting. However, our
ability to prepare our financial results timely and accurately is
partially dependent upon the availability of third-party information
systems and other cloud-based services. Any degradation in the quality or
timeliness of critical third-party information or cloud-based services
could adversely impact our financial reporting capabilities.
Overall, we cannot at this time predict the specific extent, duration, or full
impact that the
COVID-19
outbreak will have on our financial condition and operations. The impact of the
COVID-19
coronavirus outbreak on our consolidated financial performance will depend on
future developments, including the duration and spread of the outbreak and
related governmental advisories and restrictions. These developments and the
impact of
COVID-19
on the financial markets and the overall economy are highly uncertain. If the
financial markets and/or the overall economy are impacted for an extended
period, our results may be adversely affected.
Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States (GAAP). The preparation of these consolidated financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, as well as the reported
revenues and expenses during the reporting periods. We base our estimates on
historical experience and on various other factors that we believe to be
materially reasonable under the circumstances, the results of which form our
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources, and evaluate our estimates on
an ongoing basis. Actual results may materially differ from those estimates
under different assumptions or conditions.
While we describe our significant accounting policies in more detail in Note 2
of our consolidated financial statements included in this Annual Report, we
believe the following accounting policies to be critical to the judgments and
estimates used in the preparation and understanding of our consolidated
financial statements.
Research and Development Expenses and Related Prepayments and Accruals
Research and development expenses consist of costs incurred in identifying,
developing, and testing product candidates. These expenses consist primarily of
costs for research and development personnel, including related stock-based
compensation; contract research organizations (CRO) and other third parties that
assist in managing, monitoring, and analyzing clinical trials; investigator and
site fees; laboratory services; consultants; contract manufacturing services;
non-clinical
studies, including materials; and allocated expenses, such as depreciation of
assets, and facilities and information technology that support research and
development activities. Research and development costs are expensed as incurred
unless there is an alternative future use in other research and development
projects.
As part of the process of preparing our consolidated financial statements, we
are required to estimate certain research and development expenses. This process
involves reviewing contracts, reviewing the terms of our license agreements,
communicating with our vendors and applicable personnel to identify services
that have been performed on our behalf and estimating the level of service
performed and the associated cost incurred for the service either when we have
prepaid or when we have not yet been invoiced or otherwise notified of actual
cost. Although certain of our vendors require us to prepay in advance of
services rendered, the majority of our service
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Index to Financial Statements providers invoice us monthly in arrears for services performed. We make estimates of prepayments to amortize or expenses to be accrued as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Such payments are evaluated for current or noncurrent classification based on when they will be realized. Additionally, if expectations change such that we do not expect goods to be delivered or services to be rendered, such prepayments are charged to expense. Examples of estimated amortized or accrued research and development expenses include fees to:
• contract research organizations and other service providers in connection
with clinical studies;
• contract manufacturers in connection with the production of clinical
trial materials; and
• vendors in connection with preclinical development activities.
We base our expenses related to clinical studies on our estimates of the
services received and efforts expended pursuant to contracts with multiple
research institutions and contract research organizations that conduct and
manage clinical studies on our behalf. The financial terms of these agreements
are subject to negotiation, vary from contract to contract and may result in
uneven payment flows and expense recognition. Payments under some of these
contracts depend on factors such as the successful screening and enrollment of
patients and the completion of clinical trial milestones. In either amortizing
or accruing service fees, we estimate the time period over which services will
be performed and the level of effort to be expended in each period. If the
actual timing of the performance of services or the level of effort varies from
our estimate, we adjust the related prepayment or accrual accordingly. Our
understanding of the status and timing of services performed relative to the
actual status and timing of services performed may vary and may result in our
reporting changes in estimates in any particular period. Adjustments to prior
period estimates have not been material for the years ended December 31, 2020
and 2019.
Stock-Based Compensation
We measure stock-based compensation cost at the grant date, based on the
estimated fair-value of the awards, and we recognize the portion that we
ultimately expect to vest as an expense over the related vesting periods, net of
forfeitures. We estimate the grant-date fair value based of stock options using
the Black-Scholes option pricing model and recognize compensation expense over
the service period using the straight-line attribution method and forfeitures
are account for as they occur.
The Black-Scholes option-pricing model requires the input of certain
assumptions. These variables include, but are not limited to, our stock price
volatility over the term of the awards, and actual and projected employee stock
option exercise behaviors. Prior to 2020, we estimated expected volatility based
on our own historical volatility supplemented by a review of historical
volatilities of industry peers. Beginning in 2020, we determined our historical
stock price data was sufficient to exclusively estimate volatility for awards
granted using a volatility measured solely based on our stock price thereafter.
