10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from         to         

Commission File Number: 001-37785

Reata Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

DELAWARE	11-3651945
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2801 Gateway Dr, Suite 150 Irving, Texas	75063
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (972) 865-2219

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, Par Value $0.001 Per Share	RETA	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, an emerging growth company, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☒

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No ☒

As of August 5, 2019, the registrant had 24,481,663 shares of Class A common stock, $0.001 par value per share, and 5,624,681 shares of Class B common stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS

		Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		1
DEFINED TERMS		3
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Stockholders’ Equity (Deficit)	6
	Consolidated Statements of Cash Flows	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
Signatures		35

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties.  We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.  All statements, other than statements of historical or present facts, including statements regarding our future financial condition, future revenues, projected costs, prospects, business strategy, and plans and objectives of management for future operations, are forward-looking statements.  In some cases, you can identify forward-looking statements by terminology such as “believe,” “will,” “may,” “might,” “estimate,” “continue,” “anticipate,” “intend,” “target,” “project,” “model,” “should,” “would,” “plan,” “expect,” “predict,” “could,” “seek,” “goals,” “potential,” and similar terms or expressions that concern our expectations, strategy, plans, or intentions.  These forward-looking statements include, but are not limited to, statements about:

• our expectations regarding the timing, costs, conduct, and outcome of our clinical trials, including statements regarding the timing of the initiation and availability of data from such trials;

• the timing and likelihood of regulatory filings and approvals for our product candidates;

• our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;

• our plans to research, develop, and commercialize our product candidates;

• the commercialization of our product candidates, if approved;

• the rate and degree of market acceptance of our product candidates;

• our expectations regarding the potential market size and the size of the patient populations for our product candidates, if approved for commercial use, and the potential market opportunities for commercializing our product candidates;

• the success of competing therapies that are or may become available;

• our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;

• the ability to license additional intellectual property relating to our product candidates and to comply with our existing license agreements;

• our ability to maintain and establish relationships with third parties, such as contract research organizations, suppliers, and distributors;

• our ability to maintain and establish collaborators with development, regulatory, and commercialization expertise;

• our ability to attract and retain key scientific or management personnel;

• our ability to grow our organization and increase the size of our facilities to meet our anticipated growth;

• the accuracy of our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing;

• our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

• our expectations related to the use of our available cash;

• our ability to develop, acquire, and advance product candidates into, and successfully complete, clinical trials;

• the initiation, timing, progress, and results of future preclinical studies and clinical trials, and our research and development programs;

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• the impact of governmental laws and regulations and regulatory developments in the United States and foreign countries;

• developments and projections relating to our competitors and our industry; and

• other risks and uncertainties, including those described under the heading “Risk Factors” included in our most recent Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements.  Factors that may cause actual results to differ materially from current expectations include, among other things, those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 and in this Quarterly Report on Form 10-Q under “Part II, Item 1A. Risk Factors.”  Given these uncertainties, you should not place undue reliance on these forward-looking statements.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.  Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

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DEFINED TERMS

Unless the context requires otherwise, references to “Reata,” “the Company,” “we,” “us,” or “our” in this Quarterly Report on Form 10-Q refer to Reata Pharmaceuticals, Inc. and its subsidiaries.  We also have used several other terms in this Quarterly Report on Form 10-Q, most of which are explained or defined below.

Abbreviated Term	Defined Term
6MWD	6-minute walk distance
AbbVie	AbbVie Inc.
ADPKD	Autosomal dominant polycystic kidney disease
ANCOVA	Analysis of Covariance
ASU	Accounting Standards Update
Bard	Bardoxolone methyl
CGIC	Clinician Global Impression of Change
CKD	Chronic kidney disease
CRO	Contract research organization
CTD-PAH	Pulmonary arterial hypertension associated with connective tissue disease
DMC	Data monitoring committee
DSMB	Data safety monitoring board
eGFR	Estimated glomerular filtration rate
ESKD	End stage kidney disease
Exchange Act	Securities Exchange Act of 1934
FA	Friedreich’s ataxia
FASB	Financial Accounting Standards Board
FDA	Food and Drug Administration
FSGS	Focal segmental glomerulosclerosis
GFR	Glomerular filtration rate
IgAN	IgA nephropathy
I-PAH	Idiopathic form of PAH
IPO	Initial public offering
IRS	Internal Revenue Service
JOBS Act	Jumpstart Our Business Startups Act
KKC	Kyowa Kirin Co., Ltd. (formerly KHK or Kyowa Hakko Kirin Co., Ltd.)
mFARS	Modified Friedreich’s Ataxia Rating Scale
NDA	New Drug Application
Omav	Omaveloxolone
PAH	Pulmonary arterial hypertension
PGIC	Patient Global Impression of Change
Retained eGFR	eGFR change after a four-week withdrawal of drug
SAE	Serious adverse event
Sarbanes-Oxley Act	The Sarbanes-Oxley Act of 2002
SEC	Securities and Exchange Commission
T1D CKD	Type 1 diabetic CKD
T2D CKD	Type 2 diabetic CKD
UACR	Urinary albumin-to-creatinine ratio

