VIELA BIO, INC.
You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and related notes appearing elsewhere in this Annual Report on Form 10-K. Some
of the information contained in this discussion and analysis or set forth
elsewhere in this Form 10-K, including information with respect to our plans and
strategy for our business and related financing, includes forward-looking
statements that involve risks and uncertainties. As a result of many factors,
including those factors set forth in the "Risk Factors" section of this Form
10-K, our actual results could differ materially from the results described in
or implied by the forward-looking statements contained in the following
discussion and analysis.
Investors and others should note that we routinely use the Investor Relations
section of our website to announce material information to investors and the
marketplace. While not all of the information that we post on the Investor
Relations section of our website is of a material nature, some information could
be deemed to be material. Accordingly, we encourage investors, the media, and
others interested in us to review the information that it shares on the Investor
Relations section of our website, www.vielabio.com.
Overview
We are a biotechnology company pioneering treatments for autoimmune and severe
inflammatory diseases, which we collectively refer to as autoimmune diseases.
Our approach seeks to redefine the treatment of autoimmune diseases by focusing
on critical biological pathways shared across multiple indications. We believe
that this approach, which targets the underlying molecular pathogenesis of the
disease, allows us to develop more precise therapies, identify patients more
likely to respond to treatment and pursue multiple indications for each of our
product candidates. Our lead molecule, inebilizumab, is a humanized monoclonal
antibody, or mAb, designed to target CD19, a molecule expressed on the surface
of a broad range of immune system B cells. In January 2019 , we reported positive
pivotal clinical trial data for inebilizumab in patients with neuromyelitis
optica spectrum disorder, or NMOSD. NMOSD is a rare, devastating condition that
attacks the optic nerve, spinal cord and brain stem, and often leads to
irreversible blindness and paralysis. We received Breakthrough Therapy
Designation for the treatment of this disease from the U.S. Food and Drug
Administration , or the FDA, in April 2019 and in August 2019 , the FDA accepted
for review our Biologics License Application, or BLA for inebilizumab. On June
11, 2020 , the FDA approved Uplizna® (inebilizumab-cdon) for the treatment of
adult patients with NMOSD who are anti-AQP4 antibody positive as a twice-a-year
maintenance regimen following initial doses. We commercially launched
Uplizna® following FDA approval in June 2020
Regulatory applications have also been filed in several other countries for
inebilizumab in patients with NMOSD, based on results from the N-MOmentum
trial. In October 2020 , a BLA was accepted by the National Medical Products
Administration in China . In June and September 2020 , respectively, a marketing
authorization application, or MAA, was filed in Japan and South Korea , and an
MAA was filed with the European Medicines Agency , or EMA, in December 2020 . If
approved, Mitsubishi Tanabe Pharma Corporation ("MTPC") and Hansoh Pharma , our
partners in Asia , will be responsible for commercializing inebilizumab in their
respective territories, and we will be eligible for payments based on certain
commercial milestones, as well as royalties on sales revenue.
Furthermore, we recently initiated a Phase 3 trial of inebilizumab for
myasthenia gravis, a neuromuscular disorder caused by autoantibodies against
acetylcholine receptors or muscle specific kinase and a Phase 3 trial of
inebilizumab for IgG4-related disease, a group of disorders marked by tumor-like
swelling and fibrosis of affected organs, which may be caused by infiltration of
CD19-expressing plasmablasts and plasma cells that generate IgG4 antibodies. We
are continuing to enroll patients in both of these trials.
In addition, we have a broad pipeline of two additional clinical-stage and two
pre-clinical product candidates focused on a number of other autoimmune diseases
with high unmet medical needs, including Sjögren's syndrome and lupus, as well
as other conditions such as kidney transplant rejection. A Phase 2b trial in
Sjögren's syndrome, which is designed as Phase 3-enabling, is ongoing and in
2019, we initiated a separate Phase 2 trial in kidney transplant rejection. We
are currently advancing two candidates through pre-clinical studies. For the
first candidate, VIB1116, we completed pre-clinical toxicology studies and
submitted an IND in Q4 2020.
