QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
(Address of principal executive offices) |
(Zip Code) |
Title of each class |
Trading symbol(s) |
Name of each exchange on which registered | ||
Large accelerated filer |
☐ | Accelerated filer |
☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company |
☒ | |||
Emerging growth company |
☐ |
CYMABAY THERAPEUTICS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| Page | ||||||
| PART I |
3 | |||||
| Item 1. |
3 | |||||
| Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021 (unaudited) |
3 | |||||
| 4 | ||||||
| 5 | ||||||
| 6 | ||||||
| Notes to Condensed Consolidated Financial Statements (unaudited) |
7 | |||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 | ||||
| Item 3. |
24 | |||||
| Item 4. |
24 | |||||
| PART II |
25 | |||||
| Item 1. |
25 | |||||
| Item 1A. |
25 | |||||
| Item 6. |
48 | |||||
| 49 | ||||||
Item 1. |
Financial Statements |
September 30, 2022 |
December 31, 2021 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Marketable securities |
||||||||
| Prepaid research and development expenses |
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| Other prepaid expenses and current assets |
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| |
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| Total current assets |
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| Property and equipment, net |
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| Non-current marketable securities |
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| Operating lease right-of-use |
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| Other assets |
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| |
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| Total assets |
$ | $ | ||||||
| |
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|||||
| Liabilities and stockholders’ equity |
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| Current liabilities: |
||||||||
| Accounts payable |
$ | $ | ||||||
| Accrued research and development expenses |
||||||||
| Other accrued liabilities |
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| |
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|||||
| Total current liabilities |
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| Development financing liability |
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| Long-term portion of operating lease liability |
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| Total liabilities |
||||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $ |
||||||||
| Common stock, $ |
||||||||
| Additional paid-in capital |
||||||||
| Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
| Accumulated deficit |
( |
) | ( |
) | ||||
| |
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|
|||||
| Total stockholders’ equity |
||||||||
| |
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|
|||||
| Total liabilities and stockholders’ equity |
$ | $ | ||||||
| |
|
|
|
|||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
$ |
$ |
$ |
$ |
||||||||||||
| General and administrative |
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| |
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|
|||||||||
| Total operating expenses |
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| |
|
|
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|
|
|
|
|||||||||
| Loss from operations |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
| Other income (expense), net: |
||||||||||||||||
| Interest income |
||||||||||||||||
| Interest expense |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total other income (expense), net |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
| |
|
|
|
|
|
|
|
|||||||||
| Other comprehensive loss: |
||||||||||||||||
| Unrealized loss on marketable securities |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total other comprehensive loss |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Comprehensive loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
| Basic and diluted net loss per common share |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
| Weighted average common shares outstanding used to calculate basic and diluted net loss per common share |
||||||||||||||||
Nine Months Ended |
||||||||
September 30, |
||||||||
2022 |
2021 |
|||||||
| Operating activities |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Stock-based compensation expense |
||||||||
| Write-off of deferred financing costs |
||||||||
| Accretion of development financing liability |
||||||||
| Net accretion and amortization of investments in marketable securities |
( |
) | ||||||
| Changes in assets and liabilities: |
||||||||
| Other prepaid expenses and current assets |
( |
) | ||||||
| Other assets |
( |
) | ( |
) | ||||
| Accounts payable |
( |
) | ||||||
| Accrued research and development expenses |
( |
) | ||||||
| Other accrued liabilities |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Investing activities |
||||||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Purchases of marketable securities |
( |
) | ( |
) | ||||
| Proceeds from maturities of marketable securities |
||||||||
| |
|
|
|
|||||
| Net cash (used in) provided by investing activities |
( |
) | ||||||
| Financing activities |
||||||||
| Proceeds from issuance of common stock pursuant to equity award plans |
||||||||
| Proceeds from development financing, net of transaction costs |
||||||||
| Issuance costs paid for issuance of common stock |
( |
) | ||||||
| |
|
|
|
|||||
| Net cash provided by financing activities |
||||||||
| |
|
|
|
|||||
| Net (decrease) increase in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents at beginning of period |
||||||||
| |
|
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|
|||||
| Cash and cash equivalents at end of period |
$ | |
$ | |
||||
| |
|
|
|
|||||
| Supplemental disclosure |
||||||||
| Cash paid for amounts included in the measurement of lease liabilities |
$ | |
$ | |
||||
| Supplemental non-cash investing and financing activities |
||||||||
| Accrued financing costs |
$ | |
$ | |
||||
| Accrued costs for other assets |
$ | |
$ | |
||||
Three and Nine Months Ended September 30, 2022 |
||||||||||||||||||||||||
Accumulated |
||||||||||||||||||||||||
Additional |
Other |
Total |
||||||||||||||||||||||
Common Stock |
Paid-in |
Comprehensive |
Accumulated |
Stockholders’ |
||||||||||||||||||||
Shares |
Amount |
Capital |
Loss |
Deficit |
Equity |
|||||||||||||||||||
| Balances as of December 31, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Issuance costs related to issuance of common stock and pre-funded warrants |
