Form 10-Q

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM

Commission File Number

001-36500

CymaBay Therapeutics, Inc.

(Exact name of registrant as specified in its charter)


Delaware		94-3103561
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7575 Gateway Blvd, Suite 110 Newark, CA		94560
(Address of principal executive offices)		(Zip Code)

(510)

293-8800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name o f each exchange on which registered
Common stock, $0.0001 par value per share	CBAY	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90

days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in

Rule 12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in

Rule 12b-2

of the Exchange Act). Yes ☐ No ☒

As of October 31, 2021, there were 69,043,969

shares of the registrant’s common stock outstanding.

Table of Contents

CYMABAY THERAPEUTICS, INC.

QUARTERLY REPORT ON

FORM 10-Q

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION		3
Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020 (unaudited)		3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)		5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)		6
	Notes to Condensed Consolidated Financial Statements (unaudited)		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25
Item 4.	Controls and Procedures		25

PART II	OTHER INFORMATION		26
Item 1.	Legal Proceedings		26
Item 1A.	Risk Factors		26
Item 6.	Exhibits		50
Signatures			51

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CymaBay Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(unaudited)


	September 30,			December 31,
	2021			2020
Assets
Current assets:


Cash and cash equivalents	$	68,963		$	28,193
Marketable securities		44,825			118,130
Accrued interest receivable		69			277
Prepaid research and development expenses		5,071			2,221
Other prepaid expenses and current assets		648			2,764

Total current assets		119,576			151,585
Property and equipment, net		1,341			1,761
Operating lease right-of-use asset		264			272
Other assets		1,721			207

Total assets	$	122,902		$	153,825

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	764		$	231
Accrued research and development expenses		6,451			4,698
Other accrued liabilities		4,526			4,928

Total current liabilities		11,741			9,857
Development financing liability		23,259			—
Long-term portion of operating lease liability		844			1,262

Total liabilities		35,844			11,119
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value: 10,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.0001 par value: 200,000,000 shares authorized; 69,043,969 and 68,946,092 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		7			7
Additional paid-in capital		827,365			819,549
Accumulated other comprehensive (loss) income		(1	)		8
Accumulated deficit		(740,313	)		(676,858	)

Total stockholders’ equity		87,058			142,706

Total liabilities and stockholders’ equity	$	122,902		$	153,825

See accompanying notes to the condensed consolidated financial statements.

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CymaBay Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share information)

(unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Operating expenses:

Research and development	$	17,010		$	7,743		$	46,137		$	25,194
General and administrative		5,179			3,907			16,936			11,535

Total operating expenses		22,189			11,650			63,073			36,729

Loss from operations		(22,189	)		(11,650	)		(63,073	)		(36,729	)
Other income (expense), net:
Interest income		29			229			140			1,494
Interest expense		(522	)		—			(522	)		—

Total other income (expense), net		(493	)		229			(382	)		1,494

Net loss	$	(22,682	)	$	(11,421	)	$	(63,455	)	$	(35,235	)

Other comprehensive (loss) income:
Unrealized (loss) gain on marketable securities		(2	)		(104	)		(9	)		2

Total other comprehensive (loss) income		(2	)		(104	)		(9	)		2

Comprehensive loss	$	(22,684	)	$	(11,525	)	$	(63,464	)	$	(35,233	)

Basic and diluted net loss per common share	$	(0.33	)	$	(0.17	)	$	(0.92	)	$	(0.51	)
Weighted average common shares outstanding used to calculate basic and diluted net loss per common share		69,022,937			68,887,092			68,985,112			68,884,894

See accompanying notes to the condensed consolidated financial statements.

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CymaBay Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2021			2020
Operating activities

Net loss	$	(63,455	)	$	(35,235	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		515			468
Stock-based compensation expense		7,611			5,513
Accretion of development financing liability		522			—
Write-off of deferred financing costs		312			—
Net accretion and amortization of investments in marketable securities		543			(240	)
Changes in assets and liabilities:
Interest receivable and other current assets		765			42
Prepaid expenses		(1,490	)		7,071
Other assets		(1,514	)		—
Accounts payable		512			(1,556	)
Accrued liabilities		491			(5,972	)

Net cash used in operating activities		(55,188	)		(29,909	)
Investing activities
Purchases of property and equipment		(87	)		(21	)
Purchases of marketable securities		(44,607	)		(153,951	)
Proceeds from maturities of marketable securities		117,360			206,278

Net cash provided by investing activities		72,666			52,306
Financing activities
Proceeds from issuance of common stock pursuant to equity award plans		205			7
Proceeds from development financing, net of transaction costs		23,087			—

Net cash provided by financing activities		23,292			7

Net increase in cash and cash equivalents		40,770			22,404
Cash and cash equivalents at beginning of period		28,193			24,869

Cash and cash equivalents at end of period	$	68,963		$	47,273

Supplemental disclosure
Cash paid for amounts included in the measurement of lease liabilities	$	498		$	484
Supplemental non-cash investing and financing activities
Accrued financing costs	$	350		$	—

See accompanying notes to the condensed consolidated financial statements.

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CymaBay Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share information)

(unaudited)


	Three and Nine Months Ended September 30, 2021
							Accumulated
					Additional		Other						Total
	Common Stock				Paid-in		Comprehensive			Accumulated			Stockholders’
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity

Balances as of December 31, 2020		68,946,092	$	7	$	819,549	$	8		$	(676,858	)	$	142,706
Stock-based compensation expense		—		—		2,505		—			—			2,505
Net loss		—		—		—		—			(17,551	)		(17,551	)
Net unrealized loss on marketable securities		—		—		—		(14	)		—			(14	)

Balances as of March 31, 2021		68,946,092	$	7	$	822,054	$	(6	)	$	(694,409	)	$	127,646

Issuance of common stock upon exercise of stock options		51,846		—		106		—			—			106
Stock-based compensation expense		—		—		2,557		—			—			2,557
Net loss		—		—		—		—			(23,222	)		(23,222	)
Net unrealized gain on marketable securities		—		—		—		7			—			7

Balances as of June 30, 2021		68,997,938	$	7	$	824,717	$	1		$	(717,631	)	$	107,094

Issuance of common stock upon exercise of stock options		46,031		—		99		—			—			99
Stock-based compensation expense		—		—		2,549		—			—			2,549
Net loss		—		—		—		—			(22,682	)		(22,682	)
Net unrealized loss on marketable securities		—		—		—		(2	)		—			(2	)

Balances as of September 30, 2021		69,043,969	$	7	$	827,365	$	(1	)	$	(740,313	)	$	87,058


	Three and Nine Months Ended September 30, 2020
							Accumulated
					Additional		Other						Total
	Common Stock				Paid-in		Comprehensive			Accumulated			Stockholders’
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balances as of December 31, 2019		68,882,459	$	7	$	812,133	$	80		$	(625,872	)	$	186,348
Stock-based compensation expense		—		—		1,998		—			—			1,998
Net loss		—		—		—		—			(13,088	)		(13,088	)
Net unrealized loss on marketable securities		—		—		—		(210	)		—			(210	)

Balances as of March 31, 2020		68,882,459	$	7	$	814,131	$	(130	)	$	(638,960	)	$	175,048

Issuance of common stock upon exercise of stock options		4,633		—		7		—			—			7
Stock-based compensation expense		—		—		963		—			—			963
Net loss		—		—		—		—			(10,726	)		(10,726	)
Net unrealized gain on marketable securities		—		—		—		316			—			316

Balances as of June 30, 2020		68,887,092	$	7	$	815,101	$	186		$	(649,686	)	$	165,608

Stock-based compensation expense		—		—		2,552		—			—			2,552
Net loss		—		—		—		—			(11,421	)		(11,421	)
Net unrealized loss on marketable securities		—		—		—		(104	)		—			(104	)

Balances as of September 30, 2020		68,887,092	$	7	$	817,653	$	82		$	(661,107	)	$	156,635

See accompanying notes to the condensed consolidated financial statements.

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CymaBay Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Description of Business

CymaBay Therapeutics, Inc. (the Company or CymaBay) is a clinical-stage biopharmaceutical

company focused on developing and providing access to innovative therapies for patients with liver and other chronic diseases with high unmet medical need. The Company’s key clinical development candidate is seladelpar. Seladelpar has been under development primarily for the treatment of liver diseases, including primary biliary cholangitis (PBC) and nonalcoholic steatohepatitis (NASH). The Company was incorporated in Delaware in October 1988 as Transtech Corporation. The Company’s headquarters and operations are located in Newark, California and it operates in one segment.

Liquidity

The Company has incurred net operating losses and negative cash flows from operations since its inception. During the three and nine months ended September 30, 2021, the Company incurred a net loss of $22.7 million and $63.5 million, respectively. During the nine months ended September 30, 2021, the Company used $55.2 million of cash in operations. At September 30, 2021, the Company had an accumulated deficit of $740.3 million.

Historically, the Company has incurred substantial research and development expenses in the course of studying its product candidates in clinical trials. To date, none of the Company’s product candidates have been approved for marketing and sale, and the Company has not recorded any revenue from product sales. Generally, the Company’s ability to achieve profitability is dependent on its ability to successfully develop, acquire or

in-license

additional product candidates, conduct clinical trials for those product candidates, obtain regulatory approvals, and support commercialization activities for those product candidates. Any products developed will require approval of the U.S. Food and Drug Administration (FDA) or a foreign regulatory authority prior to commercial sale. The regulatory approval process is expensive, time-consuming, and uncertain, and any denial or delay of approval could have a material adverse effect on the Company. Even if approved, the Company’s products may not achieve market acceptance and will face competition from both generic and branded pharmaceutical products.