We incorporated on December 11, 2017 under the laws of the State of Delaware .
From December 11, 2017 to December 31, 2017 we had no substantive operations. In
February 2018 , we acquired six molecules from MedImmune, of which five
constitute our current product candidates, for a purchase price of approximately
$142.3 million financed by AstraZeneca's purchase of our Series A preferred
stock. Following the asset purchase, we entered into several agreements with
AstraZeneca and MedImmune, including a license agreement, a master supply and
development services agreement, sublicense agreements, a transition services
agreement, a clinical supply agreement and a commercial supply agreement.
To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, identifying and developing product candidates, enhancing our intellectual property portfolio,
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undertaking research, conducting pre-clinical studies and clinical trials,
conducting pre-commercial and commercial launch activities, and securing
manufacturing for our development programs. To date, we have funded our
operations primarily with proceeds from private placement of convertible
preferred stock and the IPO. In October 2019 , we completed the IPO and issued
and sold an aggregate 9,085,000 shares of common stock, which included 1,185,000
shares of our common stock issued pursuant to the underwriters' option to
purchase additional shares, at a public offering price of $19.00 per share, for
net proceeds of $156.9 million after deducting underwriting discounts and
commissions and other offering costs. In June 2020 , the Company completed an
underwritten public offering of its common stock and issued and sold 3,600,000
shares of common stock, at a public offering price of $47.00 per share, for
aggregate gross proceeds of $169,200 and net proceeds after deducting
underwriting discounts and commissions and other offering costs of $158,338 .
We have incurred significant operating losses since our inception, which are
mainly attributed to research and development costs and employee payroll expense
included in general and administrative expenses. Our net loss was $150.7
million , $86.4 million and $190.3 million for the years ended December 31, 2020 ,
2019, and 2018, respectively. Our operating losses may fluctuate significantly
from quarter-to-quarter and year-to-year as a result of several factors,
including the timing of our pre-clinical studies and clinical trials, our
expenditures related to other research and development activities, and revenue
generated from product sales and licensing agreements. We expect to continue to
incur operating losses for the foreseeable future. We anticipate these losses
will increase substantially as we advance our product candidates through
pre-clinical and clinical development, develop additional product candidates and
seek regulatory approvals for our product candidates. We expect to incur
pre-commercialization expenses and significant commercialization expenses
related to marketing, sales, manufacturing and distribution for any product
candidate that obtain marketing approval. We may also incur expenses in
connection with the in-licensing of additional product candidates. Furthermore,
we expect to incur additional costs associated with operating as a public
company, including significant legal, accounting, investor relations, compliance
and other expenses that we did not incur as a private company.
As a result, in the event the Merger (defined below) and related transactions do
not close and we remain a stand-alone company, we will need substantial
additional funding to support our continuing operations and pursue our growth
strategy. Until such time as we can generate significant revenue from sales of
our product candidates, if ever, we expect to finance our cash needs through
public or private equity offerings, debt financings, collaborations and
licensing arrangements or other capital sources. 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 as and when needed would have a negative impact on our financial
condition and could force us to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and
market our product candidates that we would otherwise prefer to develop and
market ourselves.
