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OFFON

MIRUM PHARMACEUTICALS, INC.

(MIRM)
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MIRUM PHARMACEUTICALS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/15/2021 | 04:32pm EST

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and the related Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K ("Annual Report") for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission ("SEC") on March 9, 2021. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the "Company," "Mirum," "we," "us" and "our" refer to Mirum Pharmaceuticals, Inc. and its consolidated subsidiaries.

Forward-Looking Statements

In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled "Risk Factors" under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potentially," "predict," "should," "will" or the negative of these terms or other similar expressions.

In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Overview

We are a biopharmaceutical company focused on the identification, acquisition, development and commercialization of novel therapies for debilitating rare liver diseases. We focus on diseases for which the unmet medical need is high and the biology for treatment is clear.

Approved Therapy and Clinical Product Candidates

Our current approved therapy and pipeline consists of one U.S. Food and Drug Administration ("FDA") approved product, LIVMARLI (maralixibat) oral solution ("Livmarli"), and two clinical-stage product candidates with mechanisms of action that have potential utility across a wide range of orphan cholestatic liver diseases. We are pursuing development and commercialization in both pediatric and adult orphan cholestatic liver diseases.

Our pediatric product is Livmarli and our pediatric product candidate is maralixibat:


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Livmarli is an ileal bile acid transporter ("IBAT") inhibitor, that is approved for the treatment of cholestatic pruritus in patients with Alagille syndrome ("ALGS") one year of age and older. The FDA approved Livmarli on September 29, 2021. In conjunction with the approval, we received a rare pediatric disease priority review voucher. We have also submitted a marketing authorization application ("MAA") for the treatment of cholestatic liver disease in patients with ALGS to the European Medicines Agency ("EMA") and expect potential approval in the second half of 2022. In parallel with our MAA filing for ALGS to the EMA, we withdrew our MAA filing for the treatment of progressive familial intrahepatic cholestasis type 2 ("PFIC2"). We plan to re-submit after availability of results from the ongoing MARCH-PFIC Phase 3 clinical trial in a broader set of PFIC sub-types and with higher doses of maralixibat. ? Maralixibat is also being developed for the treatment of pediatric patients with progressive familial intrahepatic cholestasis ("PFIC") and biliary atresia ("BA"). We are conducting the Phase 3 MARCH clinical trial in PFIC, for which we expect to announce topline data in the second quarter of 2022. Additionally, we are enrolling the EMBARK Phase 2b clinical trial for BA for which we expect to announce topline data in 2023.

Our adult product candidate is volixibat:


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Volixibat is also an IBAT inhibitor, which we are developing for the treatment of adult patients with cholestatic liver diseases, including primary sclerosing cholangitis ("PSC"), intrahepatic cholestasis of pregnancy ("ICP") and primary biliary cholangitis ("PBC"). We commenced enrollment in the VISTAS Phase 2b clinical trial of volixibat in PSC and the OHANA Phase 2b clinical trial of ICP in the first quarter of 2021 and are planning interim analyses in 2022. Additionally, we commenced enrollment in the VANTAGE Phase 2b clinical trial of volixibat in PBC in the fourth quarter of 2021.


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We were incorporated in May 2018 and commenced operations in November 2018. To date, we have focused primarily on acquiring and in-licensing our product candidates, organizing and staffing our company, business planning, raising capital, advancing our product candidates through clinical development, preparing for commercialization of our product candidates, commercializing Livmarli, and conducting business development activities related to portfolio expansion through collaborations.

We have a limited operating history and incurred significant operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable future. We have only one product approved for commercial sale and have not generated any revenues from product sales as of September 30, 2021. Since inception, we have funded our operations to date primarily through debt, equity and revenue interest financings.

Financing Transactions

In January 2020, we completed a follow-on public offering of our common stock pursuant to which we sold an aggregate of 2,400,000 shares of common stock at a public offering price of $20.00 per share, resulting in net proceeds of $44.7 million after deducting underwriting discounts, commissions and offering expenses payable by us.

In August 2020, the SEC declared effective a registration statement on Form S-3 ("Shelf Registration") covering the sale of up to $300.0 million of our securities. Also, in August 2020, we entered into a sales agreement ("Sales Agreement") with SVB Leerink LLC ("SVB Leerink") pursuant to which we may elect to issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $75.0 million under the Shelf Registration through SVB Leerink acting as the sales agent and/or principal. During the nine months ended September 30, 2021, we did not sell any common stock pursuant to the Sales Agreement. As of December 31, 2020, we had sold 305,969 shares of common stock in at-the-market offerings pursuant to the Sales Agreement at a weighted-average price of $21.55 per share, resulting in gross proceeds of $6.6 million. The net proceeds after deducting sales commissions to SVB Leerink and other issuance expenses were approximately $6.3 million. The remaining capacity under the Sales Agreement is approximately $68.4 million as of September 30, 2021.