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Reata Pharmaceuticals, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

	June 30, 2019			December 31, 2018
	(unaudited)
Assets
Cash and cash equivalents	$	280,449		$	337,790
Prepaid expenses and other current assets		6,762			4,483
Total current assets		287,211			342,273
Property and equipment, net		2,814			1,445
Other assets		10,463			1,490
Total assets	$	300,488		$	345,208
Liabilities and stockholders’ (deficit) equity
Accounts payable		4,361			4,473
Accrued direct research liabilities		20,871			15,416
Other current liabilities		11,056			4,696
Current portion of deferred revenue		31,421			31,335
Total current liabilities		67,709			55,920
Other long-term liabilities		7,594			524
Term loan, net of current portion and debt issuance costs		79,897			79,219
Deferred revenue, net of current portion		178,761			194,386
Total noncurrent liabilities		266,252			274,129
Commitments and contingencies
Stockholders’ (deficit) equity:
Common stock A, $0.001 par value:    500,000,000 shares authorized; issued and outstanding – 24,466,407    and 24,000,683 shares at June 30, 2019 and December 31, 2018		24			24
Common stock B, $0.001 par value:    150,000,000 shares authorized; issued and outstanding – 5,631,527    and 5,728,175 shares at June 30, 2019 and December 31, 2018		6			6
Additional paid-in capital		450,354			435,452
Accumulated deficit		(483,857	)		(420,323	)
Total stockholders’ (deficit) equity		(33,473	)		15,159
Total liabilities and stockholders’ (deficit) equity	$	300,488		$	345,208

See accompanying notes.

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Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Operations

(in thousands, except share and per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Collaboration revenue
License and milestone	$	7,813		$	7,519		$	15,539		$	39,686
Other revenue		20			52			64			276
Total collaboration revenue		7,833			7,571			15,603			39,962
Expenses
Research and development		29,554			23,429			55,668			44,835
General and administrative		11,706			10,689			21,744			17,317
Depreciation		232			105			401			206
Total expenses		41,492			34,223			77,813			62,358
Other income (expense)
Investment income		1,705			357			3,502			693
Interest expense		(2,413	)		(903	)		(4,810	)		(1,413	)
Loss on extinguishment of debt		—			(1,007	)		—			(1,007	)
Other income (expense)		7			—			7			—
Total other income (expense)		(701	)		(1,553	)		(1,301	)		(1,727	)
Loss before taxes on income		(34,360	)		(28,205	)		(63,511	)		(24,123	)
Provision for taxes on income		20			6			23			6
Net loss	$	(34,380	)	$	(28,211	)	$	(63,534	)	$	(24,129	)
Net loss per share—basic and diluted	$	(1.14	)	$	(1.08	)	$	(2.12	)	$	(0.92	)
Weighted-average number of common shares used in    net loss per share basic and diluted		30,069,048			26,178,793			29,950,241			26,167,033

See accompanying notes.

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Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Stockholders’ (Deficit) Equity

(in thousands, except share and per share data)

	Three Months Ended June 30, 2018
	Common Stock A				Common Stock B						Additional Paid-In		Shareholder Notes			Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Capital		Receivable			Deficit			(Deficit) Equity
Balance at March 31, 2018		19,991,082	$	20		6,171,517		$	7		$	192,962	$	(2	)	$	(335,688	)	$	(142,701	)
Net loss		—		—		—			—			—		—			(28,211	)		(28,211	)
Compensation expense    related to stock options		—		—		—			—			2,552		—			(14	)		2,538
Exercise of options		—		—		43,259			(1	)		493		—			—			492
Proceeds from payments of    shareholder promissory     notes												6		2						8
Conversion of common stock    Class B to Class A		253,593		—		(253,593	)		—			—		—			—			—
Balance at June 30, 2018		20,244,675	$	20		5,961,183		$	6		$	196,013	$	—		$	(363,913	)	$	(167,874	)

	Six Months Ended June 30, 2018
	Common Stock A				Common Stock B						Additional Paid-In		Shareholder Notes			Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Capital		Receivable			Deficit			(Deficit) Equity
Balance at December 31, 2017		19,975,340	$	20		6,166,166		$	7		$	190,145	$	(2	)	$	(337,143	)	$	(146,973	)
Net loss		—		—		—			—			—		—			(24,129	)		(24,129	)
Compensation expense    related to stock options		—		—		—			—			5,037		—			(7	)		5,030
Exercise of options		—		—		64,352			(1	)		825		—			—			824
Proceeds from payments of    shareholder promissory     notes												6		2						8
Conversion of common stock    Class B to Class A		269,335		—		(269,335	)		—			—		—			—			—
Adoption of new accounting    guidance		—		—		—			—			—		—			(2,634	)		(2,634	)
Balance at June 30, 2018		20,244,675	$	20		5,961,183		$	6		$	196,013	$	—		$	(363,913	)	$	(167,874	)