In December 2019 an outbreak of a novel strain of coronavirus was identified in
Wuhan, China . This virus continues to spread globally, has been declared a
pandemic by the World Health Organization and has spread to over 200 countries,
including the United States . The impact of this pandemic has been and will
likely continue to be extensive in many aspects of society, which has resulted
in and will likely continue to result in significant disruptions to businesses
and capital markets around the world. The extent to which the coronavirus
impacts us will depend on future developments, which are highly uncertain and
cannot be predicted, including new information which may emerge concerning the
severity of the coronavirus and the actions to contain the coronavirus or treat
its impact, among others. At present, we are not experiencing significant impact
or delays from COVID-19 on our business and operations. However, in order to
prioritize patient health and that of the investigators at clinical trial sites,
we had paused enrollment of new patients in certain of our clinical trials,
including our Phase 2b trial of VIB4920 in Sjögren's syndrome, our Phase 2 trial
of VIB4920 in rheumatoid arthritis and our Phase 2 trial of inebilizumab in
kidney transplant desensitization. We recently resumed our Phase 2b trial of
VIB4920 in Sjögren's syndrome and our Phase 2 trial of VIB4920 in rheumatoid
arthritis. Our ability to re-open enrollment, and continue enrollment, in any
paused clinical trials will be dependent on many factors, including the
progression of the pandemic and its impact on patients and the investigators at
our clinical trial sites. Furthermore, our ability to re-open enrollment, and
continue enrollment, in each of these paused clinical trials will require
collaboration with, and permission from, each of the clinical trial sites. Over
the coming weeks and months, we will continue to monitor carefully the situation
with respect to each of our clinical trials and follow guidance from local and
federal health authorities. Additionally, with respect to our commercial launch
of Uplizna®, we believe that the pandemic has resulted in a decrease in patient
visits to prescribing physicians, as well as challenges in coordination and
communication between patients and prescribing physicians. Furthermore,
we believe some prescribing physicians are reluctant to change existing
treatment regimens for patients, except in the event of significant need,
without first meeting patients in-person prior to making such a change. The
ongoing pandemic has led to increased challenges in having in-person meetings
between patients and prescribing physicians. We believe these factors are
adversely impacting, and may continue to adversely impact for the duration of
the pandemic, the number of new prescriptions written for Uplizna®. We plan to
continue to adapt our commercialization efforts to address the uncertainty
presented by this treatment environment.
Because of the numerous risks and uncertainties associated with pharmaceutical
product development, we are unable to accurately predict the timing or amount of
increased expenses or when or if we will be able to achieve or
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maintain profitability. If we fail to become profitable or are unable to sustain
profitability on a continuing basis, we may be unable to continue our operations
at planned levels and be forced to reduce or terminate our operations.
Merger Agreement
OnJanuary 31, 2021 , we entered into a definitive Agreement and Plan of Merger (the "Merger Agreement"), withHorizon Therapeutics USA, Inc. , aDelaware corporation ("Parent"),Teiripic Merger Sub, Inc. , aDelaware corporation and a direct wholly owned subsidiary of Parent ("Purchaser"), and solely for purposes of Sections 6.7 and 9.12 of the Merger Agreement, Horizon Therapeutics plc, a public limited company organized under the laws ofIreland ("Ultimate Parent"), pursuant to which Parent, through Purchaser, will commence a tender offer (the "Offer") to acquire all of the outstanding shares of our common stock, par value$0.001 per share (the "Shares"), at a price of$53.00 per share in cash, which represents a fully diluted equity value of approximately$3.05 billion , without interest, subject to any applicable withholding taxes. Parent and Purchaser commenced the Offer onFebruary 12, 2021 and are obligated to keep the Offer open for twenty business days following the commencement of the Offer, subject to possible extension under the terms of the Merger Agreement. If successful, upon the terms and conditions set forth in the Merger Agreement, the Offer will be followed by a merger of Purchaser with and into the Company, with the Company continuing as the surviving corporation and as a direct wholly owned subsidiary of Parent (the "Merger"). Completion of the Offer is subject to the satisfaction or waiver of customary conditions, including (i) there shall have been validly tendered (not including any Shares tendered pursuant to guaranteed delivery procedures that have not yet been "received," as such term is defined in Section 251(h) of the General Corporation Law of theState of Delaware (the "DGCL"), by the depositary for the Offer pursuant to such procedures) and not validly withdrawn Shares that, considered together with all other Shares (if any) beneficially owned by Parent and its subsidiaries, represent one more Share than 50% of the total number of (A) Shares outstanding at the time of the expiration of the Offer plus (B) the aggregate number of Shares issuable to holders of options to purchase Shares (the "Company Options") from which we have received notices of exercise prior to the expiration of the Offer (and as to which Shares have not yet been issued to such exercising holders of Company Options); (ii) subject to certain materiality exceptions, the truth and accuracy of certain representations and warranties made by us contained in the Merger Agreement; (iii) compliance with, or performance of, in all material respects the covenants and agreements with or of which we are required to comply or perform; (iv) the termination or expiration of any applicable waiting period (and extensions thereof) relating to the Offer under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (v) the absence of a material adverse effect on us; and (vi) certain other customary conditions set forth in the Merger Agreement. The Offer and the Merger are not subject to any financing condition. BetweenFebruary 18, 2021 andFebruary 26, 2021 , five of our purported stockholders filed separate lawsuits against us and our directors. Three of the lawsuits were filed in the federal district court for theSouthern District ofNew York , one was filed in the federal district court for District ofDelaware , and one in the federal district court for theEastern District ofPennsylvania . The complaints allege violations of certain sections of the Exchange Act. All five lawsuits allege that the Schedule 14D-9 Solicitation/Recommendation Statement that we filed onFebruary 12, 2021 ("14D-9") is materially incomplete and misleading and seek to enjoin the tender offer until the purported deficiencies in the 14D-9 are corrected, or alternatively, monetary damages if the tender offer is consummated. The defendants believe the claims asserted in the complaints are without merit. Additional lawsuits arising out of or relating to the tender offer may be filed in the future. We expect the Merger to close during the first quarter of 2021, subject to the regulatory approvals and other customary closing conditions described above and in the Merger Agreement.
Additional information about the Merger and related transactions is set forth in
our filings with the
Components of our Results of Operations
Revenue
We did not generate any revenue from the sale of products since our inception
through June 30, 2020 . We initiated the commercial launch of Uplizna® and
generated revenue from the sale of products in the third and fourth quarters of
2020. We have also generated revenue from commercial license and collaboration
agreements related to the treatment of
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NMOSD with inebilizumab. We do not expect any revenues that we may generate in
the near future to be significant enough to fund our operations. We generated
$50 million of license revenue in 2019.
In connection with the license agreement with Mitsubishi Tanabe Pharma
Corporation , or MTPC, dated October 8, 2019 , we entered into a supply agreement
with MTPC, pursuant to which, among other things, we will supply products for
MTPC's commercial use. Under the supply agreement, MTPC provides a rolling
forecast for a period of 36 months of its usage for product. Payment is based on
the forecasted usage of supplied product and becomes due following delivery of
product and invoicing by the Company. Changes in demand from MTPC and any
adjustments to MTPC's forecasted usage requirements of inebilizumab may cause
our revenue and net loss to fluctuate significantly from period-to-period, which
may result in a high degree of variability in our results of operations.
Cost of Product Sold
Cost of product sales includes the cost of producing and distributing inventories that are related to product revenues during the respective period, and third-party royalties payable on our net product revenues. Cost of goods sold also includes, as applicable, costs related to excess or obsolete inventory adjustment charges, abnormal costs, unabsorbed manufacturing and overhead costs, amortization of intangible asset, and manufacturing variances. We presently expect to have a lower cost of product sold until 2023.
Research and Development Expenses
To date, our research and development expenses, net of the acquisition of IPR&D that is disclosed separately, have related primarily to development of inebilizumab, VIB4920 and VIB7734, pre-clinical studies and other pre-clinical activities related to our portfolio. Research and development expenses are recognized as incurred, and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
Research and development expenses include:
• salaries, payroll taxes, employee benefits, and stock-based compensation
charges for those individuals involved in research and development efforts;
• external research and development expenses incurred under agreements with
contract research organizations and consultants to conduct our
pre-clinical, toxicology and other pre-clinical studies, as well as
clinical trials of our product candidates;
• laboratory supplies;
• costs related to manufacturing product candidates, including fees paid to
third-party manufacturers and raw material suppliers;
• license fees and research funding; and
• facilities, depreciation and other allocated expenses, which include direct
and allocated expenses for rent, maintenance of facilities, insurance,
equipment and other supplies.