In December 2020, we completed an underwritten public offering of our common stock pursuant to the Shelf Registration. We sold 3,750,000 shares of common stock at a public offering price of $20.00 per share, resulting in net proceeds of $70.0 million after deducting underwriting discounts, commissions and offering expenses. In addition, we granted the underwriters an option, exercisable for 30 days, to purchase up to 562,500 additional shares of our common stock at the public offering price, less the underwriting discounts and commissions. In January 2021, the underwriters exercised their option for 375,654 shares of our common stock, resulting in net proceeds of $7.1 million after deducting underwriting discounts.

In December 2020, we entered into a Revenue Interest Purchase Agreement ("RIPA"), as amended in September 2021, with Mulholland SA LLC, an affiliate of Oberland Capital LLC ("Oberland"), as agent for purchasers party thereto (the "Purchasers"), and the Purchasers named therein, pursuant to which the Purchasers paid us $50.0 million on closing, less certain issuance costs. In April 2021, upon acceptance for filing by the FDA of our NDA for the treatment of cholestatic pruritus in patients with ALGS, we received an additional $65.0 million, less certain transaction costs, from the Purchasers. We may also be entitled to up to an additional $50.0 million at the option of the Purchasers to finance in-license or other acquisitions ("Purchaser Payments"). We were entitled to receive an additional $35.0 million upon FDA approval of Livmarli, which we elected to forgo. As consideration for the Purchaser Payments, the Purchasers have the right to receive certain revenue interests (the "Revenue Interests") from us based on the net sales of maralixibat, which will be tiered payments ranging from 2.00% to 9.75% of our net sales in the covered territory. The initial Revenue Interest rate of 9.75% will decrease upon certain revenue achievements. The Purchasers' rights to receive such payments shall terminate on the date on which the Purchasers have received payments totaling 195.0% of the total payments made by the Purchasers to the Company, exclusive of transaction expenses, unless the RIPA is terminated earlier. Refer to Note 6 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Concurrently with our entry into the RIPA, we entered into a Common Stock Purchase Agreement (the "Stock Purchase Agreement") with TPC Investments II LP, TPC Investments Solutions LP and TPC Investments Solutions Co-Invest LP, each of which is an affiliate of Oberland. Pursuant to the Stock Purchase Agreement, we issued an aggregate of 509,164 shares of our common stock at a price per share of $19.64, resulting in net proceeds to us of $10.0 million.

Financial Overview

Our net loss was $47.1 million and $21.5 million for the three months ended September 30, 2021 and 2020, respectively, and $141.5 million and $66.1 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, we had an accumulated deficit of $314.7 million and cash, cash equivalents and investments of $205.0 million.

We expect our expenses and operating losses will increase substantially as we conduct our ongoing and planned clinical trials, continue our research and development activities, continue commercial launch activities for Livmarli, and seek regulatory approvals for our product candidates, as well as hire additional personnel and protect our intellectual property. In addition, as our product candidates progress through development and toward commercialization, we will need to make milestone payments to the licensors and other third parties from whom we have in-licensed or acquired our product candidates. We have entered into collaboration arrangements with other companies whereby we are entitled to receive, or obligated to pay, upfront and license fees, research and


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development funding, development and sales-based milestones, and tiered royalties based on sales of commercialized products. Arrangements that include upfront payments may require deferral of revenue recognition to a future period until we perform obligations under these arrangements. The event-based milestone and other contingent payments represent variable consideration, and we use the most likely amount method or expected value method to estimate this variable consideration, depending on the nature of the contingency and the variable payments. Given the high degree of uncertainty around the occurrence of these events, we generally determine the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved. We will recognize revenue from sales-based royalty payments when or as the sales occur. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. The timing of these activities may fluctuate significantly. As a result, our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending in particular on the timing of our clinical trials and non-clinical studies and our expenditures on other research and development activities.

We expect to generate product revenue in the future as a result of approval of Livmarli. However, the timing and amount of product revenue are unknown. Accordingly, until such time as we can generate substantial product revenues to support our cost structure, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including through the RIPA, collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate the development of one or more of our product candidates or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

Prior to the regulatory approval of Livmarli, the manufacturing and related costs were expensed as research and development as any future economic benefit was not considered probable; accordingly, these costs were not capitalized and as a result gross margins resulting from future product revenue will initially be higher until we deplete inventories that we had expensed prior to receiving approval.

COVID-19

The COVID-19 pandemic has had a significant economic impact across the global marketplace presenting challenges to maintaining business continuity. We are working diligently to ensure the advancement of all of our clinical development programs in the safest manner possible. While we are unable to reliably estimate the duration or extent of any potential business disruption or financial impact during this time, we remain committed to (i) prioritizing the safety, health and well-being of patients, their caregivers, healthcare providers and our employees; (ii) ensuring patients are well supported and have continued uninterrupted access to our product candidates, for which we currently do not expect any supply disruption; and (iii) advancing our clinical trials. Examples include a "Work from Home Policy" for our employees and access to home health care to assist families with safer participation in our trials.