— | — | — | |||||||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Net loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Net unrealized loss on marketable securities |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balances as of March 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Net loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Net unrealized loss on marketable securities |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balances as of June 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Issuance of common stock upon exercise of stock options |
— | — | — | |||||||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Net loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Net unrealized loss on marketable securities |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balances as of September 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
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 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Net loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Net unrealized loss on marketable securities |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balances as of March 31, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Issuance of common stock upon exercise of stock options |
— | — | — | |||||||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Net loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Net unrealized gain on marketable securities |
— | — | — | — | ||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balances as of June 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Issuance of common stock upon exercise of stock options |
— | — | — | |||||||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Net loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Net unrealized loss on marketable securities |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balances as of September 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
As |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| Assets: |
||||||||||||||||
| Cash equivalents: |
||||||||||||||||
| Money market funds |
$ | $ | — | $ | — | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cash equivalents |
— | — | ||||||||||||||
| Marketable securities: |
||||||||||||||||
| U.S. and foreign commercial paper |
— | — | ||||||||||||||
| U.S. and foreign corporate debt securities |
— | — | ||||||||||||||
| Supranational debt securities |
— | — | ||||||||||||||
| U.S. agency securities |
— | — | ||||||||||||||
| U.S. treasury securities |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total marketable securities |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total assets measured at fair value |
$ | $ | $ | — | $ | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
As of December 31, 2021 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| Cash equivalents: |
||||||||||||||||
| Money market funds |
$ | $ | — | $ | — | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cash equivalents |
— | — | ||||||||||||||
| Marketable securities: |
||||||||||||||||
| U.S. and foreign commercial paper |
— | — | ||||||||||||||
| U.S. and foreign corporate debt securities |
— | — | ||||||||||||||
| Asset-backed securities |
— | — | ||||||||||||||
| U.S. treasury securities |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total marketable securities |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total assets measured at fair value |
$ | $ | $ | — | $ | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
| As of September 30, 2022: |
||||||||||||||||
| Cash equivalents: |
||||||||||||||||
| Money market funds |
$ | $ | — | $ | — | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cash equivalents |
— | — | ||||||||||||||
| Current marketable securities: |
||||||||||||||||
| U.S. and foreign commercial paper |
— | — | ||||||||||||||
| U.S. and foreign corporate debt securities |
— | ( |
) | |||||||||||||
| Supranational debt securities |
— | ( |
) | |||||||||||||
| US. agency securities |
— | ( |
) | |||||||||||||
| U.S. treasury securities |
— | ( |
) | |||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total current marketable securities |
— | ( |
) | |||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total marketable securities |
$ | $ | — | $ | ( |
) | $ | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
| As of December 31, 2021: |
||||||||||||||||
| Cash equivalents: |
||||||||||||||||
| Money market funds |
$ | $ | — | $ | — | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cash equivalents |
— | — | ||||||||||||||
| Current marketable securities: |
||||||||||||||||
| U.S. and foreign commercial paper |
— | — | ||||||||||||||
| U.S. and foreign corporate debt securities |
— | ( |
) | |||||||||||||
| Asset-backed securities |
— | ( |
) | |||||||||||||
| U.S. treasury securities |
— | ( |
) | |||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total current marketable securities |
— | ( |
) | |||||||||||||
| Non-current marketable securities: |
||||||||||||||||
| U.S. corporate debt securities |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total marketable securities |
$ | $ | $ | ( |
) | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Due less than 1 year |
$ | |||
| Due between 1 and 2 years |
||||
| |
|
|||
| Total fair value |
$ | |||
| |
|
September 30, 2022 |
December 31, 2021 |
|||||||
Accrued compensation |
$ | $ | ||||||
Accrued professional fees and other |
||||||||
Current portion of operating lease liability |
||||||||
Total other accrued liabilities |
$ | $ | ||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Numerator: |
||||||||||||||||
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Denominator: |
||||||||||||||||
Weighted average number of: |
||||||||||||||||
Common stock shares outstanding |
||||||||||||||||
Pre-funded warrants outstanding |
||||||||||||||||
Total |
||||||||||||||||
Net loss per share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Common stock options |
||||||||||||||||
Incentive awards |
||||||||||||||||
Total |
||||||||||||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Research and development |
$ |
$ |
$ |
$ |
||||||||||||
General and administrative |
||||||||||||||||
Total stock-based compensation expense |
$ |
$ |
$ |
$ |
||||||||||||
| 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, 2022 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; regulatory submissions and approvals; the impact of the COVID-19 pandemic on our company and operations; 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. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into or review of all relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely on these statements.