As of September 30, 2021, the Company had cash, cash equivalents and marketable securities totaling $113.8 million. On July 30, 2021, the Company entered into a Development Financing Agreement (the “Financing Agreement”) with ABW Cyclops SPV LP, an affiliate of Abingworth LLP (“Abingworth”), pursuant to which Abingworth committed to provide $75.0 million in funding in three equal quarterly installments, and an additional amount of $

25.0

million at the Company’s option, for a total funding commitment of up to $

100

million, to support the Company’s development of seladelpar for the treatment of primary biliary cholangitis. The Company received the first $25.0 million installment during the three months ended September 30, 2021, and the second $25 million installment in November 2021. Refer to

Note 5—Development Financing

Agreement

for further details. As the Company continues to advance its clinical studies of seladelpar, the Company believes existing cash, cash equivalents, and marketable securities on hand as of September 30, 2021 together with additional proceeds expected from the development financing will be sufficient to fund the Company’s operating plan into 2023.

The Company has historically obtained, and expects to obtain in the future, additional financing to fund its business strategy through: future equity offerings; debt financing; one or more possible licenses, collaborations or other similar arrangements with respect to development and/or commercialization rights of the Company’s product candidates; or a combination of the above. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business strategies. If adequate funds are not available to the Company, it could have a material adverse effect on the Company’s business, results of operations, and financial condition. Market volatility resulting from the global novel coronavirus disease

(COVID-19)

pandemic or other factors could also adversely impact the Company’s ability to access capital when and as needed. Failure to raise sufficient capital when needed could require the Company to significantly delay, scale back or discontinue one or more of its product development programs, commercialization efforts, or other aspects of its business plans, and the Company’s operating results and financial condition would be adversely affected.

2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying interim condensed consolidated financial statements are unaudited and are comprised of the accounts of CymaBay and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method.

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which requires management to make informed estimates and assumptions that impact the amounts and disclosures reported in the condensed consolidated financial statements and accompanying notes, and the requirements of the United States Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted.

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In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include normal recurring adjustments necessary for the fair presentation of the Company’s financial position and its results of operations and comprehensive loss and its cash flows for the periods presented. These statements do not include all disclosures required by U.S. GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the fiscal year ended December 31, 2020, which is contained in the Company’s Annual Report on Form

10-K

as filed with the SEC on March 25, 2021. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the entire year ending December 31, 2021 or future operating periods.

The condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the amounts and disclosures reported in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Actual results could differ materially from those estimates and assumptions. These estimates form the basis for making judgments about the carrying values of assets and liabilities when these values are not readily apparent from other sources. Estimates are assessed each reporting period and updated to reflect current information and any changes in estimates will generally be reflected in the period first identified.

Fair Value of Financial Instruments

The Company’s financial instruments during the periods reported consist of cash and cash equivalents, marketable securities, accrued interest receivable, prepaid research and development expenses, other prepaid expenses and current assets, accounts payable, accrued expenses, a development financing liability, and an embedded derivative liability. Fair value estimates of these instruments are made at a specific point in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment. The carrying amounts of the Company’s cash and cash equivalents, accrued interest receivable, prepaid research and development expenses, other prepaid expenses and current assets, accounts payable, and accrued expenses approximate the related fair values.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and

minimizes

the use of unobservable inputs and is as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

Level 3—Inputs that are significant to the fair value measurement and are unobservable (i.e. supported by little market activity), which requires the reporting entity to develop its own valuation techniques and assumptions.

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The following tables present the fair value of the Co

pany’s financial assets

sured at fair value on a recurring basis using the above input categories (in thousands):


	As of September 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	39,716	$	—	$	—	$	39,716

Total cash equivalents		39,716		—		—		39,716
Marketable securities:
U.S. and foreign co m mercial paper		—		29,676		—		29,676
U.S. and foreign corporate debt securities		—		6,566		—		6,566
Asset-backed securities		—		8,583		—		8,583

Total marketable securities		—		44,825		—		44,825

Total assets measured at fair value	$	39,716	$	44,825	$	—	$	84,541


	As of December 31, 2020
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	22,415	$	—	$	—	$	22,415

Total cash equivalents		22,415		—		—		22,415
Marketable securities:
U.S. treasury securities		—		15,499		—		15,499
U.S. and foreign commercial paper		—		38,561		—		38,561
U.S. and foreign corporate debt securities		—		29,189		—		29,189
U.S. agency securities		—		23,994		—		23,994
Asset-backed securities		—		7,885		—		7,885
Supranational debt securities		—		3,002		—		3,002

Total marketable securities		—		118,130		—		118,130

Total assets measured at fair value	$	22,415	$	118,130	$	—	$	140,545

The Company estimates the fair value of its money market funds, corporate debt,

asset-backed securities, commercial paper, U.S. treasury and agency securities, and supranational debt securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs

The fair value of the Company’s development financing liability is consistent with its carrying value which is recorded at amortized cost and is based on the estimated timing of regulatory approval and attainment of certain sales milestones and the contractual success fee payments expected to be due therefrom, as discounted using an imputed interest rate. Certain factors and inputs used to estimate the timing and amount of such expected future success payments are unobservable level 3 inputs.

The fair value of the Company’s embedded derivative liability was determined to be immaterial as the likelihood of associated contingent payments becoming due and payable by the Company was remote.

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Cash, Cash Equivalents, and Marketable Securities

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking, interest-bearing, and money market funds.

The Company invests excess cash in marketable securities with high credit ratings that are classified in Level 1 and Level 2 of the fair value hierarchy. These securities consist primarily of corporate debt, commercial paper, asset-backed securities, U.S. treasury and agency securities and supranational debt securities and are classified as

“available-for-sale.”

The Company considers marketable securities as short-term investments if the maturity date is less than or equal to one year from the balance sheet date. The Company considers marketable securities as long-term investments if the maturity date is in excess of one year of the balance sheet date.

Realized gains and losses from the sale of marketable securities, if any, are calculated using the

specific-identification method. Realized gains and losses and declines in value judged to be other-than-temporary are included in interest income or expense in the condensed consolidated statements of operations and comprehensive loss. Unrealized holding gains and losses are reported in accumulated other comprehensive loss in the condensed consolidated balance sheets. To date, the Company has not recorded any impairment charges on its marketable securities related to other-than-temporary declines in market value. In determining whether a decline in market value is other-than-temporary, various factors are considered, including the cause, duration of time and severity of the impairment, any adverse changes in the investees’ financial condition, and the Company’s intent and ability to hold the security for a period of time sufficient to allow for an anticipated recovery in market value.

For the Company’s investments as of September 30, 2021

and December 31, 2020, there were no material unrealized gains or losses.

Concentrations of Risk

Cash, cash equivalents, and marketable securities consist of financial instruments that potentially subject the Company to a concentration of credit risk to the extent of the fair value recorded on the balance sheet. The Company invests cash that is not required for immediate operating needs primarily in highly liquid instruments that bear minimal risk. The Company has established guidelines relating to the quality, diversification, and maturities of securities to enable the Company to manage its credit risk. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments and issuers of investments to the extent recorded on the condensed consolidated balance sheets.

Certain materials and key components that the Company utilizes in its operations are obtained through single suppliers. Since the suppliers of key components and materials must be named in an NDA filed with the FDA for a product, significant delays can occur if the qualification of a new supplier is required. If delivery of material from the Company’s suppliers were interrupted for any reason, the Company may be unable to supply any of its product candidates for clinical trials.

Other Risks and Uncertainties

In March 2020, the World Health Organization declared the global novel coronavirus disease

(COVID-19)

outbreak a pandemic. To date, the Company’s operations have not been significantly impacted by the

COVID-19

outbreak. However, the Company cannot at this time predict the specific extent, duration, or full impact that the

COVID-19

outbreak will have on its condensed consolidated financial condition and operations. The impact of the

COVID-19

coronavirus outbreak on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions. These developments and the impact of

COVID-19

on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be adversely affected.

Research and Development Expenses

Research and development expenses consist of costs incurred in identifying, developing, and testing product candidates. These expenses consist primarily of costs for research and development personnel, including related stock-based compensation; contract research organizations (CRO) and other third parties that assist in managing, monitoring, and analyzing clinical trials; investigator and site fees; laboratory services; consultants; contract manufacturing services;

non-clinical

studies, including materials; and allocated expenses, such as depreciation of assets, and facilities and information technology that support research and development activities. Research and development costs are expensed as incurred, including expenses that may or may not be reimbursed under research and development funding arrangements. Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid assets until the goods are received or services are rendered. Such payments are evaluated for current or long-term classification based on when they are expected to be realized. Additionally, if expectations change such that the Company does not expect goods to be delivered or services to be rendered, such prepayments are charged to expense.

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The Company records expenses related to clinical studies and manufacturing development activities based on its estimates of the services received and efforts expended pursuant to contracts with multiple CROs and manufacturing vendors that conduct and manage these activities on its 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 the Company’s vendors will exceed the level of services provided and result in a prepayment. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In amortizing or accruing service fees, the Company estimates the time period over which services will be performed, enrollment of subjects, number of sites activated 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 the Company’s estimate, the Company will adjust the accrued or prepaid expense balance accordingly. To date, there have been no material differences from the Company’s estimates to the amounts actually incurred.