Although we did not see a significant financial impact to our business operations as a result of COVID-19 for the nine months ended September 30, 2021, there may be potential impacts to our business in the future that are highly uncertain and difficult to predict such as temporary closures of our offices or those of our third-party manufacturers or suppliers, disruptions or restrictions on our employees' ability to travel, disruptions to or delays in ongoing non-clinical trials, clinical trials, third-party manufacturing supply and other operations, the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the FDA or other regulatory authorities, and our ability to raise capital and conduct business development activities.

We continue to believe that existing cash, cash equivalents and investments and existing sources of and access to financing are adequate to satisfy our needs for working capital, capital expenditures, debt service requirements and other business development initiatives that we plan to strategically pursue. However, should the COVID-19 pandemic and any associated recession or depression continue for a prolonged period, our results of operations, financial condition, liquidity and cash flows could be materially impacted as a result of a lower likelihood of effectively and efficiently developing new medicines and successfully commercializing our products.

License Agreements

Assignment and License Agreement with Shire (Takeda)

In November 2018, we entered into an assignment and license agreement ("Shire License Agreement") with Shire International GmbH ("Shire"), which was subsequently acquired by Takeda Pharmaceutical Company Limited, in which we were granted an exclusive, royalty bearing worldwide license to develop and commercialize our two product candidates, maralixibat and volixibat. As part of the Shire License Agreement, we were assigned license agreements held by Shire with Satiogen Pharmaceuticals, Inc. ("Satiogen" and altogether, the "Satiogen License"), Pfizer Inc. ("Pfizer"), and Sanofi-Aventis Deutschland GmbH ("Sanofi"), collectively the Assigned License Agreements ("Assigned License Agreements"). In partial consideration for the rights granted to us


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under the Shire License Agreement, we made an upfront payment to Shire of $7.5 million and issued Shire 1,859,151 shares of our common stock with an estimated fair value of $7.0 million.

Under the Shire License Agreement and Assigned License Agreements, we have paid aggregate development milestones of $3.0 million in July 2019 related to initiation of the Phase 3 MARCH clinical trial of maralixibat in PFIC, $10.0 million in December 2020 upon acceptance of an MAA filing to the EMA for maralixibat for the treatment of PFIC2, $2.0 million in January 2021 associated with the initiation of the VISTAS Phase 2b clinical trial of volixibat in PSC, $15.0 million in April 2021 consisting of (1) $5.0 million which would have been due had we initiated a Phase 3 clinical trial in ALGS, and (2) $10.0 million associated with the acceptance of our NDA for filing for maralixibat for the treatment of cholestatic pruritus in patients with ALGS based upon the results of our Phase 2b ICONIC clinical trial and $2.0 million in July 2021 associated with our EMBARK Phase 2b clinical trial for BA. Additionally, as of September 30, 2021, we accrued for $19.0 million in milestones associated with FDA regulatory approval and the first commercial sale of Livmarli, which were subsequently paid in October 2021.

See Note 7 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Option, License and Collaboration Agreements with Vivet

In April 2021, we entered into an Option, License and Collaboration Agreement ("Vivet Collaboration Agreement") with Vivet Therapeutics SAS ("Vivet"). Pursuant to the Vivet Collaboration Agreement, Vivet granted us the exclusive option, at our discretion, to develop and subsequently commercialize Vivet's two proprietary AAV gene therapy programs for PFIC, subtypes 3 and 2. Under the terms of the Vivet Collaboration Agreement, Vivet has agreed to continue to advance non-clinical development for PFIC3 and PFIC2. We have obtained the exclusive option to license the programs, which, if exercised, grants us global rights to develop and commercialize the licensed programs. Until that time, we agreed to provide funding to support the continued research and development costs associated with the two gene therapy programs. Funding payments, as outlined in the Vivet Collaboration Agreement, are generally made in six-month intervals and will result in quarterly fluctuations in our research and development expenses.

Pursuant to the Vivet Collaboration Agreement, to date, we paid research and development funding of $6.3 million in the three months ended September 30, 2021, and an upfront fee of $4.2 million and research and development funding of $12.5 million in the nine months ended September 30, 2021.

See Note 8 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Licensing Agreement with GC Pharma

In July 2021, we entered into an exclusive licensing agreement with GC Pharma. Under the terms of the agreement, GC Pharma has obtained the exclusive right to develop and commercialize maralixibat within South Korea for ALGS, PFIC, and biliary atresia. In connection with the agreement, we received an upfront payment of $5.0 million. Additionally, we are entitled to receive research and development funding and up to $23.0 million for the achievement of future regulatory and commercial milestones, with double-digit tiered royalties based on product net sales.