We outsource a substantial portion of our clinical trial activities, utilizing
external entities such as CROs, independent clinical investigators and other
third-party service providers to assist us with the execution of our clinical
trials. We also expect to incur additional expenses related to milestone and
royalty payments payable to third parties with whom we have entered into license
agreements relating to our product candidates.
We plan to substantially increase our research and development expenses for the
foreseeable future, as we continue the development of our product candidates and
seek to discover and develop new product candidates. Due to the inherently
unpredictable nature of pre-clinical and clinical development, we cannot
determine with certainty the timing of the initiation, duration or costs of
future clinical trials and pre-clinical studies of product candidates. Clinical
and pre-clinical development timelines, the probability of success and the
amount of associated development costs can differ materially from expectations.
We anticipate that we will make determinations as to which product candidates
and development programs to pursue and how much funding to direct to each
product candidate or program on an ongoing basis in response to the results of
ongoing and future pre-clinical studies and clinical trials, regulatory
developments and our ongoing assessments as to each product candidate's
commercial potential. In addition, we cannot forecast which product candidates
may be subject to future collaborations, when such arrangements will be secured,
if at all, and to what degree such arrangements would affect our development
plans and capital requirements.
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Our future clinical development costs may vary significantly based on factors such as:
• per patient trial costs; • the number of patients needed to determine a recommended dose; • the number of trials required for regulatory approval; • the number of sites included in the trials; • the countries in which the trials are conducted; • the length of time required to enroll eligible patients; • the number of patients who participate in the trials; • the number of doses that patients receive; • the drop-out or discontinuation rates of patients;
• potential additional safety monitoring requested by regulatory agencies;
• the duration of patient participation in the trials and follow-up;
• the phase of development of the product candidate;
• the efficacy and safety profile of the product candidate; and
• developments related to the coronavirus outbreak and impact of it and
COVID-19 on the costs and timing associated with the conduct of our
clinical trials and other related activities.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation for personnel in our executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, facility and/or rent-related costs, and insurance costs. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities and commercialization activities. We also anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with stock exchange listing andSEC requirements, director and officer insurance premiums and investor relations costs associated with operating as a public company.
Acquisition of
Acquisition of IPR&D represents the expense recognized related to the Asset Purchase Agreement with AstraZeneca and MedImmune (the "APA"). The six molecules we acquired from MedImmune pursuant to the APA consist of multiple IPR&D projects related to biological therapies which are intended to treat an interrelated subset of autoimmune disorders, represented in part by common biological characteristics. See Note 9, "Asset acquisition" for further information.
Interest Income
Interest income consists of interest earned on our cash and cash equivalents and marketable securities.
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Consolidated Results of Operations
Years Ended
The following table summarizes our results of operations for the years ended:
December 31,
2020 2019 2018
(in thousands) (in thousands) (in thousands)
Revenue:
Product Revenue $ 11,652 $ - $ -
License Revenue - 50,000 -
Total Revenue 11,652 50,000 -
Operating expenses:
Cost of products sold 2,040
Research and development 103,302 104,641 42,414
Selling, general and administrative 60,192 35,050 6,565
Acquisition of in-process research and development - - 143,333
Total operating expenses 165,534 139,691 192,312
Loss from operations (153,882 ) (89,691 ) (192,312 )
Other income
Interest income 3,214 3,262 2,042
Total other income 3,214 3,262 2,042
Net loss $ (150,668 ) $ (86,429 ) $ (190,270 )
Product Revenue. Product revenue was $11.7 million for the year ended December
31, 2020 . We initiated the commercial launch of Uplizna® in the third quarter
and generated revenue from the sale of products in the third and fourth quarters
of 2020. There was no product revenue generated during the years ended
December 31, 2019 and 2018.