Development Financing Agreement

On July 30, 2021, the Company entered into the Financing Agreement with Abingworth, pursuant to which Abingworth committed to provide up to $100 million of funding to the Company to support its development of seladelpar for the treatment of primary biliary cholangitis (PBC). The Company evaluated the Financing Agreement and determined it to be a research and development funding arrangement with the characteristics of a debt instrument as the transfer of financial risk to Abingworth was not considered substantive and genuine. Accordingly, the Company has recorded payments received under the Financing Agreement as part of a development financing liability in its condensed consolidated balance sheets. The Company accounts for the overall development financing liability at amortized cost based on the estimated timing of regulatory approval and attainment of certain sales milestones and the contractual success fee payments expected to be due therefrom, as discounted using an imputed interest rate. The development financing liability will be accreted as interest expense to its expected future repayment amount over the expected life of the agreement using the effective interest method. Certain legal and financial advisory fees incurred specifically to complete the Financing Agreement were capitalized and recorded as a reduction to the carrying amount of the development financing liability and will also be amortized to interest expense using the effective interest rate method.

There are several factors that could affect the estimated timing of regulatory approval and attainment of sales milestones, some of which are not entirely within the Company’s control. Therefore, the Company periodically reassesses the estimated timing of regulatory approval and attainment of sales milestones, and the expected contractual success fee payments due therefrom. If the timing and/or amount of such expected payments is materially different than original estimates, the Company will prospectively adjust the accretion of the development financing liability and the imputed interest rate.

The Company identified certain contingent repayment features in the Financing Agreement that are required to be bifurcated from the debt host instrument as an embedded derivative liability; however, the Company determined the fair value of these features was immaterial at inception and as of September 30, 2021. The fair value of the embedded derivative liability will be assessed at subsequent reporting dates if material and the liability will be marked to market. To determine the amount to record for the embedded derivative liability, the Company must assess the probability of occurrence of various potential future events that could affect the timing and/or amount of future cash flows related to the development financing arrangement.

Stock-Based Compensation

Stock-based compensation is measured at fair value on the grant date of the award. Compensation cost is recognized as expense on a straight-line basis over the vesting period for options with service conditions, and forfeitures are accounted for as they occur. The Company uses the Black-Scholes option pricing model to determine the fair value of stock option awards. The determination of fair value for stock-based awards using an option-pricing model requires management to make certain assumptions regarding subjective input variables such as expected term, dividends, volatility and risk-free rate. If actual results are not consistent with the Company’s assumptions and judgments used in making these estimates, the Company may be required to increase or decrease compensation expense, which could be material to the Company’s results of operations.

Net Loss Per Common Share

Basic net loss per share of common stock is based on the weighted average number of shares of common stock outstanding equivalents during the period. Diluted net loss per share of common stock is calculated as the weighted average number of shares of common stock outstanding adjusted to include the assumed exercises of stock options, if dilutive.

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In all periods presented, the Company’s outstanding stock options were excluded from the calculation of net loss per share because their effect would be antidilutive. The following table sets forth the computation of basic and diluted net loss per

share (in thousands, except share and per share amounts):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Numerator:


Net loss	$	(22,682	)	$	(11,421	)	$	(63,455	)	$	(35,235	)
Denominator:
Weighted average number of common stock shares outstanding		69,022,937			68,887,092			68,985,112			68,884,894
Net loss per share	$	(0.33	)	$	(0.17	)	$	(0.92	)	$	(0.51	)

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The following table shows the total outstanding securities considered anti-dilutive and therefore excluded from the computation of diluted net loss per share (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

Common stock options		10,704		8,126		10,704		8,126
Incentive awards		101		101		101		101

Total		10,805		8,227		10,805		8,227

Recently Adopted Accounting Pronouncements

ASU

2019-12

In December 2019, the FASB issued ASU

2019-12,

Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes

, which removes certain exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a

step-up

in the tax basis of goodwill. The guidance became effective for the Company on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements

and related disclosures for the three and nine months ended September 30, 2021.

Recently Issued Accounting Pronouncements

ASU

2016-13

In June 2016, the FASB issued ASU

No. 2016-13,

Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

, an amendment which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to

available-for-sale

debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. In November 2019, FASB issued ASU

No. 2019-10,

Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which deferred the adoption deadline for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, and entities are required to use a modified retrospective approach, with certain exceptions. The Company intends to adopt the standard on January 1, 2023 and is currently assessing potential effects of the guidance prior to the adoption date.

3. Other Accrued Liabilities

Other accrued liabilities consist of (in thousands):


	September 30,		December 31,
	2021		2020



Accrued compensation	$	2,710	$	3,769
Accrued professional fees and other		1,271		677
Current portion of operating lease liability		545		482

Total other accrued liabilities	$	4,526	$	4,928

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4. Collaboration and License Agreement

Janssen Pharmaceutical NV and Janssen Pharmaceuticals, Inc.

In June 2006, the Company entered into an exclusive, worldwide, royalty-bearing license to seladelpar and certain other PPAR

compounds (the PPAR

Products) with Janssen Pharmaceutical NV (Janssen NV), with the right to grant sublicenses to third parties to make, use and sell such PPAR

Products. Under the terms of the agreement, the Company has full control and responsibility over the research, development and registration of any PPAR

Products and is required to use diligent efforts to conduct all such activities. Janssen NV has the sole responsibility for the preparation, filing, prosecution, maintenance of, and defense of the patents with respect to, the PPAR

Products. Janssen NV has a right of first negotiation under the agreement to license the PPAR

Products from the Company in the event that the Company elects to seek a

third -party

corporate partner for the research, development, promotion, and/or commercialization of such PPAR

Products. Under the terms of the agreement Janssen NV is entitled to receive up to an 8.0% royalty on net sales of PPAR

Products. No amounts were incurred or accrued for this agreement as of and for the three and nine months ended September 30, 2021 and 2020.

5. Development Financing Agreement

On July 30, 2021 (the Effective Date), the Company entered into a Development Financing Agreement with Abingworth to provide funding to the Company to support its development of seladelpar for the treatment of primary biliary cholangitis (PBC). The Financing Agreement provides the Company up to $100.0 million in funding, of which $25.0 million was provided in August 2021, $25.0 million was provided in November 2021, and $25.0 million is to be provided approximately six months after the Effective Date. The Company has an option to receive an additional $25

million (the Optional Funding) within approximately two months of enrollment completion of the Company’s Phase 3 RESPONSE clinical trial. The Optional Funding is subject to certain customary funding conditions. The use of proceeds from the funding is limited to PBC “Development Program” costs incurred or paid as defined in the Financing Agreement. In return, the Company will pay to Abingworth:

(1) contingent upon the first to occur of regulatory approval of seladelpar for the treatment of PBC in the U.S., U.K., Germany, Spain, Italy or France (“Regulatory Approval”), fixed success payments equal

to 2.0x

of the funding provided, consisting of

$10

million payable in 90 days after the Regulatory Approval and thereafter, payments due on the first six anniversaries of the Regulatory Approval in the amounts of

$15.0 million, $22.5 million, $22.5 million, $25.0 million, $27.5 million and $27.5 million, respectively (or if the Optional Funding is provided, 133% of such payments) and

(2) variable success payments equal to 1.1x of the funding provided, consisting of sales milestone payments of (x) $17.5 million and $27.5 million, respectively (or if the Optional Funding is provided,

133

% of such payments) upon first reaching certain cumulative U.S. product sales thresholds, and (y) $37.5 million (or if the Optional Funding is provided, 133% of such payment) upon first reaching a specified U.S. product sales run rate.

Upon receiving Regulatory Approval, the Company will execute a note agreement with Abingworth within two business days to convert the fixed and variable success payments into a note payable. At the time that Abingworth receives, collectively, an aggregate

of 3.1x of the funding provided (approximately $232.5 million (or $310.0

million if the Optional Funding is provided)), the Company’s payment obligations under the Financing Agreement will be fully satisfied. The Company has the option to satisfy its payment obligations to Abingworth upon Regulatory Approval, or a change of control of the Company, by paying an amount equal to the remaining payments payable to Abingworth subject to a

mid-single-digit

discount rate. Upon a change of control of the Company, an acceleration payment

of 1.35x of the funding provided is payable, net of payments already made to Abingworth and creditable against future payments to Abingworth.

Pursuant to the Financing Agreement, the Company granted Abingworth a security interest in all its assets (other than intellectual property not related to seladelpar), provided that the Company is permitted to incur certain indebtedness. The security interest will terminate when the Company has paid Abingworth 2.0x of the funding provided or upon certain terminations of the Financing Agreement.

The Financing Agreement provides for negative, affirmative and additional covenants, which the Company must comply with for the duration of the Financing Agreement term. As of September 30, 2021, the Company was in compliance with all covenants stipulated in the Financing Agreement.

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In certain instances, upon the termination of the Financing Agreement, the Company will be obligated to pay Abingworth a multiple of the amounts paid to the Company under the Financing Agreement, including specifically:

(i) 310%

of such amounts in the event that Abingworth terminates the Financing Agreement due to (x) a Fundamental Breach, as defined in the Financing Agreement, (y) the bankruptcy of the Company, or (z) a safety concern resulting from gross negligence on the part of the Company or due to a safety concern that was material on the Effective Date and the material data showing such safety concern was not publicly known, disclosed to Abingworth, or in the diligence room made available to Abingworth,

(ii) 200%

of such amounts in the event the Financing Agreement is terminated due to (x) Material Breach, as defined in the Financing Agreement, by the Company or (y) the security interests of Abingworth being invalidated or terminated other than as set forth in the Financing Agreement, and

(iii) 100% of such amounts in the event of certain irresolvable disagreements within the executive review committee overseeing the Company’s development of seladelpar.

In addition, if, following certain terminations, the Company continues to develop seladelpar for the treatment of PBC and obtains regulatory approval, it will make the payments to Abingworth as if the Financing Agreement had not been terminated, less any payments made upon termination.

The Company shall not be obligated to make any payments to Abingworth under certain instances of technical or regulatory failure of the PBC development program as defined in the Financing Agreement.

As part of the arrangement, an executive review committee was established between the Company and Abingworth to discuss the Company’s development of seladelpar.