Licensing Agreement with CANbridge

In April 2021, we entered into an exclusive licensing agreement with CANbridge Pharmaceuticals, Inc. ("CANbridge"). Under the terms of the agreement, CANbridge has obtained the exclusive right to develop and commercialize maralixibat within the Greater China regions (China, Hong Kong, Macau and Taiwan). In connection with the agreement, we received an upfront payment of $11.0 million. Additionally, we are eligible to receive up to $5.0 million in research and development funding, and up to $109.0 million for the achievement of future regulatory and commercial milestones, with double-digit tiered royalties based on product net sales.

See Note 8 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Components of Results of Operations

License Revenue

To date, we have not generated any revenue from product sales. Under the exclusive licensing agreements with CANbridge and GC Pharma, we have recognized as revenue the upfront nonrefundable payments related to the licenses granted upon satisfaction of the performance obligations. Pursuant to the agreements, we are eligible to receive future milestone payments. These milestone payments were fully constrained and not recognized currently in revenue due to the degree of uncertainty in achieving the milestones associated with these payments. We are also eligible to receive royalty payments related to the agreements, which will be recognized as the underlying product sales occur.


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Operating Expenses

Research and Development Expenses

Research and development expenses primarily relate to clinical development and manufacturing activities of our product candidates. Our research and development expenses include or could include:


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salaries and related expenses for employee personnel, including benefits, travel
and expenses related to stock-based compensation granted to personnel in
development functions;
?
external expenses paid to clinical trial sites, contract research organizations
and consultants that conduct our clinical trials;
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expenses related to drug formulation development and the production of clinical
trial supplies, including fees paid to contract manufacturers;
?
licensing milestone payments related to development or regulatory events;
?
research and development funding for collaboration arrangements;
?
expenses related to non-clinical studies;
?
expenses related to compliance with drug development regulatory requirements;
and
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other allocated expenses, which include direct and allocated expenses for rent
and maintenance of facilities, depreciation of equipment, and other supplies.

We expense research and development costs as incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. Upfront payments, research and development funding and milestone payments made to third parties in connection with licenses and research and development collaborations are expensed as incurred.

General and Administrative Expense

General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and insurance costs.

We expect that our general and administrative expenses will increase as we expand our operating activities, including commercial launch activities and increased headcount.

Interest Income

Interest income consists of interest earned on our cash equivalents and investments.

Interest Expense

Interest expense for the nine months ended September 30, 2021 was related to the effective interest calculated on the RIPA. Costs during the period consist primarily of costs associated with our credit facility and non-cash interest costs associated with the amortization of the related debt discount and deferred issuance costs.

Change in Fair Value of Derivative Liability

Change in fair value of derivative liability consists of the gain or loss from remeasurement of the compound derivative liability related to the revenue interest liability during the period.


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Other Expense, Net

Other expense, net consists of transactional currency exchange loss.

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

We believe that the assumptions and estimates associated with accrued research and development expenditures, revenue interest liability and stock-based compensation have the most significant impact on our unaudited condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

There have been no significant changes during the nine months ended September 30, 2021 in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report, except as described below.

Revenue Recognition

The terms of our license and collaborative research and development agreements include upfront and license fees, research, development and other funding or reimbursements, milestone and other contingent payments for the achievement of defined collaboration objectives and certain development, regulatory and sales-based events, as well as royalties on sales of commercialized products. Arrangements that include upfront payments may require deferral of revenue recognition to a future period until we perform obligations under these arrangements. The event-based milestone and other contingent payments represent variable consideration, and we use the most likely amount method or expected value method to estimate this variable consideration, depending on the nature of the contingency and the variable payments. Given the high degree of uncertainty around the occurrence of these events, we generally determine the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved. We will recognize revenue from sales-based royalty payments when or as the sales occur. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur.

A performance obligation is a promise in a contract to transfer a distinct good or service and is the unit of accounting. A contract's transaction price is allocated among each distinct performance obligation based on relative standalone selling price and recognized when, or as, the applicable performance obligation is satisfied.

Recent Accounting Pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our unaudited condensed consolidated financial statements.

Results of Operations for the Three Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020 (in thousands):




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                                        Three Months Ended September 30,
                                           2021                   2020              Change
License revenue                      $          5,000       $              -     $       5,000
Operating expenses:
Research and development                       30,471                 15,984            14,487
General and administrative                     17,353                  5,732            11,621
Total operating expenses                       47,824                 21,716            26,108
Loss from operations                          (42,824 )              (21,716 )         (21,108 )
Other income (expense):                                                                      -
Interest income                                    72                    237              (165 )
Interest expense                               (5,667 )                    -            (5,667 )
Change in fair value of derivative
liability                                       1,355                      -             1,355
Other expense, net                                (35 )                  (30 )              (5 )
Net loss before provision for
income taxes                                  (47,099 )              (21,509 )         (25,590 )
Provision for (benefit from)
income taxes                                        9                     (3 )              12
Net loss                             $        (47,108 )     $        (21,506 )   $     (25,602 )


License Revenue


License revenue was $5.0 million for the three months ended September 30, 2021, compared to zero for the three months ended September 30, 2020. The increase in license revenue was due to the satisfaction of the performance obligation associated with the license granted under the licensing agreement with GC Pharma.