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 (PPARd), 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 focused on 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.
Seladelpar—Primary Biliary Cholangitis (PBC)
In late 2020, we commenced startup and site feasibility activities for RESPONSE, a global Phase 3 registration study to evaluate seladelpar in patients with PBC. The RESPONSE trial completed enrollment in July 2022 with a total of 193 subjects enrolled in the trial. The RESPONSE trial is a double-blind, randomized, placebo-controlled, 52-week study to evaluate the safety and efficacy of 10 mg of seladelpar versus placebo in patients with PBC who have had an inadequate response to UDCA (defined as a serum alkaline phosphatase level ≥ 1.67 x the upper limit of normal after at least 12 months of treatment) or an intolerance to UDCA to be eligible for the trial. The primary efficacy outcome measure will be the responder rate at 52 weeks in the seladelpar 10 mg group compared to placebo. A responder is defined as a patient who achieves an alkaline phosphatase level < 1.67 x the upper limit of normal with at least a 15% decrease from baseline and has a normal level of total bilirubin. Key secondary outcome measures will include evaluating the effect of seladelpar compared to placebo on normalization of alkaline phosphatase at 52 weeks and on pruritus at 6-months for patients with moderate to severe pruritus at baseline assessed by a numerical rating scale recorded with an electronic diary.
In addition to RESPONSE, we also commenced startup activities in late 2020 for ASSURE, a long-term extension 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. The ASSURE trial is continuing to enroll eligible patients and currently has over 180 subjects enrolled. The ASSURE trial is an open-label, long-term study intended to collect additional long-term safety and efficacy data to support registration.
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MBX-2982
MBX-2982 targets G protein-coupled receptor 119 (GPR119), a receptor that interacts with bioactive lipids known to stimulate glucose-dependent insulin secretion. In November 2020, we announced a Phase 2a proof-of-pharmacology study to 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. CymaBay retains full commercial rights to MBX-2982. We believe MBX-2982 may also have utility in various inflammatory diseases and we are currently exploring potential opportunities to advance development.
CB-0406
In 2020 we began to evaluate CB-0406, the active metabolite of arhalofenate 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. Therefore, in mid-2021 we discontinued development of CB-0406.
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 trials, and other associated drug development activities. The emergence of COVID-19 variants, have 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:
| • | 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 U.S. 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. 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 COVID-19 may have on our ability to execute our 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. |
| • | 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. |
| • | Remote workforce operations—To date, our workforce has adapted to remotely working to maintain operations. Our operations are currently in a hybrid model with most employees working from our office for a portion of the week and working remotely for the rest of the week. Our continued use of partially-remote operations, however, 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. |
Overall, we cannot at this time predict the specific extent, duration, or full impact that the continuing COVID-19 pandemic will have on our future consolidated financial condition and operations. The impact of the COVID-19 pandemic on our consolidated financial performance will depend on future developments, including emergence of COVID-19 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.
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Critical Accounting Policies and 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
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and expenses during the reporting periods. We base our estimates on historical experience and on various other factors which 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, 2021 with the SEC on March 17, 2022. For a description of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K.
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, 2022, we have an accumulated deficit of $846.2 million, primarily as a result of expenditures for research and development, general and administrative and interest 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 sufficient 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 equity offerings, debt financings or a combination of the foregoing.
Operating Results
Our results of operations for the three and nine months ended September 30, 2022 and 2021 are presented below (in thousands):
| Three Months Ended September 30, |
Change Q3 |
Nine Months Ended September 30, |
Change Q3 YTD |
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| 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs 2021 | |||||||||||||||||||
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| Operating expenses: |
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| Research and development |
$ | 15,459 | $ | 17,010 | $ | (1,551 | ) | $ | 51,765 | $ | 46,137 | $ | 5,628 | |||||||||||
| General and administrative |
5,904 | 5,179 | 725 | 17,869 | 16,936 | 933 | ||||||||||||||||||
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| Total operating expenses |
21,363 | 22,189 | (826 | ) | 69,634 | 63,073 | 6,561 | |||||||||||||||||
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| Loss from operations |
(21,363 | ) | (22,189 | ) | 826 | (69,634 | ) | (63,073 | ) | (6,561 | ) | |||||||||||||
| Other income (expense), net: |
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| Interest income |
677 | 29 | 648 | 1,098 | 140 | 958 | ||||||||||||||||||
| Interest expense |
(3,819 | ) | (522 | ) | (3,297 | ) | (10,832 | ) | (522 | ) | (10,310 | ) | ||||||||||||
| Total other income (expense), net |
(3,142 | ) | (493 | ) | (2,649 | ) | (9,734 | ) | (382 | ) | (9,352 | ) | ||||||||||||
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| Net loss |
$ | (24,505 | ) | $ | (22,682 | ) | $ | (1,823 | ) | $ | (79,368 | ) | $ | (63,455 | ) | $ | (15,913 | ) | ||||||
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Research & Development Expenses
Conducting research and development is central to our business model. Research and development expenses decreased $1.6 million to $15.5 million from $17.0 million for the three months ended September 30, 2022 and 2021, respectively. This decrease was due to a reduction in clinical activity due to the completion of enrollment of our clinical trial RESPONSE. Research and development expenses increased $5.6 million to $51.8 million from $46.1 million for the nine months ended September 30, 2022 and 2021, respectively. This increase was largely due to activities associated with the development of seladelpar focusing primarily on our late-stage PBC program. We expect that our research and development expenses will increase in the future due to costs associated with our ongoing late-stage development of seladelpar.