The Company evaluated the Financing Agreement and determined it to be a research and development funding arrangement with the characteristics of a debt instrument as the transfer of financial risk to Abingworth was not considered substantive and genuine. Accordingly, the Company has recorded payments received under the Financing Agreement as part of a development financing liability in its condensed consolidated balance sheets. The Company accounts for the overall development financing liability at amortized cost based on the estimated timing of regulatory approval and attainment of certain sales milestones and the contractual success fee payments expected to be due therefrom, as discounted using an imputed interest rate. The development financing liability will be accreted as interest expense to its expected future repayment amount over the expected life of the agreement using the effective interest rate method. Certain legal and financial advisory fees incurred specifically to complete the Financing Agreement were capitalized and recorded as a reduction to the carrying amount of the development financing liability and will also be amortized to interest expense using the effective interest method.

The Company identified certain contingent repayment features in the agreement that are required to be bifurcated from the debt host instrument as embedded derivative liabilities; however, the fair value of these features was immaterial at the Effective Date and as of September 30, 2021. The fair value of the embedded derivative liability will be assessed at subsequent reporting dates if material.

As of September 30, 2021, the development financing liability was $

23.3

million and is comprised of the initial $

25.0

million funding payment received in August 2021 and $

0.5

million of liability accretion, less $

2.2

million of unamortized transaction costs.

The imputed interest rate on the unamortized portion of the development financing liability was approximately 21% as of September 30, 2021.

6. Stock Plans and Stock-Based Compensation

Stock Plans

As permitted under the provisions of the Company’s 2013 Equity Incentive Plan (the 2013 Plan), the Board of Directors reduced the automatic increase in the share reserve from 5% to 4% of common shares outstanding as of December 31, 2020, thereby adding an additional 2,757,843 shares to 2013 Plan share reserve on January 1, 2021. As of September 30, 2021, there were 1,684,340 shares available for grant under the 2013 Plan. All 750,000 shares that were available under the 2020 New Hire Plan (the 2020 Plan) had been issued during the nine months ended September 30, 2021. During the three and nine months ended September 30, 2021, the Company granted 133,124 and 2,479,340 stock options, respectively, which were option grants issued both to new and existing employees.

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Stock-Based Compensation Expense

Stock-based compensation expense is included in the condensed consolidated statements of operations and comprehensive loss and is as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Research and development	$	1,115	$	1,055	$	3,343	$	2,163
General and administrative		1,434		1,497		4,268		3,350

Total stock-based compensation expense	$	2,549	$	2,552	$	7,611	$	5,513

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7. Commitments and Contingencies

Genfit Litigation

On January 15, 2021, Genfit S.A. (Genfit) filed a complaint against the Company in the U.S. District Court for the Northern District of California, alleging misappropriation of trade secrets and related causes of action based on the Company’s receipt of a Genfit protocol synopsis for Genfit’s Phase 3 clinical trial of its drug candidate elafibranor in patients with primary biliary cholangitis. An Amended Complaint was filed on April 16, 2021 with substantially the same allegations. Genfit seeks damages in an unspecified amount as well as injunctive relief. On March 12, 2021, the Court granted a Temporary Restraining Order (later converted to a Preliminary Injunction), prohibiting the Company from accessing or disseminating the protocol synopsis, using any Genfit trade secrets contained therein or destroying any evidence related thereto. The Company filed a Motion to Dismiss the Amended Complaint that was granted on September 9, 2021, with leave to amend. Genfit filed a Second Amended Complaint on October 15, 2021 with substantially the same allegations and claims for relief as in the original complaint. The Company has not yet filed its Reply to the Second Amended Complaint

. The Company filed a Motion to Dismiss the Second Amended Complaint on November 8, 2021.

The Company intends to defend itself vigorously. While the outcome of any litigation is inherently uncertain, based on currently available information, management does not currently believe a loss associated with this matter is probable, nor is any amount reasonably estimable, and accordingly no amounts have been recorded or disclosed.

8. Subsequent Event

Abingworth Funding

In November 2021, Abingworth paid the second funding tranche of $25 million to the Company pursuant to the Financing Agreement.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of results that may occur in future interim periods or for the full fiscal year.

This Quarterly Report on

Form 10-Q

contains statements indicating expectations about future performance and other forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, that involve risks and uncertainties. Words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “potential,” “seek,” “target,” “goal,” “intend,” variations of such words, and similar expressions are intended to identify forward-looking statements. These statements appear throughout this Quarterly Report on

Form 10-Q

and are statements regarding our current expectation, belief, or intent, primarily with respect to our operations and related industry developments. Examples of these statements include, but are not limited to, statements regarding our expectations with respect to the following: our business and scientific strategies; the progress of our product development programs, and the timing of results thereof; regulatory submissions and approvals; the impact of the

COVID-19

pandemic, including the emergence of

COVID-19

variants such as the Delta and Mu variants, on our company and operations; the anticipated benefits of our development financing agreement with Abingworth; our drug discovery technologies; our research and development expenses; protection of our intellectual property; sufficiency of our cash and capital resources and the need for additional capital; and our operations and legal risks. You should not place undue reliance on these forward-looking statements. Our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements for many reasons. Factors that might cause such a difference include those discussed under the caption “Risk Factors” and elsewhere in this Quarterly Report on Form

10-Q.

These and many other factors could affect our future financial and operating results. We undertake no obligation to update any forward-looking statement to reflect events after the date of this Quarterly Report.

Overview

CymaBay Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing and providing access to innovative therapies for patients with liver and other chronic diseases with high unmet medical need.

Our lead product candidate, seladelpar, is a potent and selective agonist of peroxisome proliferator activated receptor delta (PPAR

), a nuclear receptor that regulates genes directly or indirectly involved in the synthesis of bile acids/sterols, metabolism of lipids and glucose, inflammation and fibrosis. We have been developing seladelpar for the treatment of:

•

primary biliary cholangitis (PBC), an autoimmune disease that causes progressive destruction of the bile ducts in the liver resulting in impaired bile flow (cholestasis) and inflammation; and

•

nonalcoholic steatohepatitis (NASH), a prevalent and serious chronic liver disease caused by excessive fat accumulation in the liver that results in inflammation and cellular injury that can progress to fibrosis and cirrhosis, and potentially liver failure and death.

In late 2019, we terminated our NASH Phase 2b study and our ongoing PBC studies. The decision to halt development of seladelpar was based on initial histological observations in the NASH Phase 2b study that were observed in the first blinded tranche of liver biopsies in the trial. These observations were characterized by an interface hepatitis presentation, with or without biliary injury. Although these patients had stable or improving biochemical markers of liver disease, the decision to halt development was based on a need to understand the significance of the observations, and possible impact on patients, before dosing additional patients with seladelpar. The U.S. Food and Drug Administration (FDA) agreed with this decision and subsequently placed a formal clinical hold on seladelpar. Thereafter, in December 2019, we announced a restructuring plan to reduce our workforce by approximately 60% to control our operating costs, and we commenced a process to evaluate strategic alternatives to maximize stockholder value, pending further investigation of the histological observations. In May 2020, an independent expert panel completed a review of the findings and unanimously concluded that the data in aggregate did not support liver injury related to seladelpar. We subsequently discussed the data, the panel’s conclusions, and other matters with the FDA and in July 2020, the FDA lifted the clinical hold, thereby permitting us to reinstate clinical development of seladelpar. Specifically, we made the strategic decision to refocus our strategy primarily on clinical development of seladelpar in PBC and to explore the potential to partner seladelpar in NASH in a combination study with other complementary agents. In addition, we are evaluating opportunities to develop other internal programs and possibly acquire

or in-license new

compounds or programs.

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Seladelpar

Primary Biliary Cholangitis (PBC)

Following the decision to reinstate clinical development of seladelpar, in late 2020, we commenced startup and site feasibility activities for RESPONSE, a new global Phase 3 registration study to evaluate seladelpar in patients with PBC. The Phase 3 study is a

52-week,

placebo-controlled, randomized, global, registration study evaluating the safety and efficacy of seladelpar in patients with PBC. The study is intended to enroll 180 patients, who have an inadequate response to, or intolerance to, ursodeoxycholic acid, in a 2:1 randomization to oral, once daily seladelpar 10 mg or placebo. The primary outcome measure will be the responder rate at 52 weeks. A responder is defined as a patient who achieves an alkaline phosphatase level less than 1.67 times the upper limit of normal with at least a 15% decrease from baseline and has a normal level of total bilirubin. Additional key outcomes of efficacy will compare the rate of normalization of alkaline phosphatase at 52 weeks and the level of pruritus at six months for patients with moderate to severe pruritus at baseline assessed by a numerical rating scale recorded with an electronic diary. The RESPONSE trial is actively recruiting and enrolling patients.

In addition to RESPONSE we also commenced startup activities in late 2020 for ASSURE, a new long-term safety study, which is open to patients who were eligible for our previous long-term extension study that was terminated early in late 2019, including those patients from our previously completed Phase 2 open label study and our Phase 3 ENHANCE study, as well as patients who complete treatment in RESPONSE in the future. The ASSURE trial is actively enrolling patients.

Previously, in October 2018, we commenced enrollment of ENHANCE, a global Phase 3 registration study to evaluate seladelpar in patients with PBC and in October 2019, the trial was fully enrolled with 265 patients, but we terminated the trial early in December 2019 after the seladelpar program was placed on clinical hold. In August 2020, we shared data accumulated through trial termination for ENHANCE, which we believe show seladelpar to be safe, well-tolerated, and efficacious in patients with PBC.