Research and Development Expenses

The following tables summarize the period-over-period changes in research and development expenses for the periods indicated (in thousands):



                                            Three Months Ended September 30,
                                               2021                  2020              Change
Product-specific costs:
Maralixibat                               $         8,732       $         8,517     $         215
Volixibat                                 $         4,839       $         1,956             2,883
Non product-specific costs:
Collaboration funding                     $         6,277       $             -             6,277
Stock based compensation                  $         3,035       $         1,361             1,674
Personnel                                 $         5,975       $         3,364             2,611
Other                                     $         1,613       $           786               827

Total research and development expenses $ 30,471 $ 15,984 $ 14,487

Research and development expenses were $30.5 million for the three months ended September 30, 2021, an increase of $14.5 million compared to the three months ended September 30, 2020. The increase was primarily due to:


?

for maralixibat programs, an increase of $0.2 million, primarily due to a net increase of $1.2 million clinical trial expenses for the EMBARK Phase 2b clinical trial for BA and the Phase 3 MARCH clinical trial in PFIC, including $0.5 million in research and development funding pursuant to our license agreements with CANbridge and GC Pharma which was recorded as a reduction of clinical trial expenses, and $0.2 million of regulatory fees and other general development expenses offset by a decrease of $1.3 million manufacturing activities as a result of prior year completion of NDA registrational production;




?

for volixibat programs, an increase of $2.9 million, primarily due to clinical trial expenses for PSC, PBC and ICP and related manufacturing activities supporting clinical supply;




?

for collaboration funding, an increase of $6.3 million, due to Vivet Collaboration Agreement program development funding;




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?

for stock-based compensation, an increase of $1.7 million, related to an increase in employee headcount as well as expense associated with performance based restricted stock units that vested upon achievement of FDA marketing approval of Livmarli;




?

for personnel related expenses, an increase of $2.6 million, related to an increase in employee headcount to support our development pipeline; and




?

for other general expense, an increase of $0.8 million, primarily due to outside consulting expenses.

General and Administrative Expenses

General and administrative expenses were $17.4 million for the three months ended September 30, 2021, an increase of $11.6 million compared to the three months ended September 30, 2020. The increase was primarily due to an increase of $4.7 million in professional and consulting service expenses associated with commercial launch activities for Livmarli, $5.2 million of personnel and other compensation related expenses, including an increase of $2.3 million in stock-based compensation, reflecting an increase in the number of our administrative employees to support commercial launch activities for Livmarli and increased requirements of operating as a public company, such as regulatory compliance, an increase of $1.4 million in expenses primarily related to general legal and public relations activities, and an increase of $0.3 million in other general administrative expenses.

Interest Income

Interest income was $0.1 million for the three months ended September 30, 2021, a decrease of $0.1 million compared to the three months ended September 30, 2020. The decrease was primarily due to lower interest earned on our cash equivalents and investment balances compared to the prior year largely a result of current economic conditions.

Interest Expense

Interest expense was $5.7 million for the three months ended September 30, 2021 compared to zero for the three months ended September 30, 2020. The increase was related to the effective interest accreted on the revenue interest liability in connection with the RIPA.

Change in Fair Value of Derivative Liability

Change in fair value of derivative liability was $1.4 million for the three months ended September 30, 2021 compared to zero for the three months ended September 30, 2020. The change was related to the remeasurement of the derivative liability at September 30, 2021 and reflects a decrease in value of the put option associated with the RIPA primarily resulting from the reduction in the probability of exercising the put option due to the FDA approval of Livmarli.

Results of Operations for the Nine Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020 (in thousands):




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                                         Nine Months Ended September 30,
                                           2021                   2020              Change
License revenue                      $          16,000       $             -     $      16,000
Operating expenses:
Research and development                       103,653                51,879            51,774
General and administrative                      40,185                15,466            24,719
Total operating expenses                       143,838                67,345            76,493
Loss from operations                          (127,838 )             (67,345 )         (60,493 )
Other income (expense):
Interest income                                    301                 1,391            (1,090 )
Interest expense                               (13,824 )                   -           (13,824 )
Change in fair value of derivative
liability                                          417                     -               417
Other expense, net                                (565 )                (109 )            (456 )
Net loss before provision for
income taxes                                  (141,509 )             (66,063 )         (75,446 )
Provision for income taxes                          25                     4                21
Net loss                             $        (141,534 )     $       (66,067 )   $     (75,467 )


License Revenue


License revenue was $16.0 million for the nine months ended September 30, 2021, compared to zero for the nine months ended September 30, 2020. The increase in license revenue was due to the satisfaction of the performance obligations associated with the licenses granted under the license agreements with CANbridge and GC Pharma.