License Revenue. There was no license revenue generated during the year ended
December 31, 2020 or 2018. License revenue was $50.0 million for the year ended
2019. The $50.0 million recognized in 2019 was due to the revenue recognized
pursuant to the Co-Development and Commercial License Agreement with Hansoh
Pharma and the MTPC License Agreement.
Research and Development Expenses. Research and development expenses were
$103.3 million , $104.6 million and $42.4 million for the years ended
December 31, 2020 , 2019, and 2018, respectively. The decrease of $1.3 million
from 2019 to 2020 was primarily driven by increases in personnel-related costs
of $10.7 million , increases in clinical trial study and lab supply costs of
$19.8 million , offset by decreases in regulatory milestone payments of $19.8
million , and decreases of other outside services of $12.0 million . The increase
of $62.2 million from 2018 to 2019 was primarily driven by regulatory milestone
payment of approximately $19.8 million in September 2019 in connection with
acceptance for review by the FDA of the Company's BLA for inebilizumab in
patients with NMOSD in August 2019 , an increase of $8.6 million in personnel
related costs due to an increase in headcount, $33.8 million of direct program
and external costs for payments to our research and development contractors
driven primarily by manufacturing activities to support the BLA filing and
pending approval process, and clinical trials for other potential indications
for inebilizumab, as well as increased clinical material supplies for VIB4920.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $60.2 million , $35.1 million , and $6.6 million for
the years ended December 31, 2020 , 2019, and 2018 respectively. The increase of
$25.1 million from 2019 to 2020 was primarily due to increases in
personnel-related expenses of $15.9 million , $4.2 million in professional
services, and $5.0 million of facility related and other administrative
expenses. The increase of $28.5 million from 2018 to 2019 was due primarily to
increases of $12.6 million in professional services related to accounting
services, corporate legal fees and patent legal fees, $10.9 million in personnel
related expenses, including stock-based compensation, due to an increase in
headcount, and $5.0 million of facility related and other administrative
expenses.
Acquisition of
Interest Income. Interest income was$3.2 million ,$3.3 million , and$2.0 million for the years endedDecember 31, 2020 , 2019, and 2018, respectively. Interest income in 2020 was consistent with 2019 primarily due to market conditions resulting in lower yields on debt securities. The increase of$1.2 million from 2018 to 2019 was due primarily to higher cash and cash equivalents and marketable securities held during the year endedDecember 31, 2020 . 102 -------------------------------------------------------------------------------- Liquidity and Capital Resources
Cash Flows
We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As ofDecember 31, 2020 , we had cash and cash equivalents of$130.1 million . The following table sets forth a summary of the net cash flow activity for the years ended: December 31, 2020 2019 2018 (in thousands) (in thousands) (in thousands) Net cash provided by (used in): Operating activities$ (106,113 ) $ (105,049 ) $ (29,531 ) Investing activities (124,250 ) (146,446 ) (143,824 ) Financing activities 159,577 325,448 300,253 Net (decrease) increase in cash and cash equivalents$ (70,786 ) $ 73,953$ 126,898 Operating Activities Net cash used in operating activities was$106.1 million ,$105.0 million , and$29.5 million for the years endedDecember 31, 2020 , 2019, and 2018, respectively. The net cash used in operating activities for the year endedDecember 31, 2020 was primarily due to our net loss of$150.7 million , partially offset by$15.3 million of non-cash charges related to depreciation and amortization, stock-based compensation expense, and net amortization of premiums and discounts on marketable securities, and cash provided by changes in our operating assets and liabilities of$29.3 million . The net cash used in operating activities for the year endedDecember 31, 2019 was primarily due to our net loss of$86.4 million , partially offset by non-cash charges of$3.8 million related to depreciation, stock-based compensation expense and net amortization of premiums and discounts on marketable securities, and cash used by changes in our operating assets and liabilities of$22.4 million . The net cash used in operating activities for the year endedDecember 31, 2018 was primarily due to our net loss of$190.3 million , partially offset by non-cash charges of$143.3 million primarily related to our acquisition of IPR&D assets from MedImmune and AstraZeneca and cash provided by changes in our operating assets and liabilities of$15.5 million .