Nonalcoholic Steatohepatitis (NASH)

In May 2018, we initiated a randomized, placebo-controlled Phase 2b

proof-of-concept

study to evaluate seladelpar at three doses in biopsy-proven NASH. The primary efficacy outcome is the change from baseline in liver fat content at 12 weeks measured by magnetic resonance imaging using the proton density fat fraction method

(MRI-PDFF).

The study also included pathology assessments of liver biopsy samples at baseline and at 52 weeks to examine the potential of seladelpar treatment to resolve NASH and/or decrease fibrosis. In preclinical studies, Seladelpar was found to reverse NASH pathology, decrease fibrosis, inflammation, hepatic lipids and reverse insulin resistance in the

foz/foz

mouse which is a diabetic obese model of NASH. In February 2019, we announced full enrollment of 181 patients with liver biopsy proven NASH at specialized U.S. investigational centers. In June 2019, we announced results from the primary efficacy outcome, which were that treatment with seladelpar resulted in significant reductions in liver fat but that these changes were not significant when compared to placebo, which also had significant reductions. Treatment with seladelpar did, however, result in robust and clinically meaningful reductions in markers associated with liver injury. In November 2019, we terminated this trial based on initial histological observations. Although these patients had stable or improving biochemical markers of liver disease, we halted dosing of patients with seladelpar due to the lack of understanding the significance of the observations, and possible impact on patients. Subsequent investigation indicated there was no seladelpar-induced liver injury in the Phase 2b study patients. As we continue to believe seladelpar may have therapeutic benefit in NASH patients, we continue to explore the potential to partner seladelpar in NASH.

MBX-2982

targets G protein-coupled receptor 119 (GPR119), a receptor that interacts with bioactive lipids known to stimulate glucose-dependent insulin secretion. In November 2020, we announced a study to evaluate the potential for

MBX-2982

to stimulate the release of the hormone glucagon in response to hypoglycemia in patients with type 1 diabetes (T1D). The Phase 2a

proof-of-pharmacology

study will assess whether

MBX-2982

can enhance glucagon secretion during insulin-induced hypoglycemia in subjects with T1D. The study is actively enrolling patients. If successful, studies to evaluate

MBX-2982

as a potential preventive therapy for hypoglycemia in patients with T1D may be warranted. The study is being led by the AdventHealth Translational Research Institute in Orlando, Florida and is fully funded by The Leona M. and Harry B. Helmsley Charitable Trust. We retain full commercial rights to

MBX-2982.

We believe

MBX-2982

may also have utility in various inflammatory diseases and are currently exploring potential opportunities to advance development.

CB-0406

In 2020 we began to evaluate

CB-0406,

the active metabolite of arhalofenate, a

pro-drug

previously studied for chronic metabolic diseases, in a single and multiple ascending dose study in healthy subjects to establish its pharmacokinetics, safety and maximum tolerated dose. While the study showed

CB-0406

had improved pharmacokinetics versus arhalofenate,

CB-0406’s

safety profile did not support continued development as a result of the occurrence of a small number of reversible cases of thrombocytopenia at higher doses.

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COVID-19

Pandemic

As a result of the

COVID-19

pandemic, we have experienced and may continue to experience disruptions that could impact aspects of our business, including our progress towards the initiation and completion of certain clinical studies, and other associated drug development activities. The emergence of

COVID-19

variants, such as the Delta and Mu variants, have further disrupted, and may continue to disrupt, aspects of our business, in particular in regard to the initiation and operation of clinical trial sites in portions of the United States, in the U.K and in Europe. Possible future disruptions are currently difficult to foresee. We continue to monitor areas of potential risk which include, but are not limited to, the following:

•

Remote workforce operations

—To date, our workforce has adapted to remotely working to maintain operations. Our increased and continuing reliance on personnel working from home could potentially negatively impact future productivity, or disrupt, delay, or otherwise adversely impact our business. In addition, remote operations could increase our cyber-security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations, or delay necessary interactions with regulators, contract manufacturers, contract research organizations, clinical trial sites, and other important agencies and contractors, which may result in increased costs to us.

•

Clinical trial and drug manufacturing operations

—In collaboration with our clinical research organization partners, we sponsor clinical trials that take place at investigator sites in the United States and internationally. We also partner with contract manufacturing organizations to develop, manufacture, and distribute our product candidate drug supplies. To date, these collective research and development personnel and vendors have adapted to

COVID-19

related travel restrictions and reduced access to work facilities through the use of remote working technologies and other measures as they continue to progress toward completion of our clinical trials. However, as we continue to enroll clinical trials and look to complete the clinical development of seladelpar and initiate other programs, our research and development employees and contractors may not be able to sufficiently access their applicable work facilities as a result of continued facility closure orders and the possibility that governmental authorities might further modify such restrictions. Furthermore, with the emergence of

COVID-19

variants, such as the Delta and Mu variants, further disruptions to clinical trial sites have been observed, in particular in portions of the United States, in the U.K. and in Europe. As a result, subjects we expect to enroll in our clinical trials may be reluctant to enroll or may be prevented or delayed in enrolling due to

COVID-19,

ongoing travel restrictions and/or facility access restrictions. Although we and our contractors continue to plan for and develop pandemic-related risk mitigation strategies, it is uncertain whether these plans will continue to be sufficient to fully offset the potential impact that

COVID-19,

including the emergence of

COVID-19

variants, travel restrictions and/or facility access restrictions (or other unanticipated impediments) may have on our ability to execute our research and development activities in a timely and cost-effective manner.

•

Drug regulator interactions

—The FDA and comparable foreign regulatory agencies may experience operational interruptions or delays, which could impact timelines for regulatory meetings, submissions, trial initiations, and regulatory approvals. For example,

COVID-19

related regulatory submission issues have created an impediment to clinical site activation in the U.K.

•

Financial reporting and compliance

—To date, there has been no adverse impact on our ability to maintain our established financial reporting functions and internal controls over financial reporting. However, our ability to prepare our financial results timely and accurately is partially dependent upon the availability of third-party information systems and other cloud-based services. Any degradation in the quality or timeliness of critical third-party information or cloud-based services could adversely impact our financial reporting capabilities.

Overall, we cannot at this time predict the specific extent, duration, or full impact that the

COVID-19

pandemic will have on our future consolidated financial condition and operations. The impact of the

COVID-19

coronavirus pandemic on our financial performance will depend on future developments, including the emergence of

COVID-19

variants, such as the Delta and Mu variants, the duration and spread of the pandemic and related governmental advisories and restrictions, which could result in unexpected costs to us. These developments and the impact of

COVID-19

on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, our results may be adversely affected.

Critical Accounting Policies and Use of Estimates

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

There have been no changes to our critical accounting policies since we filed our Annual Report on Form

10-K

for the year ended December 31, 2020 with the SEC on March 25, 2021, other than the accounting policies pertaining to our Development Financing Agreement as discussed in

Note 2—Summary of Significant Accounting Policies

in the notes to our unaudited interim condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form

10-Q.

For a description of all other critical accounting policies, please refer to our Annual Report on Form

10-K.

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Recent Accounting Pronouncements

Refer to

Note 2—Summary of Significant Accounting Policies

in the notes to our unaudited interim condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form

10-Q,

for a discussion of recent accounting pronouncements.

Results of Operations

General

To date, we have not generated any income from operations. As of September 30, 2021, we had an accumulated deficit of $740.3 million, primarily as a result of expenditures for research and development and general and administrative expenses from inception to that date. All of our product candidates are at various stages of development and will require additional work and regulatory approval before they can be licensed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate sufficient revenue to achieve and sustain profitability. Until we can generate a sufficient amount of product revenue, which we may never do, we will need to finance future cash needs through potential collaborative, partnering or other strategic arrangements, as well as through public or private equity offerings, debt financings or a combination of the foregoing.

Operating Results

Our results of operations are presented below (in thousands):


	Three Months Ended September 30,						Change Q3			Nine Months Ended September 30,						Change Q3 YTD
($ in thousands)	2021			2020			2021 vs 2020			2021			2020			2021 vs 2020
Operating expenses:
Research and development	$	17,010		$	7,743		$	9,267		$	46,137		$	25,194		$	20,943
General and administrative		5,179			3,907			1,272			16,936			11,535			5,401

Total operating expenses		22,189			11,650			10,539			63,073			36,729			26,344

Loss from operations		(22,189	)		(11,650	)		(10,539	)		(63,073	)		(36,729	)		(26,344	)
Other income (expense), net:
Interest income		29			229			(200	)		140			1,494			(1,354	)
Interest expense		(522	)		—			(522	)		(522	)		—			(522	)

Total other income (expense), net		(493	)		229			(722	)		(382	)		1,494			(1,876	)

Net loss	$	(22,682	)	$	(11,421	)	$	(11,261	)	$	(63,455	)	$	(35,235	)	$	(28,220	)

Research & Development Expenses

Conducting research and development is central to our business model. Research and development expenses increased $9.3 million to $17.0 million from $7.7 million for the three months ended September 30, 2021 and 2020, respectively, and increased $20.9 million to $46.1 million from $25.2 million for the nine months ended September 30, 2021 and 2020, respectively. These increases were largely due to activities associated with the development of seladelpar focusing primarily on our late-stage PBC program. In 2020, expenses included costs associated with shutdown of certain clinical trials after the seladelpar program was placed on clinical hold in late 2019 pending further investigation. This investigation was concluded in the second quarter of 2020, the clinical hold was subsequently lifted in July 2020, and we made the decision to restart the seladelpar development program. As we continue to progress late-stage development of seladelpar in PBC as well as development activities associated with other product candidates, we expect both total project and internal costs to continue to increase in the future.