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Research and development expenses are detailed further in the table below (in thousands):
| Three Months Ended September 30, |
Change Q3 |
Nine Months Ended September 30, |
Change Q3 YTD |
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| 2022 | 2021 | 2022 vs 2021 | 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||||||
| Project costs: |
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| Seladelpar PBC clinical studies |
$ | 7,955 | $ | 10,180 | $ | (2,225 | ) | $ | 26,998 | $ | 25,050 | $ | 1,948 | |||||||||||
| Seladelpar drug manufacturing & development |
1,227 | 1,530 | (303 | ) | 5,160 | 3,675 | 1,485 | |||||||||||||||||
| Seladelpar and non-seladelpar other studies |
48 | 371 | (323 | ) | 434 | 2,779 | (2,345 | ) | ||||||||||||||||
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| Total project costs |
9,230 | 12,081 | (2,851 | ) | 32,592 | 31,504 | 1,088 | |||||||||||||||||
| Internal research and development costs |
6,229 | 4,929 | 1,300 | 19,173 | 14,633 | 4,540 | ||||||||||||||||||
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| Total research and development |
$ | 15,459 | $ | 17,010 | $ | (1,551 | ) | $ | 51,765 | $ | 46,137 | $ | 5,628 | |||||||||||
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Our project costs consist primarily of:
| • | expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical activities; |
| • | the cost of acquiring materials and manufacturing any 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, and overhead expenses. Internal costs generally benefit multiple projects and are not separately tracked per project.
Comparison of the three months ended September 30, 2022 and 2021
Total project costs decreased $2.9 million to $9.2 million from $12.1 million for the three months ended September 30, 2022 and 2021, respectively. The decrease was mostly due to the completion of enrollment of our RESPONSE trial during the three months ended September 30, 2022. Project costs for the three months ended September 30, 2022 and 2021 primarily consisted of seladelpar-related clinical trial expenses for PBC. Internal research and development costs increased by $1.3 million to $6.2 million from $4.9 million for the three months ended September 30, 2022 and 2021, respectively, primarily due to higher employee compensation incurred in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, as we continued to hire additional research and development personnel to support our clinical studies. 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 increase in the future.
Comparison of the nine months ended September 30, 2022 and 2021
Total project costs increased by $1.1 million to $32.6 million from $31.5 million for the nine months ended September 30, 2022 and 2021, respectively. Project costs for the nine months ended September 30, 2022 and 2021 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 efforts, and other clinical trial activities. Internal research and development costs increased by $4.5 million to $19.2 million from $14.6 million for the nine months ended September 30, 2022 and 2021, respectively, primarily due to higher employee compensation incurred in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, as we continued to hire additional research and development personnel to support our clinical studies.
General and Administrative Expenses
General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, and accounting services, rent, and other general operating expenses not otherwise included in research and development.
Comparison of the three months ended September 30, 2022 and 2021
General and administrative expenses increased by $0.7 million to $5.9 million from $5.2 million for the three months ended September 30, 2022 and 2021, respectively. The increase was driven primarily by an increase in in headcount in general and administrative personnel in the three months ended September 30, 2022 when compared to three months ended September 30, 2021,
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as we continue to add administrative personnel and expand our infrastructure in support of our drug development activities. We expect general and administrative expenses to increase in the future as we continue to add administrative personnel and expand our infrastructure in support of our drug development activities.
Comparison of the nine months ended September 30, 2022 and 2021
General and administrative expenses increased by $0.9 million to $17.9 million from $16.9 million for the nine months ended September 30, 2022 and 2021, respectively. The increase was driven primarily by an increase in headcount in general and administrative personnel in the nine months ended September 30, 2022, as we continue to add administrative personnel and expand our infrastructure in support of our drug development activities, partially offset by a reduction in legal and outside consulting-related expenses.