Research and Development Expenses

The following tables summarize the period-over-period changes in research and development expenses for the periods indicated (in thousands):



                                             Nine Months Ended September 30,
                                                2021                  2020             Change
Product-specific costs:
Maralixibat                               $         27,856       $       31,985     $     (4,129 )
Volixibat                                 $         11,617       $        4,610            7,007
Non product-specific costs:
Collaboration funding                     $         12,555       $            -           12,555
Stock based compensation                  $          7,792       $        3,661            4,131
Personnel                                 $         16,518       $        9,117            7,401
License fees (milestone payments)         $         23,161       $            -           23,161
Other                                     $          4,154       $        2,506            1,648

Total research and development expenses $ 103,653 $ 51,879 $ 51,774

Research and development expenses were $103.7 million for the nine months ended September 30, 2021, an increase of $51.8 million compared to the nine months ended September 30, 2020. The increase was primarily due to:


?

for maralixibat programs, a decrease of $4.1 million, primarily due to a decrease of $4.8 million manufacturing activities as a result of completing NDA registrational production in the prior year offset by a net increase of $0.3 million clinical trial expenses for the EMBARK Phase 2b clinical trial for BA and the Phase 3 MARCH clinical trial in PFIC, including $1.5 million in research and development funding pursuant to our license agreements with CANbridge and GC Pharma, which was recorded as a reduction of clinical trial expenses, and an increase of $0.5 million in other general expenses;




?

for volixibat programs, an increase of $7.0 million, primarily due to clinical trial expenses for PSC, PBC and ICP and related manufacturing activities supporting clinical supply;




?

for collaboration funding, an increase of $12.6 million, due to Vivet Collaboration Agreement program development funding;




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?

for stock-based compensation, an increase of $4.1 million, related to an increase in employee headcount as well as expense associated with performance based restricted stock units that vested upon achievement of FDA marketing approval of Livmarli;




?

for personnel related expenses, an increase of $7.4 million, related to an increase in employee headcount to support our development pipeline;




?

for license fees, an increase of $23.2 million, related to developmental milestone payments of $19.0 million consisting of $15.0 million associated with the acceptance of our NDA for filing for Livmarli for the treatment of cholestatic pruritus in patients with ALGS one year of age and older, $4.0 million associated with the initiation of the VISTAS Phase 2b clinical trial of volixibat in PSC and the EMBARK Phase 2b clinical trial of maralixibat for BA and a $4.2 million upfront fee in connection with our Vivet Collaboration Agreement; and




?

for other general expense, an increase of $1.6 million, primarily due to outside consulting expenses.

General and Administrative Expenses

General and administrative expenses were $40.2 million for the nine months ended September 30, 2021, an increase of $24.7 million compared to the nine months ended September 30, 2020. The increase was primarily due to an increase of $10.3 million in professional and consulting service expenses associated with commercial launch activities for Livmarli, $10.8 million of personnel and other compensation related expenses, including an increase of $4.4 million in stock-based compensation, reflecting an increase in the number of administrative employees to support increased commercial launch activities for Livmarli and requirements of operating as a public company, such as regulatory compliance, an increase of $2.8 million in expenses primarily related to general legal and public relations activities and an increase of $0.8 million in other general administrative expenses.

Interest Income

Interest income was $0.3 million for the nine months ended September 30, 2021, a decrease of $1.1 million compared to the nine months ended September 30, 2020. The decrease was primarily due to lower interest earned on our cash equivalents and investment balances compared to the prior year largely a result of current economic conditions.

Interest Expense

Interest expense was $13.8 million for the nine months ended September 30, 2021 compared to zero for the nine months ended September 30, 2020. The increase was related to the effective interest accreted on the revenue interest liability in connection with the RIPA.

Change in Fair Value of Derivative Liability

Change in fair value of derivative liability was $0.4 million for the nine months ended September 30, 2021 compared to zero for the nine months ended September 30, 2020. The change was related to the remeasurement of derivative liability at September 30, 2021 and reflects the net decrease in the value of the underlying put option associated with the RIPA primarily resulting from an increase related to the additional $65.0 million in net proceeds received upon acceptance for filing by the FDA of our NDA for the treatment of cholestatic pruritus in patients with ALGS offset by the reduction in the probability of exercising the put option due to the FDA approval of Livmarli.

Liquidity and Capital Resources

Overview

To date, we have funded our operations primarily from the sale of our equity securities, revenue interest financings and collaboration arrangements. We anticipate generating product revenue from sales of Livmarli beginning in the fourth quarter of 2021.

We had $205.0 million of cash, cash equivalents and investments as of September 30, 2021, compared to $231.8 million as of December 31, 2020. Since inception, we have incurred operating losses and negative cash flows from operations. As of September 30, 2021, we had an accumulated deficit of $314.7 million.