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Research and development expenses are detailed in the table below (in thousands):


	Three Months Ended September 30,						Change Q3			Nine Months Ended September 30,					Change Q3 YTD
	2021			2020			2021 vs 2020			2021			2020		2021 vs 2020
Project costs:
Seladelpar PBC clinical studies	$	10,180		$	2,279		$	7,901		$	25,050		$	11,005	$	14,045
Seladelpar NASH clinical studies		(52	)		138			(190	)		(71	)		1,607		(1,678	)
Seladelpar PSC clinical studies		—			(36	)		36			—			218		(218	)
Seladelpar drug manufacturing & development		1,530			630			900			3,675			1,010		2,665
Seladelpar other studies		144			170			(26	)		303			520		(217	)
Non-seladelpar studies		279			854			(575	)		2,547			1,667		880

Total project costs		12,081			4,035			8,046			31,504			16,027		15,477
Internal research and development costs		4,929			3,708			1,221			14,633			9,167		5,466

Total research and development	$	17,010		$	7,743		$	9,267		$	46,137		$	25,194	$	20,943

Our project costs consist primarily of:

•

expenses incurred under agreements with contract research organizations and investigative sites that conduct our clinical trials and a substantial portion of our preclinical activities;

•

the cost of acquiring materials and manufacturing drug product for use in clinical trial and other research activities; and

•

other costs associated with development activities, including additional studies.

Internal research and development costs consist primarily of salaries and related fringe benefits costs for our employees (such as workers’ compensation and health insurance premiums), stock-based compensation charges, travel costs, consulting, other outside services and overhead expenses. Internal costs generally benefit multiple projects and are not separately tracked per project.

Comparison of the three months ended September 30, 2021 and 2020

Total project costs increased by $8.0 million to $12.1 million from $4.0 million for the three months ended September 30, 2021 and 2020, respectively. Project costs for the three months ended September 30, 2021 and 2020 primarily consisted of seladelpar-related clinical trial expenses for PBC. These cost increases were primarily driven by an expansion of our site activation, patient enrollment, and other clinical trial activities following our decision to restart development of the seladelpar program in July 2020 after the FDA lifted the clinical hold on the program. Internal research and development costs increased by $1.2 million to $4.9 million from $3.7 million for the three months ended September 30, 2021 and 2020, respectively, primarily due to higher employee compensation incurred in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, as we hired additional research and development personnel to support our clinical studies.

Comparison of the nine months ended September 30, 2021 and 2020

Total project costs increased by $15.5 million to $31.5 million from $16.0 million for the nine months ended September 30, 2021 and 2020, respectively. Project costs for the nine months ended September 30, 2021 and 2020 primarily consisted of seladelpar-related clinical trial expenses for PBC. These cost increases were primarily driven by an expansion of our site activation, patient enrollment, and other clinical trial activities following our decision to restart development of the seladelpar program in July 2020 after the FDA lifted the clinical hold on the program. Internal research and development costs increased by $5.5 million to $14.6 million from $9.2 million for the nine months ended September 30, 2021 and 2020, respectively, primarily due to higher employee compensation incurred in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, as we hired additional research and development personnel to support the restart of clinical studies.

General and Administrative Expenses

General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, and accounting services, overhead expenses, and other general operating expenses not otherwise included in research and development.

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Comparison of the three and nine months ended September 30, 2021 and 2020

General and administrative expenses increased by $1.3 million to $5.2 million from $3.9 million for the three months ended September 30, 2021 and 2020, respectively. General and administrative expenses increased by $5.4 million to $16.9 million from $11.5 million for the nine months ended September 30, 2021 and 2020, respectively. The increases were driven primarily by the hiring of additional general and administrative personnel, consultant and other expenses in the second half of 2020 after we made the decision to restart our development activities. We expect general and administrative expenses to continue to increase in the future as we continue to add administrative personnel and expand our infrastructure in support of our drug development activities.

Other income (expense), net

Interest income decreased by $0.2 million to an immaterial amount from $0.2 million for the three months ended September 30, 2021 and 2020, respectively. Interest income decreased by $1.4 million to $0.1 million from $1.5 million for the nine months ended September 30, 2021 and 2020, respectively. The decreases in interest income were driven primarily by lower prevailing interest rates and a reduced investment portfolio balance compared to prior year periods.

Interest expense is related to the accretion of the development financing liability recorded in connection with the July 2021 Abingworth Development Financing Agreement. Liability accretion was $0.5 million for the three and nine months ended September 30, 2021. No interest expense was incurred for the three or nine months ended September 30, 2020.

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Liquidity and Capital Resources

We have financed our operations primarily through the sale of equity securities, licensing fees, issuance of debt, structured financings, and collaborations with third parties. At September 30, 2021, cash, cash equivalents and marketable securities totaled $113.8 million, compared to $146.3 million at December 31, 2020. Our cash, cash equivalents and investments are held in a variety of interest-bearing instruments, including deposits, money market funds, corporate debt, commercial paper, asset-backed securities, U.S. treasury securities, and supranational debt securities investments. We invest cash in excess of immediate requirements with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and degrees of risk.

On July 30, 2021, we entered into a Development Financing Agreement with Abingworth to obtain funding to support our development of seladelpar for the treatment of PBC. The Financing Agreement provides us up to $100.0 million in funding, of which $25 million was received in August 2021, $25 million was received in November 2021, and $25 million is to be provided approximately six months after the Effective Date. We also have an option to receive an additional $25 million (the Optional Funding) within approximately two months of the completion of enrollment of our Phase 3 RESPONSE clinical trial. The Optional Funding is subject to certain customary funding conditions. In return, we will pay to Abingworth fixed and variable success payments, as further described in

Note 5—Development Financing Agreement

in the notes to our unaudited interim condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form

10-Q.

The Development Financing Agreement also provides that we will raise additional funds in a public or private offering within nine months of the Effective Date of the agreement.

We believe our existing cash, cash equivalents, and marketable securities on hand as of September 30, 2021, together with additional remaining proceeds of at least $50 million that we expect to receive pursuant to the development financing transaction with Abingworth, are sufficient to fund our current operating plan into 2023.

Cash Flows

The following table sets forth a summary of the net cash flow activity for each of the periods indicated below (in thousands):


	Nine Months Ended September 30,
	2021			2020
Net cash used in operating activities	$	(55,188	)	$	(29,909	)
Net cash provided by investing activities		72,666			52,306
Net cash provided by financing activities		23,292			7

Net increase in cash and cash equivalents	$	40,770		$	22,404

Operating Activities

: Net cash used in operating activities for the nine months ended September 30, 2021 increased by $25.3 million to $55.2 million as compared to $29.9 million for the same period in the prior year, primarily due to our restart of the seladelpar development program following the lifting of the clinical hold in July 2020. In addition, cash was used to fund changes in our working capital.

Investing Activities:

Net cash provided by investing activities was $72.7 million for the nine months ended September 30, 2021 compared to $52.3 million for the same period in the prior year, primarily due to the timing of our investments in marketable securities and portfolio risk management.

Financing Activities:

Net cash provided by financing activities was $23.3 million for the nine months ended September 30, 2021 compared to an immaterial amount for the same period in the prior year, primarily due to proceeds received, net of related transaction costs paid, of $23.1 million from the Financing Agreement with Abingworth.

Off-Balance

Sheet Arrangements

We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating

off-balance

sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving

non-exchange

traded contracts.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to Smaller Reporting Companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation as of September 30, 2021 under the supervision and with the participation of our management, including our President and Chief Executive Officer and Vice President, Finance, of the effectiveness of our “disclosure controls and procedures,” which are defined in Rule

13a-15(e)

under the Securities Exchange Act of 1934, as amended (the Exchange Act), as controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and Vice President, Finance, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our President and Chief Executive Officer and Vice President, Finance concluded that our disclosure controls and procedures were effective as of September 30, 2021.

Limitations on the Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our President and Chief Executive Officer and Vice President, Finance have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the

COVID-19

pandemic. We are continually monitoring and assessing the

COVID-19

situation on our internal controls to minimize the impact on their design and operating effectiveness.

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PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

On January 15, 2021, Genfit S.A. (Genfit) filed a complaint against us in the U.S. District Court for the Northern District of California, alleging misappropriation of trade secrets and related causes of action based on our receipt of a Genfit protocol synopsis for Genfit’s Phase 3 clinical trial of its drug candidate elafibranor in patients with primary biliary cholangitis. An Amended Complaint was filed on April 16, 2021 with substantially the same allegations. Genfit seeks damages in an unspecified amount as well as injunctive relief. We have stated in pleadings that we did not request or take any steps to obtain Genfit’s protocol synopsis, have taken diligent steps to remove and quarantine it, and are not using any Genfit trade secrets in our clinical trials. On March 12, 2021, the court granted a Temporary Restraining Order (later converted to a Preliminary Injunction), prohibiting us from accessing or disseminating the protocol synopsis, using any Genfit trade secrets contained therein or destroying any evidence related thereto. We filed a Motion to Dismiss the Amended Complaint that was granted on September 9, 2021, with leave to amend. Genfit filed a Second Amended Complaint on October 15, 2021 with substantially the same allegations and claims for relief as in the original complaint. We have not yet filed our Reply to the Second Amended Complaint.

We filed a Motion to Dismiss the Second Amended Complaint on November 8, 2021.

We intend to defend ourselves vigorously.

Item 1A.

Risk Factors

In addition to the factors discussed elsewhere in this report, the following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we deem immaterial also may impair our business operations. If any of the following risks or such other risks actually occur, our business could be harmed.