The change in estimate did not have a material impact on the Company's estimated
fair value of its awards. Due to insufficient historical data of exercise
behavior, we have used the "simplified method" to determine the expected life of
stock options granted with a service condition. Management continually assesses
the assumptions and methodologies used to calculate the estimated fair value of
stock-based compensation. Circumstances may change and additional data may
become available over time, which could result in changes to the assumptions and
methodologies, and which could materially impact our fair value determination,
as well as our stock-based compensation expense.
Results of Operations
General
To date, we have not generated any income from operations. As of December 31,
2020 , we have an accumulated deficit of $676.9 million , primarily as a result of
expenditures for research and development and general and administrative
expenses from inception to that date. All of our product candidates are at
various
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Index to Financial Statements stages of development and will require additional work and regulatory approval before they can be licensed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate sufficient revenue to achieve and sustain profitability. Until we can generate a sufficient amount of product revenue, which we may never do, we will need to finance future cash needs through potential collaborative, partnering or other strategic arrangements, as well as through public or private equity offerings, debt financings or a combination of the foregoing. Operating Results Our results of operations for the years endedDecember 31, 2020 and 2019 are presented below (in thousands): Year Ended December 31, Change 2020 2019 2020 vs 2019 ($ in thousands) Operating expenses: Research and development$ 35,882 $ 83,837 $ (47,955 ) General and administrative 17,425 19,238 (1,813 ) Restructuring (benefit) charges (705 ) 5,075 (5,780 ) Total operating expenses 52,602 108,150 (55,548 ) Loss from operations (52,602 ) (108,150 ) 55,548 Other income: Interest income 1,616 5,342 (3,726 ) Total other income 1,616 5,342 (3,726 ) Net loss$ (50,986 ) $ (102,808 ) $ 51,822
Research & Development Expenses
Conducting research and development is central to our business model. Research
and development expenses decreased
Year Ended
December 31, Change
2020 2019 2020 vs 2019
Project costs:
Seladelpar PBC clinical studies $ 15,747 $ 37,907 $ (22,160 )
Seladelpar NASH clinical studies 1,429 10,445 (9,016 )
Seladelpar PSC clinical studies 196 4,189 (3,993 )
Seladelpar drug manufacturing & development 1,332 9,235 (7,903 )
Seladelpar other studies 815 2,442 (1,627 )
Non-seladelpar
studies 3,374 361 3,013
Total project costs 22,893 64,579 (41,686 )
Internal research and development costs 12,989 19,258 (6,269 )
Total research and development $ 35,882 $ 83,837 $ (47,955 )
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Our project costs consist primarily of:
• expenses incurred under agreements with contract research organizations,
investigative sites and consultants that conduct our clinical trials and
a substantial portion of our preclinical activities;
• the cost of acquiring and manufacturing clinical trial and other
materials; and
• other costs associated with development activities, including additional
studies.
Internal research and development costs consist primarily of salaries and
related fringe benefits costs for our employees (such as workers' compensation
and health insurance premiums), stock-based compensation charges, travel costs,
and overhead expenses. Internal costs generally benefit multiple projects and
are not separately tracked per project.
Total project costs decreased by $41.7 million to $22.9 million from
$64.6 million for the years ended December 31, 2020 and 2019, respectively.
Project costs for the year ended December 31, 2020 primarily consisted of
seladelpar-related clinical trial expenses for PBC and NASH. These cost
decreases were driven primarily by the decision in the fourth quarter of 2019 to
shut down our seladelpar clinical trials and place the development program on
clinical hold pending further investigation. Internal research and development
costs decreased by $6.3 million to $13.0 million from $19.3 million for the
years ended December 31, 2020 and 2019, respectively, primarily due to lower
employee compensation incurred in 2020 following the completion of a December
2019
reduction-in-force.
As the clinical hold on the seladelpar program was lifted in July 2020 and we
made the decision to restart development, we expect both total project and
internal costs to increase in the future as we commence new clinical trials and
hire additional research personnel.