Other Income (Expense), Net
Interest income increased $0.6 million to $0.7 million from an immaterial amount for the three months ended September 30, 2022 and 2021, respectively. Interest income increased $1.0 million to $1.1 million from $0.1 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in interest income was driven primarily by a higher investment portfolio balance compared to the prior year period due to funds that had been received related to our Development Financing Arrangement and November 2021 equity financing.
Interest expense is related to the accretion of the development financing liability recorded in connection with the July 2021 Abingworth Development Financing Agreement using the effective interest method, and increased $3.3 million to $3.8 million from $0.5 million for the three months ended September 30, 2022 and 2021, respectively. The increase in interest expense was driven primarily by an increase in the payments received under the development financing agreement comparatively between periods. Interest expense increased $10.3 million to $10.8 million from $0.5 million for the nine months ended September 30, 2022 and 2021, respectively. The increase was driven primarily by a greater amount of time during which interest was accrued and payments received under the development financing agreement.
Liquidity and Capital Resources
We have financed our operations primarily through the sale of equity securities, licensing fees, issuance of debt and collaborations with third parties. At September 30, 2022, cash, cash equivalents and marketable securities totaled $153.4 million, compared to $194.6 million at December 31, 2021.
Development Financing
On July 30, 2021, (the Effective Date) we entered into a Development Financing Agreement (the 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 was received in January 2022. In return, we will pay to Abingworth fixed and variable success payments, as further described in Note 4—Development Financing Agreement in the notes to our consolidated financial statements. We had an option to receive an additional $25 million within approximately two months of enrollment completion of our Phase 3 RESPONSE clinical trial; however, we did not exercise the option to receive this additional funding.
At-the-Market (ATM) Facility
In July 2020, we filed a $200.0 million registration statement on Form S-3 with the SEC and entered into an at-the-market facility (ATM) to sell up to $75.0 million of common stock under the registration statement. To date, we have not sold any shares of common stock under the ATM.
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Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods indicated below (in thousands):
| Nine Months Ended September 30, |
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| 2022 | 2021 | |||||||
| Net cash used in operating activities |
$ | (65,324 | ) | $ | (55,188 | ) | ||
| Net cash (used in) provided by investing activities |
(54,341 | ) | 72,666 | |||||
| Net cash provided by financing activities |
24,550 | 23,292 | ||||||
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| Net (decrease) increase in cash and cash equivalents |
$ | (95,115 | ) | $ | 40,770 | |||
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Operating Activities: Net cash used in operating activities for the nine months ended September 30, 2022 increased by $10.1 million to $65.3 million as compared to $55.2 million for the same period in the prior year, primarily due to an increase in our net loss to $79.4 million from $63.5 million in the comparable prior year period due to the expansion of late-stage clinical trial activities related to the seladelpar development program. In addition, cash was used to fund changes in our working capital due to timing of payments.
Investing Activities: Net cash used in investing activities was $54.3 million for the nine months ended September 30, 2022, compared to $72.7 million provided by investing activities for the same period in the prior year, primarily due to the timing of our investments and maturities of marketable securities and portfolio risk management.
Financing Activities: Net cash provided by financing activities was $24.6 million for the nine months ended September 30, 2022, which mostly consisted of a $25.0 million funding payment received from Abingworth under the Development Financing Agreement, which was partially offset by $0.5 million of issuance costs paid for the issuance of common stock from the November 2021 equity financing.
Capital Requirements
We have incurred operating losses since inception and had an accumulated deficit of $846.2 million at September 30, 2022. As of September 30, 2022, we had cash, cash equivalents and marketable securities of approximately $153.4 million, which we believe is sufficient to fund our current operating plan through 2023.
We expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we continue product development for seladelpar. Since product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials, we expect that our research and development expenses will increase in the future. We will therefore continue to require additional financing to develop our products and fund future operating losses and will seek funds through equity financings, debt, collaborative or other arrangements with corporate sources, or through other sources of financing. It is unclear if or when any such financing transactions will occur, on satisfactory terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. If adequate funds are not available to us, it could have a material adverse effect on our business, results of operations, and financial condition.
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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, 2022 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, 2022.