In January 2020, we completed a follow-on public offering of our common stock pursuant to which we sold an aggregate of 2,400,000 shares of common stock at a public offering price of $20.00 per share, resulting in net proceeds of $44.7 million after deducting underwriting discounts, commissions and offering expenses payable by us.


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In August 2020, SEC declared effective the Shelf Registration covering the sale of up to $300.0 million of our securities. Also, in August 2020, we entered into the Sales Agreement with SVB Leerink, pursuant to which we may elect to issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $75.0 million under the Shelf Registration through SVB Leerink acting as the sales agent and/or principal. During the nine months ended September 30, 2021, we did not sell any common stock pursuant to the Sales Agreement. As of December 31, 2020, we had sold 305,969 shares of common stock in an at-the-market offering pursuant to the Sales Agreement at a weighted-average price of $21.55 per share, resulting in gross proceeds of $6.6 million. The net proceeds after deducting sales commissions to SVB Leerink and other issuance expenses were approximately $6.3 million. The remaining capacity under the Sales Agreement is approximately $68.4 million as of September 30, 2021.

In December 2020, we completed an underwritten public offering of our common stock pursuant to the Shelf Registration. We sold 3,750,000 shares of common stock at a public offering price of $20.00 per share, resulting in net proceeds of $70.0 million after deducting underwriting discounts, commissions and offering expenses. In addition, we granted the underwriters an option, exercisable for 30 days, to purchase up to 562,500 additional shares of our common stock at the public offering price, less the underwriting discounts and commissions. In January 2021, the underwriters exercised their option for 375,654 shares of our common stock resulting in net proceeds of $7.1 million after deducting underwriting discounts.

Pursuant to the RIPA, we have received $115.0 million from the Purchasers consisting of an upfront cash payment of $50.0 million and an additional $65.0 million as a result of acceptance for filing of our NDA for Livmarli. We may also be entitled to receive up to an additional $50.0 million at the option of the Purchasers to finance in-license or other acquisitions. In return, the Purchasers will have a right to receive Revenue Interests based on net sales of maralixibat. As of September 30, 2021, we have not generated any revenue from product sales. We were entitled to receive an additional $35.0 million upon FDA approval of Livmarli, which we elected to forgo.

Pursuant to the Stock Purchase Agreement, entered into concurrently with our entry into the RIPA, we issued an aggregate of 509,164 shares of our common stock at a price per share of $19.64, resulting in net proceeds to us of $10.0 million.

Based on our current and anticipated level of operations, we believe our cash, cash equivalents and investments will be sufficient to fund current operations through at least the next 12 months. Our cash, cash equivalents and investments include money market funds, government agency securities, corporate debt and commercial paper. We maintain established guidelines relating to diversification and maturities of our investments to preserve principal and maintain liquidity.

We anticipate that we will continue to incur net losses for the foreseeable future as we continue research efforts and the development of our product candidates, continue commercial launch activities for Livmarli, hire additional staff, including clinical, scientific, operational, financial and management personnel and pay potential development and commercial milestones in connection with our license agreements.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures, including commercial launch expenses. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Until such time, if ever, as we can generate substantial product revenue from sales of Livmarli, our current product candidates or any future product candidates, if approved, we expect to finance our cash needs through a combination of equity offerings, debt financings, revenue interest purchase agreements and potential collaboration, license or development agreements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect rights as a stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise additional funds through the RIPA, collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.


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Cash Flows

The following table provides a summary of the net cash flow activity for the period indicated (in thousands):




                                                           Nine Months Ended September 30,
                                                             2021                   2020
Net cash used in operating activities                  $        (99,611 )     $        (52,796 )
Net cash (used in) provided by investing activities             (59,476 )               42,820
Net cash provided by financing activities                        72,851                 46,780
Effect of exchange rate on cash and cash equivalents                 (6 )                    4

Net (decrease) increase in cash and cash equivalents $ (86,242 ) $ 36,808

Net Cash Used in Operating Activities

Net cash used in operating activities was $99.6 million for the nine months ended September 30, 2021, reflecting our net loss of $141.5 million partially offset by non-cash items of $31.4 million. Non-cash items consisted primarily of $17.5 million of stock-based compensation, $13.8 million of effective interest expense in connection with the RIPA, $0.4 million related to the change in fair value of the derivative liability, and $0.5 million of depreciation and amortization of our fixed assets and operating lease right-of use assets. Additionally, cash used in operating activities reflected changes in net operating assets of $10.5 million, consisting primarily of a $13.6 million increase in accounts payable, accrued expenses and other liabilities primarily associated with clinical, manufacturing and commercial planning activities and $2.6 million increase in prepaid expenses and other assets, partially offset by a $0.5 million decrease in our operating lease liability.