General and Administrative Expenses
General and administrative expenses consist principally of personnel-related
costs, professional fees for legal, consulting, and accounting services, rent,
and other general operating expenses not otherwise included in research and
development. General and administrative expenses decreased by $1.8 million to
$17.4 million , from $19.2 million , for the years ended December 31, 2020 and
2019, respectively. The decrease was driven primarily by lower compensation
costs incurred following our December 2019
reduction-in-force
and was partially offset by the hiring of additional general and administrative
personnel in the second of half of 2020 after we made the decision to restart
our development activities. We expect general and administrative expenses to
increase in the future as we continue to add administrative personnel and expand
our infrastructure in support of our drug development activities.
Restructuring (Benefit) Charges
In December 2019 , we announced a restructuring plan to reduce our workforce by
approximately 60% and took measures to reduce operating expenses following the
decision to place the seladelpar program on clinical hold. As a result of these
actions, we incurred restructuring charges of $5.1 million for the year ended
December 31, 2019 . Restructuring charges incurred consisted of personnel-related
costs, including severance costs, employee-related benefits, supplemental
one-time
termination payments, and
non-cash
share-based compensation expense related to the acceleration of stock options.
Restructuring charges also included contract termination costs associated with
contract manufacturing agreements to provide clinical supplies and other vendor
arrangements.
For the year ended December 31, 2020 we recorded a restructuring benefit of
$0.7 million . Specifically, we reduced restructuring charges by $0.5 million to
reverse a portion of previously accrued restructuring liabilities associated
with severance benefits that were forfeited by certain executives pursuant to
the terms of their respective employment agreements. We also reduced
restructuring charges by $0.4 million as a result of contract termination costs
that were forgiven as part of a subsequent agreement with a vendor. These
expense reversals were offset in part by a $0.2 million
non-cash
charge for stock-based compensation expense associated with the acceleration of
stock options of a departed executive.
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Index to Financial Statements Substantially all the cash payments we are obligated to make pursuant to our restructuring plan have been paid out throughDecember 31, 2020 . Other Income Interest income consists of interest income from our marketable securities. Interest income decreased to$1.6 million from$5.3 million for the years endedDecember 31, 2020 and 2019, respectively. The decrease of$3.7 million was due to lower prevailing interest rates and more conservative positioning of our investment portfolio compared to the prior year. in response to the market volatility created by the COVID-19 pandemic. Income Taxes As ofDecember 31, 2020 , we had federal net operating loss carryforwards of$490.4 million and state net operating loss carryforwards of$288.6 million to offset future taxable income, if any. In addition, we had federal research and development tax credit carryforwards of$10.1 million , federal orphan drug tax credit carryforwards of$21.4 million , and state research and development tax credit carryforwards of$5.8 million . If not utilized, the federal net operating losses for the years beginning beforeJanuary 1, 2018 of$255.7 million will expire beginning in 2024 through 2037, and the federal net operating losses for the tax years beginning afterJanuary 1, 2018 of$234.7 million will be carried forward indefinitely (subject to certain utilization limitations). The state net operating loss carryforwards will expire beginning in 2028 through 2040. The federal research and development and federal orphan drug tax credit carryforwards expire 2021 through 2040, and the state tax credit will carry forward indefinitely. Interest and penalties for the years endedDecember 31, 2020 and 2019 were not material. Current federal and state tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change. Even if the carryforwards are available, they may be subject to annual limitations, lack of future taxable income, or future ownership changes that could result in the expiration of the carryforwards before they are utilized. AtDecember 31, 2020 , we recorded a 100% valuation allowance against our deferred tax assets of approximately$159.1 million , as our management believes it is more likely than not that they will not be fully realized. Liquidity and Capital Resources We have financed our operations primarily through the sale of equity securities, licensing fees, issuance of debt and collaborations with third parties. As ofDecember 31, 2020 , cash, cash equivalents and marketable securities totaled$146.3 million , compared to$190.9 million atDecember 31, 2019 . Equity Financing OnMarch 8, 2019 , pursuant to a shelf registration statement on Form S-3, we issued 8,000,000 shares of our common stock at$12.50 per share in an underwritten public offering, which we refer to as theMarch 2019 public offering. OnMarch 11, 2019 , the underwriters fully exercised their option to purchase additional shares resulting in the issuance of an additional 1,200,000 shares. Net proceeds from theMarch 2019 public offering were approximately$107.7 million after deducting underwriting discounts, commissions and other offering expenses. InJuly 2020 , we filed a$200.0 million registration statement on Form S-3 with theSEC and entered into an at-the-market facility (ATM) to sell up to$75.0 million of common stock under the registration statement. To date, we have not sold any shares of common stock under the ATM. 63
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Cash Flows
The following table sets forth a summary of the net cash flow activity for each
of the periods indicated below (in thousands):
Year Ended
December 31,
2020 2019
Net cash used in operating activities $ (44,725 ) $ (97,911 ) Net cash provided by (used in) investing activities 47,957 (34,347 ) Cash provided by financing activities