Investing Activities
Net cash used in investing activities was$124.3 million ,$146.4 million , and$143.8 million for the years endedDecember 31, 2020 , 2019, and 2018, respectively. The net cash used in investing activities for the year endedDecember 31, 2020 was primarily due to purchases, sales, and maturities of marketable securities and the purchase of intangible assets as a result of milestone payments upon the regulatory approval of Uplizna® onJune 11, 2020 . The net cash used in investing activities for the year endedDecember 31, 2019 was primarily due to purchases, sales and maturities of marketable securities, and purchase of property and equipment. The net cash used in investing activities for the year endedDecember 31, 2018 was primarily due to our acquisition of IPR&D from MedImmune and AstraZeneca and purchases of property and equipment. Financing Activities Net cash provided by financing activities was$159.6 million for the year endedDecember 31, 2020 primarily due to the net proceeds of the issuance of common stock. Net cash provided by financing activities was$325.4 million for the year endedDecember 31, 2019 , primarily due to the net proceeds of$167.0 million from the issuance of Series A-3 and Series B convertible preferred stock and$156.9 million of net proceeds from the IPO. Net cash provided by financing activities was$300.3 million for the year endedDecember 31, 2018 and was due to proceeds from the issuance of Series A-1 and A-2 convertible preferred stock.
Funding Requirements
We believe that our existing cash, will be sufficient to meet our anticipated
cash requirements into 2023. However, our forecast of the period of time through
which our financial resources will be adequate to support our operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary materially. We have based this estimate on assumptions that
may prove to be wrong, and we could deplete our capital resources sooner than we
expect.
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Our future capital requirements will depend on many factors, including:
• the revenue received from any potential commercial sales of Uplizna® or
other product candidates, if approved, and product pricing, as well as
product coverage and the adequacy of reimbursement of third-party payors,
relating to any such product;
• the cost of commercialization activities for and manufacturing of Uplizna®
and other product candidates if we receive marketing approval for any such
product candidate, including marketing, sales and distribution costs;
• the initiation, progress, timing, costs and results of drug discovery,
pre-clinical studies and clinical trials of inebilizumab, VIB4920 and
VIB7734 and any other future product candidates;
• the number and characteristics of product candidates that we pursue;
• the outcome, timing and costs of seeking regulatory approvals;
• the cost of manufacturing VIB4920 and VIB7734 and future product candidates
for clinical trials in preparation for marketing approval and in
preparation for commercialization;
• the costs of any third-party products used in our combination clinical
trials that are not covered by such third party or other sources;
• the costs associated with hiring additional personnel and consultants as
our pre-clinical and clinical activities increase;
• the emergence of competing therapies and other adverse market developments;
• the ability to establish and maintain strategic licensing or other
arrangements and the financial terms of such agreements;
• the costs involved in preparing, filing, prosecuting, maintaining,expanding, defending and enforcing patent claims, including litigation
costs and the outcome of such litigation;
• the extent to which we in-license or acquire other products and technologies;
• the costs of operating as a public company; and
• the extent to which our business is adversely impacted by the effects of
the novel coronavirus outbreak or by other health epidemics or pandemics.
We expect to finance our cash needs through a combination of revenues, public or
private equity offerings, debt financings, collaborations and licensing
arrangements or other capital sources. To the extent that we raise additional
capital through the sale of equity or convertible debt securities, the ownership
interest of our stockholders will be or could be diluted, and the terms of these
securities may include liquidation or other preferences that adversely affect
the rights of our common stockholders. Debt financing and 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 funds through
collaborations, or other similar arrangements with third parties, we may need to
relinquish valuable rights to our product candidates, future revenue streams,
research programs or may have to grant licenses on terms that may not be
favorable to us and/or may reduce the value of our common stock. If we are
unable to raise additional funds through equity or debt financings as and when
needed, we may be required to delay, limit, reduce or terminate our product
development 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.