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, 2022, 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 in a hybrid remote model 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 filed a Motion to Dismiss the Second Amended Complaint that was granted on January 21, 2022, without further leave to amend. What remains in the complaint is an alleged misappropriation of the protocol synopsis as a whole. We filed our Answer to what remained of the Second Amended Complaint on February 4, 2022. 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, including those impacting our ability to enroll and conduct critical clinical trials, 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. |
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| • | 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. |
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. |
| • | Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall. |
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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 months ended September 30, 2022, economic and health conditions in the United States and across most of the globe have continued to change. The emergence of COVID-19 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:
| • | We are currently managing clinical trials in geographies that are affected by the COVID-19 pandemic. While we have not experienced material impacts to our clinical activities through September 30, 2022, 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 study personnel and trial participants, personnel shortages at clinical sites and operations and facility restrictions impacting trial operations. 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 curtailment of activities, could reduce the rate of patient enrollment in our clinical trials, 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 required to delay, or alter, their approach to complete work on our trials. |
| • | We have moved to a hybrid model of operations, with most employees working from our office for a portion of the week and working remotely for the rest of the week. 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 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. |
| • | In some jurisdictions, 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 may 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 and their relative transmissibility and virulence, 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.
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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, 2022, we had cash, cash equivalents and marketable securities of approximately $153.4 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 we have already received $75 million. In November 2021, we sold 15,625,000 shares of common stock at $4.00 per share and pre-funded warrants to purchase 3,125,000 shares of common stock at $3.9999 per share in a public equity offering, for total gross offering proceeds of approximately $75 million, before deducting the underwriting fees and other offering expenses. 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.
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. To the extent that the costs of 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 enter into any of such transactions on acceptable terms, if at all.
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 would have a material adverse effect on our business, operating results, prospects, and on our ability to develop our product candidates.
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.
On July 30, 2021, we entered into a Development Financing Agreement (the Financing Agreement) with Abingworth, pursuant to which Abingworth agreed to provide funding to us to support our development of seladelpar for the treatment of PBC. Pursuant to the Financing Agreement, Abingworth funded $75 million through November 2022. 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. 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.
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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.
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.
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 products, 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. 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
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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, 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.
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:
| • | successful enrollment and completion of clinical trials, including, in the case of RESPONSE, sufficient subjects that receive liver biopsies; |
| • | receipt of marketing approvals from the FDA and regulatory authorities outside the United States for the product candidate; |
| • | establishing commercial manufacturing capabilities by making arrangements with third-party manufacturers; |
| • | launching commercial sales of the product, whether alone or in collaboration with others; |
| • | acceptance of the product by patients, the medical community and third-party payors; |
| • | effectively competing with other therapies; |
| • | a continued acceptable safety profile of the product following marketing approval; and |
| • | 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:
| • | 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; |
| • | 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; |
| • | 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; |
| • | the number of patients in our RESPONSE clinical trial that receive biopsies may be insufficient to satisfy regulatory requirements; |
| • | clinical investigators or study subjects may fail to comply with clinical study protocols; |
| • | trial conduct and data analysis errors may occur, including, but not limited to, data entry and/or labeling errors; |
| • | 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; |
| • | 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; |
| • | geo-political turmoil between Russia and Ukraine and/or continuing military actions in Ukraine may cause us to have to wind down clinical trials of seladelpar in Russia or in other countries; |
| • | 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; |
| • | 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 |
| • | 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.
Geo-political turmoil between Russia and Ukraine and continuing military actions in Ukraine have caused us to suspend clinical trial activity in Ukraine and wind down clinical trial activity in Russia.
We have a small number of clinical sites in Russia in our RESPONSE clinical trial and in our ASSURE clinical trial. Because of continuing military action in Ukraine we suspended all clinical trial activity in Ukraine. Ongoing geo-political turmoil and continuing military action in the region, together with widening sanctions imposed on Russia, have also caused us to begin to wind down clinical trial activity in Russia. We expect clinical trial activity in Russia for the ASSURE clinical trial to terminate in early 2023 and for the RESPONSE clinical trial in mid-2023. The ongoing military action and sanctions may still affect our RESPONSE and ASSURE clinical trials in Russia prior to wind down. Shipments of seladelpar to Russia may become difficult, delayed or impossible. Shipments of clinical samples from Russia may also become difficult, delayed or impossible. In addition, sites, site personnel and patients may not be able to continue in the trials and we may need to suspend or terminate the trials in Russia prior to the end of our expected wind down. While we have only a small number of clinical sites and enrolled patients in Russia, these disruptions and potential suspensions could complicate the analysis of data from subjects in Russia.
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 is also uncertain, and may create additional delays in completing our clinical trials.
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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; |
| • | personnel shortages at clinical sites due to the COVID-19 pandemic that impact the enrollment timeline or operations at clinical trial sites participating in our clinical trials; |
| • | 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; |
| • | an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities; |
| • | delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs) and clinical trial sites; |
| • | 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; |
| • | delays caused by the need to enroll additional subjects that 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; |
| • | delays caused by clinical sites dropping out of a trial; |
| • | time required to add new clinical sites; |
| • | delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials; and |
| • | 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, which would have a material adverse effect on our business.