Net cash used in operating activities was $52.8 million for the nine months ended September 30, 2020, reflecting our net loss of $66.1 million partially offset by non-cash items of $9.5 million. Non-cash items consisted primarily of $9.0 million of stock-based compensation and $0.5 million of depreciation and amortization of our fixed assets and our operating lease right-of use assets. Additionally, cash used in operating activities reflected changes in net operating assets of $3.8 million, consisting primarily of a $5.7 million increase in accounts payable, accrued expenses and other liabilities due to clinical and manufacturing activities, offset by a $1.7 million increase to prepaid expenses primarily associated with clinical and manufacturing activities, a $0.2 million decrease in our operating lease liability, and a $0.1 million decrease in our right-of-use asset due to a change in the lease term.

Net Cash (Used in) Provided by Investing Activities

Net cash used in investing activities was $59.5 million for the nine months ended September 30, 2021, primarily due to $179.1 million used in purchases of investments, partially offset by proceeds of $117.6 million from maturities of investments and proceeds of $2.0 million from paydowns of investments.

Net cash provided by investing activities was $42.8 million for the nine months ended September 30, 2020 primarily due to proceeds of $71.4 million from maturities of investments and proceeds of $23.6 million from paydowns of investments, partially offset by $52.0 million used in purchases of investments and $0.2 million used for purchases of property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $72.9 million for the nine months ended September 30, 2021, due to net proceeds of $64.6 million pursuant to the RIPA, net proceeds of $6.9 million received from the underwriters when they exercised their option to purchase 375,654 shares of our common stock in January 2021 following the follow-on underwritten public offering of our common stock in December 2020, and proceeds of $1.4 million from employee equity award exercises.

Net cash provided by financing activities was $46.8 million for the nine months ended September 30, 2020, due to net proceeds of $44.7 million received from the completion of a follow-on public offering of our common stock pursuant to which we sold an aggregate of 2,400,000 shares of common stock at a price of $20.00 per share, net proceeds of $2.2 million from the sale of common stock under the Sales Agreement with SVB Leerink, pursuant to which we sold an aggregate of 98,708 shares of common stock at a weighted-average price of $24.13 per share, and proceeds of $0.1 million from employee stock option exercises. These proceeds were offset by a use of cash for payment of deferred offering costs associated with the Shelf Registration of $0.2 million and are reflected as deferred offering costs on our balance sheet until such time as we complete sales of shares under the Shelf Registration.

Contractual Obligations and Commitments


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There have been no material changes in the amount of our contractual obligations and commitments during the nine months ended September 30, 2021 from those disclosed in our Annual Report, except as described below.

Under the Vivet Collaboration Agreement, we are committed to fund research and development costs associated with the two gene therapy programs covered under the agreement for six months, which is equal to the termination provisions under the agreement. As of the date of this filing, we are obligated for up to an additional €10.7 million.

From time to time we enter into certain types of contracts that contingently require us to indemnify parties against third-party claims, including the Shire License Agreement, RIPA, and certain real estate leases, supply purchase agreements, and agreements with directors and officers. The terms of such obligations vary by contract and in most instances a maximum dollar amount is not explicitly stated therein. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted, thus no liabilities have been recorded for these obligations on our unaudited condensed consolidated balance sheets for the periods presented.

We enter into contracts in the normal course of business with clinical research organizations and clinical sites for the conduct of clinical trials, non-clinical research studies, professional consultants for expert advice and other vendors for clinical supply manufacturing or other services. These contracts generally provide for termination on notice, and therefore are cancelable contracts.

Contractual Arrangements

Under the Shire License Agreement, as well as our other license and acquisition agreements, we have payment obligations that are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones and are required to make royalty payments in connection with the sale of products developed under those agreements. For the periods presented, under the Shire License Agreement and Assigned License Agreements, we have paid development milestones of $10.0 million in December 2020 upon acceptance of an MAA filing to the EMA for maralixibat for the treatment of PFIC2, $2.0 million in January 2021 associated with the initiation of the VISTAS Phase 2b clinical trial of volixibat in PSC, $15.0 million in April 2021 consisting of (1) $5.0 million which would have been due had we initiated a Phase 3 clinical trial in ALGS, and (2) $10.0 million associated with the acceptance of our NDA filing for Livmarli for the treatment of cholestatic pruritus in patients with ALGS based upon the results of our Phase 2b ICONIC clinical trial, and $2.0 million in July 2021 associated with our EMBARK Phase 2b clinical trial for BA. As of September 30, 2021, we accrued $19.0 million for milestones associated with the FDA approval of Livmarli as a treatment for cholestatic pruritus in patients with ALGS one year of age and older and first commercial sale which was subsequently paid in October 2021. We were unable to estimate the timing or likelihood of achieving additional remaining future milestones or making future product sales and, therefore, any related payments are not included herein.

For additional information regarding these license agreements, including our payment obligations thereunder, see Note 7 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

JOBS Act

As an emerging growth company under the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"), we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act").

We will remain an emerging growth company until the earliest of (i) December 31, 2024, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended ("Exchange Act"), or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.


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