Contractual Obligations and Commitments
We enter into contracts in the normal course of business with CROs, clinical
supply manufacturers and vendors for pre-clinical studies, research supplies and
other services and products for operating purposes. These contracts generally
provide for termination after a notice period, and, therefore, are cancelable
contracts.
We have also entered into license and collaboration agreements with third
parties, which are in the normal course of business. Obligations under these
agreements are contingent upon future events such as our achievement of
specified development, regulatory, and commercial milestones, or royalties on
net product sales. We have paid approximately $20.0 million for the BLA approval
for inebilizumab by the FDA for NMOSD. However, we are currently unable to
estimate the timing or likelihood of achieving other milestones or generating
future product sales.
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Critical Accounting Policies and Significant Judgments and 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 withU.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. 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 values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 2, "Summary of significant accounting policies", we believe the following accounting policies and estimates to be most critical to the preparation of our consolidated financial statements.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each consolidated balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our 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 when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments, if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced. We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development 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. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In 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 accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Revenue Recognition for Contracts with Customers
EffectiveJanuary 1, 2019 , we adopted Accounting Standards Update, or ASU, No. 2014-09, Revenue (ASC 606): Revenue from Contracts with Customers, or ASC 606, using the modified retrospective transition method. Under this method, results for reporting periods beginning onJanuary 1, 2019 are presented under ASC 606, while prior periods were prepared and reported in accordance with ASC Topic 605, Revenue Recognition, or ASC 605. The adoption of ASC 606 resulted in no cumulative adjustment as we had substantially no assets until executing the Asset Acquisition inFebruary 2018 (as described in Note 9, "Asset acquisition") and did not enter into a revenue contract with a customer untilMay 2019 (as described in Note 15, "Collaboration agreements"). ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. 105 -------------------------------------------------------------------------------- At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements that include rights to additional goods or services that are exercisable at a customer's discretion are generally considered options. We assess if these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method. Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the consolidated balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheet. Amounts not expected to be recognized as revenue within the 12 months following the consolidated balance sheet date are classified as deferred revenue, net of current portion. Milestone Payments-If an arrangement includes development and regulatory milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee's control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.
Royalties-For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, we have not recognized any royalty revenue resulting from any of our licensing arrangements.
Significant Financing Component-In determining the transaction price, we adjust consideration for the effects of the time value of money if the timing of payments provides us with a significant benefit of financing. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. We assessed each of our revenue arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of our arrangements. Collaborative Arrangements-We enter into collaboration agreements, which are within the scope of ASC 606, to discover, develop, manufacture and commercialize product candidates. The terms of these agreements typically contain multiple promises or obligations, which may include: (1) licenses, or options to obtain licenses, to use our technology, (2) research and development activities to be performed on behalf of the collaboration partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments we receive under these arrangements typically include one or more of the following: non-refundable, upfront license fees; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales. We also analyze our collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements, or ASC 808, to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of ASC 606. For those elements of the arrangement that are accounted for pursuant to ASC 606, we apply the five-step model described above.
For a complete discussion of accounting for collaboration revenues, see Note 15, "Collaboration agreements."
Other Company InformationNet Operating Loss and Research and Development Carryforwards and Other Income Tax Information
AtDecember 31, 2020 , we had federal and state net operating loss carryforwards of$270.1 million . Federal and state net operating losses arising afterDecember 31, 2017 can be carried forward indefinitely. As ofDecember 31, 2020 , 106 -------------------------------------------------------------------------------- we also had federal research credit carryforwards of$21.6 million . The federal research and development tax credit carryforwards expire beginning in 2038 unless previously utilized, and the state research and development tax credit carryforwards expire beginning in 2025. We believe that it is more likely than not that we will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as ofDecember 31, 2020 . Management reevaluates the positive and negative evidence at each reporting period. We have not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future. Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of our net operating loss and research and development tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period.
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued and adopted accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, "Summary of significant accounting policies".
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under
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