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. 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:
| • | 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; |
| • | 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; |
| • | 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; |
| • | we could be sued and held liable for harm caused to patients; or |
| • | our reputation may suffer. |
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product candidates.
Potential conflicts of interest arising from relationships with principal investigators for our clinical studies and any related compensation with respect to clinical studies could adversely affect the drug approval process.
Principal investigators for our clinical studies may serve as scientific advisors or consultants to us or may be affiliated with our other service providers, including clinical research organizations or site management organizations, and from time to time receive cash compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical study site or in the applicable study may be questioned or jeopardized.
We may be subject to costly claims related to our clinical studies and may not be able to obtain adequate insurance.
Because we conduct clinical studies in humans, we face the risk that the use of seladelpar or other product candidates will result in adverse side effects. We cannot predict the possible harms or side effects that may result from our clinical studies. Although we have clinical study liability insurance, our insurance may be insufficient to cover any such events. There is also a risk that we may not be able to continue to obtain clinical study coverage on acceptable terms. In addition, we may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limit of, our insurance coverage. There is also a risk that third parties that we have agreed to indemnify could incur liability. Any litigation arising from our clinical studies, even if we are ultimately successful, would consume substantial amounts of our financial and managerial resources and may create adverse publicity.
After the completion of our clinical trials, we cannot predict whether or when we will obtain regulatory approval to commercialize our product candidates and we cannot, therefore, predict the timing of any future revenue from our product candidates. Regulatory approval of a product candidate is not guaranteed, and the approval process is expensive, uncertain and lengthy.
We cannot commercialize our product candidates until the appropriate regulatory authorities, such as the FDA, have reviewed and approved the product candidate. The regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval for our product candidates. Additional delays may result if a product candidate is brought before an FDA advisory committee, which could recommend restrictions on approval or recommend non-approval of the product candidate. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical studies and the review process. As a result, we cannot predict when, if at all, we will receive any future revenue from commercialization of any of our product candidates. The FDA and foreign regulatory authorities have substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons, including the following:
| • | we may be unable to demonstrate to the satisfaction of regulatory authorities that a product candidate is safe and effective for any indication; |
| • | regulatory authorities may not find the data from nonclinical studies and clinical studies sufficient or may differ in the interpretation of the data; |
| • | regulatory authorities may require additional nonclinical or clinical studies; |
| • | regulatory authorities might not approve our third party manufacturers’ processes or facilities for clinical or commercial product; |
| • | regulatory authorities may change their approval policies or adopt new regulations; |
| • | regulatory authorities may disagree with the design or implementation of our clinical studies; |
| • | regulatory authorities may not accept clinical data from studies that are conducted in countries where the standard of care is potentially different from the jurisdiction of that regulatory authority; |
| • | the results of clinical studies may not meet the level of statistical significance required by regulatory authorities for approval; |
| • | we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; and |
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| • | the data collection from clinical studies of our product candidates may not be sufficient to support the submission of a new drug application (NDA), marketing authorization or other equivalent submission, or to obtain regulatory approval in the United States or elsewhere. |
In addition, events raising questions about the safety of certain marketed pharmaceuticals may result in increased caution by the FDA and other regulatory authorities in reviewing new pharmaceuticals based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals.
Even if we obtain regulatory approval for our product candidates, we will still face extensive regulatory requirements and our products may face future development and regulatory difficulties.
Even if we obtain regulatory approval in the United States, the FDA may still impose significant restrictions on the indicated uses or marketing of our products or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Our products would be subject to additional ongoing FDA requirements governing the labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, record-keeping and reporting of safety and other post-market information. The holder of an approved NDA is obligated to monitor and report AEs and any failure of a product to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws. Furthermore, promotional materials must be approved by the FDA prior to use for any drug receiving accelerated approval.
In addition, manufacturers of drug products and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current Good Manufacturing Practices (cGMP), and adherence to commitments made in the NDA. If we, or a regulatory agency, discover previously unknown problems with a product, such as quality issues or AEs of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requesting recall or withdrawal of the product from the market or suspension of manufacturing.
If we, or our third-party contractors, fail to comply with applicable regulatory requirements following approval of our product candidate, a regulatory agency may:
| • | issue an untitled or warning letter asserting violation of the law; |
| • | seek an injunction or impose civil or criminal penalties up to and including imprisonment or monetary fines; |
| • | suspend or withdraw regulatory approval; |
| • | suspend any ongoing clinical trials; |
| • | refuse to approve a pending NDA or supplements to an NDA; or |
| • | request recall and/or seize product. |
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and inhibit our ability to generate revenues.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. If we are found to have improperly promoted our products for off-label uses, we may become subject to significant fines and other liability.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we receive marketing approval for our product candidates, physicians may nevertheless prescribe such products to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant government fines and other related liability. For example, the federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA also has requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.