RISK FACTOR SUMMARY

We are subject to a number of risks that, if realized, could materially harm our business, prospects, operating results, and financial condition. Some of the more significant risks and uncertainties we face include those summarized below. The summary below is not exhaustive and is qualified by reference to the full set of risk factors set forth in Item 1A of this Form

10-Q

“Risk Factors.” Please carefully consider all of the information in this Form

10-Q,

including the full set of risks set forth in the “Risk Factors” section, and in our other filings with the SEC before making an investment decision regarding CymaBay.

Risks Related to the

COVID-19

Pandemic

•

Our business may be adversely affected by the effects of the

COVID-19

pandemic, particularly the emergence of

COVID-19

variants such as the Delta and Mu variants, including those impacting our ability to enroll and conduct critical clinical trials such as RESPONSE, as well as impacts to our other development efforts, administrative personnel and third-party service providers.

Risks Related to Our Financial Condition and Capital Requirements

•

We have incurred significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We may need to raise additional equity and/or debt capital to fund our continued operations, including clinical trials and other product development. In the event we do not successfully raise sufficient funds to finance our product development activities, we will curtail our product development activities commensurate with the magnitude of the shortfall or our product development activities may cease altogether.

•

Failure to remain in compliance with our obligations under the development financing agreement with Abingworth could lead to reduced funding under the agreement and/or the acceleration of potentially significant payments to Abingworth.

•

Our ability to generate future revenues from product sales is uncertain and depends upon our ability to successfully develop, obtain regulatory approval for, and commercialize product candidates, including most importantly, seladelpar.

•

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

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Risks Related to Clinical Development and Regulatory Approval

•

Drug development and obtaining and maintaining regulatory approval for drug products is costly, time-consuming, and highly uncertain.

•

Serious complications or side effects in connection with the use or development of our product candidates could lead to delay or discontinuation of development of our product candidates.

Risks Related to Our Reliance on Third Parties

•

Our manufacturing partners and other service providers, including CROs managing our clinical trials, may fail to perform adequately in their efforts to support the development, manufacture, and commercialization of our drug candidates and future products.

Risks Related to Commercialization of Our Product Candidates

•

We have never successfully commercialized a product. If any of our product candidates receive marketing approval, they may nonetheless be unable to gain sufficient market acceptance by physicians, patients, health care payors and others in the medical community.

•

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenue.

•

The commercial success of our products is subject to significant competition from products or product candidates that may be superior to, or more cost effective than, our products or product candidates.

Risks Related to Our Intellectual Property

•

We may not be able to protect the confidentiality of our trade secrets, and our patents or other means of defending our intellectual property may be insufficient to protect our proprietary rights.

•

Patents or proprietary rights of others may restrict our development, manufacturing, and/or commercialization efforts and subject us to litigation and other proceedings that could find us liable for damages.

Other Risks Factors—Risks Related to Employees, Information Technology, and Owning Our Common Stock

•

Our business is dependent on our key personnel and will be harmed if we cannot recruit and retain leaders in our development, administrative, and commercial organizations.

•

Significant disruptions of information technology systems or breaches of data security could adversely affect our business.

•

Changes in and failures to comply with United States and foreign privacy and data protection laws, regulations and standards may adversely affect our business, operations and consolidated financial performance.

•

Our stock price is extremely volatile.

Risks Related to the

COVID-19

Pandemic

Our business may be adversely affected by the ongoing

COVID-19

pandemic.

While the

COVID-19

pandemic did not materially adversely affect our business operations in the three and nine month periods ended September 30, 2021 and 2020, economic and health conditions in the United States and across most of the globe have continued to change during the third quarter of 2021 and thereafter. The emergence of

COVID-19

variants, such as the Delta and Mu variants, have further disrupted the global economy. As a result of the

COVID-19

pandemic, including the emergence of new variants, we have experienced and may continue to experience disruptions that could impact aspects of our business, including our progress towards the completion of our clinical studies and other associated drug development activities. Possible future disruptions are currently difficult to foresee and include, but are not limited to, potential risk areas as noted below:

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•

We are currently managing clinical trials in geographies that are affected by the

COVID-19

pandemic, in particular in areas that have been impacted by the emergence of

COVID-19

variants such as the Delta and Mu variants. While we have not experienced material impacts to our clinical activities through September 30, 2021, we are observing impacts due to

COVID-19,

including reluctance of subjects to enroll in clinical studies due to the ongoing pandemic, travel restrictions impacting trial enrollment and facility restrictions impacting trial enrollment. We believe that

the COVID-19 pandemic,

including the emergence of

COVID-19

variants, will have a continuing impact on various aspects of our clinical activities in the future. For example, pandemic-related reluctance or restrictions, including

stay-at-home

orders and curtailment of activities, could reduce the rate of patient enrollment in our RESPONSE clinical trial and other clinical studies, and impair the ability to efficiently treat patients at investigator sites. Additionally, our employees, representatives from our clinical research organization partners, and study investigators may be unable to efficiently collaborate or unwilling to conduct investigator site activities

in-person

at the sites (as per standard practice) and may be required to delay, or alter, their approach to complete this work due to shortages of personnel or diversion of resources at clinical sites or continued government-imposed limitations on activities. Further, our employees and representatives from our contract manufacturing organizations may experience unanticipated challenges sourcing raw materials or producing and distributing sufficient quantities of clinical drug supplies for use in our clinical trials.

•

We have limited access to our corporate office and requested that most of our personnel, including all of our administrative employees, work remotely, and restricted

on-site

staff to only those personnel and contractors who must perform essential activities that must be completed

on-site.

The

COVID-19

pandemic could disrupt our ability to secure supplies for our operations. The safety, health and well-being of our workforce is of primary concern and we may need to enact further precautionary measures to help minimize the risk of our employees being exposed to the coronavirus.

•

Our increased and continuing reliance on personnel working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business. In addition, this could increase our cyber-security and data privacy risks, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations, or delay necessary interactions with regulators, contract manufacturers, contract research organizations, clinical trial sites, and other important agencies and contractors, which could result in increased costs to us.

•

Our employees and contractors involved in conducting our research and development activities may not be able to access their applicable work facilities for an extended period of time as a result of facility closure orders and the possibility that governmental authorities further modify such access restrictions.

•

The United States Food and Drug Administration (FDA), comparable foreign regulatory agencies, and ethics boards may experience operational interruptions or delays, which could impact timelines for regulatory meetings, submissions, trial initiations, and regulatory approvals.

The

COVID-19

pandemic continues to evolve. The emergence of

COVID-19

variants, such as the Delta and Mu variants, will also continue to affect the impact of the pandemic. The extent to which the pandemic may impact our business, including our preclinical, clinical and associated drug development activities, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of

COVID-19,

variants to

COVID-19

that continue to arise, the duration of the pandemic, travel restrictions and actions to contain the pandemic or treat its impact, such as social distancing and quarantines or lock-downs in the United States, particularly in the San Francisco Bay Area where our executive offices are located, and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

Risks Related to Our Financial Condition and Capital Requirements

We will need additional capital in the future to sufficiently fund our operations and research.

We have incurred significant net losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future, and we may never achieve or maintain profitability. As of September 30, 2021, we had cash, cash equivalents and marketable securities of approximately $113.8 million. On July 30, 2021, we entered into a Development Financing Agreement with an affiliate of Abingworth LLP pursuant to which Abingworth has committed to provide us up to $100.0 million in funding, of which $25 million was received in August 2021, $25 million was received in November 2021, and the remaining $25 million is to be provided within approximately six months after the Effective Date, as further discussed in

Note 5—Development Financing Agreement

in the notes to our unaudited interim condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form

10-Q.

The Development Financing Agreement also provides that we will raise additional funds in a public or private offering within nine months of the Effective Date of the agreement. We may need to raise additional equity and/or debt capital to fund our continued operations, including clinical trials and other product development. We may also choose to raise additional equity and/or debt capital if appropriate opportunities become available. Our monthly spending levels vary based on new and ongoing development and corporate activities. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete.

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In the event we do not successfully raise sufficient funds in financing our product development activities or do not have appropriate developmental assets, we will curtail our product development activities commensurate with the magnitude of the shortfall or our product development activities may cease altogether. To the extent that any costs of the ongoing development exceed our current estimates and we are unable to raise sufficient additional capital to cover such additional costs, we will need to reduce operating expenses, sell assets, enter into strategic transactions, or effect a combination of the above. No assurance can be given that we will be able to affect any of such transactions on acceptable terms, if at all.

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Our future funding requirements and sources will depend on many factors, including but not limited to the following:

•

the rate of progress and cost of our clinical studies;

•

the need for additional or expanded clinical studies;

•

the rate of progress and cost of our Chemistry, Manufacturing and Control development, registration, validation and commercial programs;

•

the timing, economic and other terms of any licensing, collaboration or other similar arrangement into which we may enter;

•

the costs and timing of seeking and obtaining FDA and other regulatory approvals;

•

the extent of our other development activities;

•

the costs of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; and

•

the effect of competing products and market developments.

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results, prospects, and on our ability to develop our product candidates.

On July 30, 2021, we entered into a Development Financing Agreement with Abingworth, pursuant to which Abingworth will provide funding to us to support our development of seladelpar for the treatment of PBC. Pursuant to the Financing Agreement, Abingworth has committed to provide us up to $100.0 million in funding, of which we have received $50 million through November 2021. Pursuant to the Financing Agreement, we will be required to use commercially reasonable efforts to develop seladelpar and complete our development program in accordance with the Financing Agreement and an agreed timeline. The Financing Agreement also provides that we will raise additional funds in a public or private offering within nine months of the Effective Date. In return, we will pay to Abingworth (1) upon the first to occur of regulatory approval of seladelpar for the treatment of PBC in the U.S., U.K., Germany, Spain, Italy or France (Regulatory Approval), fixed success payments equal to 2.0x of the funding provided and (2) variable success payments equal to 1.1x of the funding provided upon first reaching certain U.S. product sales milestones. At the time that Abingworth receives, collectively, an aggregate of 3.1x of the funding provided, our payment obligations under the Financing Agreement will be fully satisfied. Upon our change of control, an acceleration payment of 1.35x of the funding provided is payable, net of payments already made to Abingworth and creditable against future payments to Abingworth.