92 108,132
Net increase (decrease) in cash and cash equivalents
Cash Flows from Operating Activities Cash used in operating activities for the year endedDecember 31, 2020 decreased by$53.2 million to$44.7 million as compared to$97.9 million in the prior year. The decrease in cash used was primarily due to a$51.8 million decrease in our net loss to$51.0 million from$102.8 million in the prior year period as a result of our scaled-down operations following the temporary clinical hold placed on our seladelpar development program. This effect was also impacted to a lesser extent by changes in our working capital. Cash Flows from Investing Activities Cash provided by investing activities was$48.0 million for the year endedDecember 31, 2020 compared to$34.4 million of cash used in the prior year, primarily due to the timing of making our investments in marketable securities. Cash Flows from Financing Activities Cash provided by financing activities was$0.1 million for the year endedDecember 31, 2020 compared to$108.1 million in the prior year. The decrease was primarily due to net proceeds of$107.7 million received from theMarch 2019 public offering. Capital Requirements We have incurred operating losses since inception and had an accumulated deficit of$676.9 million atDecember 31, 2020 . As ofDecember 31, 2020 , we had cash, cash equivalents and marketable securities of approximately$146.3 million , which we believe is sufficient to fund our current operating plan into mid-2022. We expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we continue product development for seladelpar. Since product candidates in later stages of clinical development 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 in the future. We will therefore continue to require additional financing to develop our products and fund future operating losses and will seek funds through equity financings, debt, collaborative or other arrangements with corporate sources, or through other sources of financing. It is unclear if or when any such financing transactions will occur, on satisfactory terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. If adequate funds are not available to us, it could have a material adverse effect on our business, results of operations, and financial condition. 64
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Index to Financial Statements Off Balance Sheet Arrangements As ofDecember 31, 2020 , we had no off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K under the Exchange Act). Contractual Obligations Our long-term contractual obligations as ofDecember 31, 2020 primarily include$1.7 million for our corporate office facility lease, which includes monthly rental payments that are payable throughJanuary 2024 , the lease termination date. We are also obligated to reimburse the lessor for a prorated portion of monthly facility operating expenses during the lease term. In addition, we rely on contract research organizations and other research support providers to perform clinical and preclinical studies for us and we contract with firms to supply our drug compounds for use in our development activities. Under the terms of our agreements with these organizations, we are obligated to make future payments as services are provided. However, these agreements are terminable by us upon written notice and we are generally only liable for actual effort expended or cost incurred by the organizations through the termination notice period. We also have certain potential in-license obligations that are contingently payable by us to licensors upon our achievement of certain development and commercialization milestones for our product candidates. Finally, in the normal course of business, we enter into various firm purchase commitments and other contractual obligations, which are cancelable within ninety days or less. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 8. Financial Statements and Supplementary Data The disclosure required in this Item is included in Item 15, which information is incorporated by reference here. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, and the rules and regulations thereunder, is recorded, processed, summarized and reported within the time periods specified in theSEC's rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), our chief executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level. 65
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Index to Financial Statements Management's Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our President and Chief Executive Officer and our Vice President, Finance to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Under the supervision and with the participation of our management, including our President and Chief Executive Officer and Vice President, Finance, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in "Internal Control - Integrated Framework (2013)" issued by theCommittee of Sponsoring Organizations of theTreadway Commission (COSO). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as ofDecember 31, 2020 . OnJune 28, 2018 , theSEC adopted amendments that raise the thresholds in the smaller reporting company, or SRC, definition, whereby we were determined to qualify as an SRC. We elected to reflect that determination and avail ourselves with most of the SRC scaled disclosure accommodations in our filings subsequent to the adoption. OnMarch 12, 2020 , theSEC amended its rules to allow SRCs that have less than$100.0 million in annual revenue and a public float of less than$700.0 million to qualify as a non-accelerated filer. As a non-accelerated filer, we are not required to obtain an opinion of our independent auditors with respect to our internal controls over financial reporting for the period endedDecember 31, 2020 . Limitations on the Effectiveness of Controls A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Changes in Internal Controls There were no changes in our internal control over financial reporting that occurred during the quarter endedDecember 31, 2020 , that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 66
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Index to Financial Statements
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