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Even if we obtain FDA approval for our product candidates in the United States, we may never obtain approval for or commercialize our product candidates outside of the United States, which would limit our ability to realize their full market potential.
In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials that could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be unrealized.
Coverage and adequate reimbursement may not be available for our future products, which could make it difficult for us to sell profitably, if approved.
Market acceptance and sales of any products that we commercialize will depend in part on the extent to which coverage and adequate reimbursement will be available from third-party payers, including government health administration authorities, managed care organizations and private health insurers. Third-party payers decide which therapies they will pay for and establish reimbursement levels. Third-party payers in the United States often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided for any products that we develop will be made on a payer-by-payer basis. One payer’s determination to provide coverage for a drug does not assure that other payers will also provide coverage and adequate reimbursement for the drug. Additionally, a third-party payer’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Third-party payers are increasingly challenging the price, examining the medical necessity and reviewing the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy. We cannot be sure that coverage and reimbursement in the United States or elsewhere will be available for any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.
Our relationships with health care professionals, customers and payors may be subject to applicable anti-kickback, fraud and abuse and other health care laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Health care professionals and third-party payors will play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our current and future arrangements with healthcare professionals, third-party payors and customers may expose us to broadly applicable fraud and abuse and other health care laws and regulations that may constrain the business or financial arrangements and relationships through which we research, as well as market, sell and distribute our products. Restrictions under applicable federal and state health care laws and regulations, include the federal Anti-Kickback Statute, the federal False Claims Act, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, the federal false statements statute, the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or PPACA, commonly referred to as the Physician Payments Sunshine Act, and analogous state laws and regulations, such as state anti-kickback and false claims laws.
Efforts to ensure that our business arrangements with third parties will comply with applicable health care laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other health care laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, exclusion from government funded health care programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded health care programs.
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Current laws and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the health care system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any products for which we obtain marketing approval.
For example, the PPACA was enacted to broaden access to health insurance, reduce or constrain the growth of health care spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Since its enactment there have been judicial and Congressional challenges to certain aspects of the PPACA as well as efforts to repeal or replace certain aspects of the PPACA. For example, Congress considered legislation that would repeal or repeal and replace all or part of the PPACA. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the PPACA. It is unclear how litigation, and the healthcare reform measures of the Biden administration will impact the PPACA and our business.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. In addition, there have been several recent congressional inquiries, proposed bills and other proposals designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products including instituting reference pricing. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. However, it is unclear whether the Biden administration will work to reverse these measures or pursue similar policy initiatives. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.
Risks Related to Our Reliance on Third Parties
We rely on third-party manufacturers to produce our preclinical and clinical drug supplies, and we intend to rely on third parties to produce commercial supplies of any approved products.
We do not own or operate, and we do not expect to own or operate, facilities for product manufacturing, storage and distribution, or testing. We currently rely on third-party manufacturers for supply of our preclinical and clinical drug supplies. We expect that in the future we will continue to rely on such manufacturers for drug supplies that will be used in clinical trials of our product candidates, and for commercialization of any of our product candidates that receive regulatory approval.
The facilities used by our contract manufacturers to manufacture the approved product must be approved by the FDA pursuant to inspections that will be conducted only after we submit an NDA to the FDA, if at all. A representative from the European Medicines Agency (EMA) or another regulatory authority may also require inspection and approval of such contract manufacturing facilities. We are completely dependent on our contract manufacturing partners for compliance with the FDA’s requirements for manufacture of finished pharmaceutical products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA’s strict regulatory requirements of safety, purity and potency, we will not be able to secure and/or maintain FDA approval for our product candidates. In addition, we have no direct control over the ability of the contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If our contract manufacturers cannot meet FDA standards, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our products. No assurance can be given that our manufacturers can continue to make clinical and commercial supplies of product candidates, at an appropriate scale and cost to make it commercially feasible.
In addition, we do not have the capability to package and distribute finished products to pharmacies and other customers. If we receive marketing approval from the FDA, we intend to sell pharmaceutical product packaged and distributed by one or more pharmaceutical product packagers/distributors. Although we have entered into agreements with our current contract manufacturers and packager/distributor for clinical trial material, we will need to enter into commercial agreements with contract manufacturers and with one or more pharmaceutical product packagers/distributors to ensure proper supply chain management once we are authorized to make commercial sales of our product candidates. However, we may be unable to maintain agreements or negotiate commercial supply agreements on commercially reasonable terms with contract manufacturers and pharmaceutical product packagers/distributors, which could delay our a