The Financing Agreement terminates upon the payment of all payments owing to Abingworth, unless earlier terminated. The Agreement may be earlier terminated in a number of circumstances including (i) by Abingworth if we fail to use commercially reasonable efforts to develop seladelpar as set forth in the Financing Agreement or if we fail to make required payments (Fundamental Breach) or (ii) by either party if the other party materially breaches the Agreement (Material Breach). In certain instances, upon the termination of the Financing Agreement, we will be obligated to pay Abingworth a multiple of the amounts paid to us under the Agreement, including specifically,

(i) 310% of such amounts in the event that Abingworth terminates the agreement due to (x) a Fundamental Breach, (y) our bankruptcy, or (z) a safety concern resulting from gross negligence on our part or due to a safety concern that was material on the Effective Date and the material data showing such safety concern was not publicly known, disclosed to Abingworth, or in the diligence room made available to Abingworth,

(ii) 200% of such amounts in the event the Agreement is terminated due to (x) our Material Breach or (y) the security interests of Abingworth being invalidated or terminated other than as set forth in the Financing Agreement, and

(iii) 100% of such amounts in the event of certain irresolvable disagreements within the executive review committee overseeing our development of seladelpar.

In addition, if, following certain terminations, we continue to develop seladelpar for the treatment of PBC and obtain Regulatory Approval, we will make the payments to Abingworth as if the Financing Agreement had not been terminated, less any payments made upon termination.

The payments required under the Financing Agreement are significant. Failure to generate sufficient revenue to make such payments if and as they become due, or failure to otherwise finance such payments would have a material adverse effect on our business. In addition, if we are unable to comply with our obligations under the Financing Agreement and/or one of the termination events described above occurs, Abingworth may be relieved of their obligation to provide further funding under the Financing Agreement and our payments obligations thereunder may be accelerated. The acceleration of payments under the Financing Agreement would have a material impact on our business and we may not be able to make such payments at such time.

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Our ability to generate future revenues from product sales is uncertain and depends upon our ability to successfully develop, obtain regulatory approval for, and commercialize product candidates.

Our ability to generate revenue and achieve profitability depends on our ability, alone or with collaborators, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize, product candidates. We do not anticipate generating revenues from sales of our product candidates in the near future, if ever. Our ability to generate revenues from product sales depends heavily on our success in generating a pipeline of product candidates.

Conducting preclinical testing and clinical trials is a time-consuming, expensive, and uncertain process that takes years to complete, and we may never generate the necessary data required to obtain regulatory approval and achieve product sales. Our anticipated development costs would likely increase if we do not obtain favorable results or if development of our product candidates is delayed. In particular, we would likely incur higher costs than we currently anticipate if development of our product candidates is delayed because we are required by a regulatory authority such as the FDA to perform studies or trials in addition to those that we currently anticipate. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing or amount of any increase in our anticipated development costs.

In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if at all. Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs in connection with commercialization. As a result, we cannot assure you that we will be able to generate revenues from sales of any approved product candidates, or that we will achieve or maintain profitability even if we do generate sales.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. We do not have any committed external source of funds other than the Financing Agreement. If appropriate opportunities become available, we may seek to raise additional equity and/or debt capital to fund our continued operations, including clinical trials and other product development.

To raise additional funds to support our operations, we may sell additional equity or debt securities, enter into collaborations, strategic alliances, or licensing arrangements or other marketing or distribution arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of stockholders. Debt 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, and declaring dividends, and may impose limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

If we raise additional funds through collaborations, strategic alliances, or licensing arrangements or other marketing or distribution arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us.

If we are unable to expand our operations or otherwise capitalize on our business opportunities, our business, financial condition and results of operations could be materially adversely affected. 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 product development or commercialization efforts, or grant others rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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Risks Related to Clinical Development and Regulatory Approval

We depend on the success of our product candidates and we may not obtain regulatory approval or successfully commercialize our product candidates.

We have not marketed, distributed or sold any products. The success of our business depends upon our ability to develop and commercialize our product candidates. The success of any product candidate will depend on many factors, including the following:

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successful enrollment and completion of clinical trials, including, in the case of RESPONSE, enrollment of sufficient subjects willing to obtain a liver biopsy;

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receipt of marketing approvals from the FDA and regulatory authorities outside the United States for the product candidate;

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establishing commercial manufacturing capabilities by making arrangements with third-party manufacturers;

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launching commercial sales of the product, whether alone or in collaboration with others;

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acceptance of the product by patients, the medical community and third-party payors;

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effectively competing with other therapies;

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a continued acceptable safety profile of the product following marketing approval; and

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obtaining, maintaining, enforcing and defending intellectual property rights and claims.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidate, which would materially harm our business.

We depend on the successful completion of clinical trials for our product candidates.

Before obtaining regulatory approval for the sale of our product candidates, we must complete our current clinical trials as well as potentially additional clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products.

We may experience a number of unforeseen events during clinical trials for our product candidates, including seladelpar, that could delay or prevent the commencement and/or completion of our clinical trials, including the following:

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regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

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the clinical study protocol may require one or more amendments delaying study completion;

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clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

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the number of subjects required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, we may have to compete with other clinical trials to enroll eligible subjects, or subjects may drop out of these clinical trials at a higher rate than we anticipate;

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the number of patients in our RESPONSE clinical trial that choose to have biopsies may be insufficient to satisfy regulatory requirements;

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clinical investigators or study subjects may fail to comply with clinical study protocols;

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trial conduct and data analysis errors may occur, including, but not limited to, data entry and/or labeling errors;

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our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

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we might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the subjects are being exposed to unacceptable health risks;

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regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

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•

the cost of clinical trials of our product candidates may be greater than we anticipate;

•

the supply or quality of our clinical trial materials or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and

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our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators to suspend or terminate the trials.

Because successful development of product candidates is uncertain, we are unable to estimate the actual funds required to complete research and development and commercialize our products under development.

Negative or inconclusive results of our future clinical trials of product candidates could cause the FDA or other regulatory authorities to require that we repeat or conduct additional clinical studies. If later stage clinical trials do not produce favorable results, our ability to obtain regulatory approval for our product candidates may be adversely impacted.

Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales.

Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. We may experience delays in clinical trials at any stage of development and testing of our product candidates and any delay could result in increased costs to us. Any clinical trials we undertake may not begin on time, have an effective design, enroll a sufficient number of subjects, or be completed on schedule, if at all. The impact of the ongoing

COVID-19

pandemic, including the emergence of

COVID-19

variants such as the Delta and Mu variants, is also uncertain, and may create additional delays in completing our clinical trials.

Events that may result in delays or unsuccessful completion of clinical trials include the following:

•

reluctance of patients to enroll in our clinical trials due to the

COVID-19

pandemic;

•

competition for eligible patients from competing clinical trials;

•

delays in obtaining regulatory approval to commence a trial;

•

delays in reaching agreement with the FDA or other regulatory authorities on final trial design;

•

imposition of a clinical hold following a reported safety event;

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an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;

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delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs) and clinical trial sites;

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delays in obtaining required institutional review board (IRB) approval at each site;

•

delays in recruiting suitable patients to participate in a trial;

•

delays in having subjects complete participation in a trial or return for post-treatment

follow-up;

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delays caused by the need to enroll additional subjects willing to have biopsies in the RESPONSE trial;

•

delays caused by subjects dropping out of a trial due to side effects or otherwise;

•

changes to treatment guidelines or the introduction of a new standard of care;

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delays caused by clinical sites dropping out of a trial;

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time required to add new clinical sites;

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delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials; and

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delays in importing clinical trial materials into foreign countries where our clinical trials are being conducted.

If initiation or completion of any clinical trials we may undertake for our product candidates is delayed for any of the above reasons, our development costs may increase, the approval process could be delayed, any periods during which we may have the exclusive right to commercialize our product candidates may be reduced and our competitors may bring products to market before us. Any of these events could impair our ability to generate revenues from product sales and impair our ability to generate regulatory and commercialization milestones and royalties, all of which could have a material adverse effect on our business.

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Our product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.

In May 2016, we announced results of a High Dose Phase 2 clinical study of seladelpar in patients with PBC. During the course of this trial three cases of asymptomatic, reversible transaminase elevations occurred, and we made the decision to discontinue the study early after review of safety and efficacy data demonstrated a need for further dose reduction to optimize clinical safety and efficacy. In November and December 2019, due to histologic observations in our NASH clinical trial, all seladelpar clinical trials were terminated, pending further analysis of data from the NASH trial and further discussions with the FDA. Although in July 2020 the FDA lifted the clinical hold on our seladelpar program, this process substantially delayed the development of seladelpar. The emergence of adverse events (AEs) and histological observations in subsequent seladelpar clinical trials could prevent us from further developing seladelpar or could result in the denial of regulatory approval.

Furthermore, if any of our approved products cause serious or unexpected side effects after receiving market approval, a number of potentially significant negative consequences could result, including the following:

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regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution in a form of a risk evaluation and mitigation strategy (REMS) plan;

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regulatory authorities may require the addition of labeling statements, such as black box or other warnings or contraindications that could diminish the usage of the product or otherwise limit the commercial success of the affected product;

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we may be required to change the way the product is administered or to conduct additional clinical studies;

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we may choose to discontinue sale of the product;

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we could be sued and held liable for harm caused to patients; or

•