	Three Months Ended June 30, 2019
	Common Stock A				Common Stock B					Additional Paid-In		Shareholder Notes		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Receivable		Deficit			(Deficit) Equity
Balance at March 31, 2019		24,403,477	$	24		5,639,666		$	6	$	444,837	$	—	$	(449,477	)	$	(4,610	)
Net loss		—		—		—			—		—		—		(34,380	)		(34,380	)
Compensation expense    related to stock options		—		—		—			—		4,483		—		—			4,483
Exercise of options		—		—		54,791			—		1,034		—		—			1,034
Conversion of common stock    Class B to Class A		62,930		—		(62,930	)		—		—		—		—			—
Balance at June 30, 2019		24,466,407	$	24		5,631,527		$	6	$	450,354	$	—	$	(483,857	)	$	(33,473	)

	Six Months Ended June 30, 2019
	Common Stock A				Common Stock B					Additional Paid-In		Shareholder Notes		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Receivable		Deficit			(Deficit) Equity
Balance at December 31, 2018		24,000,683	$	24		5,728,175		$	6	$	435,452	$	—	$	(420,323	)	$	15,159
Net loss		—		—		—			—		—		—		(63,534	)		(63,534	)
Compensation expense    related to stock options		—		—		—			—		8,710		—		—			8,710
Exercise of options		—		—		369,076			—		6,085		—		—			6,085
Conversion of common stock    Class B to Class A		465,724		—		(465,724	)		—		—		—		—			—
Other shareholder    transactions		—		—		—			—		107		—		—			107
Balance at June 30, 2019		24,466,407	$	24		5,631,527		$	6	$	450,354	$	—	$	(483,857	)	$	(33,473	)

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Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

	Six Months Ended
	June 30,
	2019			2018
Operating activities
Net loss	$	(63,534	)	$	(24,129	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		401			206
Amortization of debt issuance costs		678			210
Stock-based compensation expense		8,710			5,037
Loss on extinguishment of debt		—			1,007
Changes in operating assets and liabilities:
Amounts earned or due from collaboration agreements		933			(29,438	)
Prepaid expenses and other current assets		(3,212	)		(969	)
Other assets		8			13
Accounts payable		312			46
Accrued direct research and other current and long-term liabilities		9,802			8,275
Deferred revenue		(15,539	)		(9,686	)
Net cash used in operating activities		(61,441	)		(49,428	)
Investing activities
Purchases of property and equipment		(2,092	)		(268	)
Net cash used in investing activities		(2,092	)		(268	)
Financing activities
Proceeds from long-term debt		—			60,000
Payments on deferred issuance costs		—			(2,240	)
Exercise of options		6,085			832
Other shareholder transactions		107			—
Net cash provided by financing activities		6,192			58,592
Net (decrease) increase in cash and cash equivalents		(57,341	)		8,896
Cash and cash equivalents at beginning of year		337,790			129,780
Cash and cash equivalents at end of period	$	280,449		$	138,676
Supplemental disclosures
Cash paid for interest	$	4,153		$	1,354
Purchases of equipment in accounts payable and other current liabilities	$	170		$	41
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations	$	8,981		$	—

See accompanying notes.

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Reata Pharmaceuticals, Inc.

Notes to Unaudited Consolidated Financial Statements

1. Description of Business

The Company’s mission is to develop innovative therapies that change patients’ lives for the better.  The Company focuses on developing small-molecule therapeutics with novel mechanisms of action for the treatment of severe, life-threatening diseases with few or no approved therapies.  The Company’s lead product candidates, bardoxolone methyl (Bard) and omaveloxolone (Omav), activate the transcription factor Nrf2, which plays an important role in regulating the cellular response to injury.  By activating Nrf2, Bard and Omav normalize mitochondrial function, restore redox balance, and resolve inflammation.  The Company has fully enrolled two registrational clinical trials: CARDINAL, studying Bard in chronic kidney disease (CKD) caused by Alport syndrome, and MOXIe, studying Omav in Friedreich’s ataxia (FA).  CKD caused by Alport syndrome and FA are rare, serious diseases with no approved therapy.  The Company designed CARDINAL and MOXIe based on the results of earlier clinical studies and guidance from the FDA on a potential path to approval.  The Company expects to have top-line data from both of these clinical trials in the second half of 2019.  With each of these indications, FDA approval may provide expansion opportunities into other related indications.  The Company is also conducting two additional registrational trials, CATALYST, to study Bard in patients with a rare and serious form of pulmonary arterial hypertension caused by connective tissue disease (CTD-PAH) and FALCON, to study Bard in patients with autosomal dominant polycystic kidney disease (ADPKD).  The Company expects to have top-line data from CATALYST during the first half of 2020 and initiated enrollment in FALCON in May 2019.  The Company expects its current cash to fund its operations through data readouts for CARDINAL, MOXIe, and CATALYST.  In addition to its lead programs, the Company is currently exploring a battery of additional clinical and preclinical programs in diseases that may include meaningful expansion opportunities for Bard and Omav.

The Company’s consolidated financial statements include the accounts of all majority-owned subsidiaries.  Accordingly, the Company’s share of net earnings and losses from these subsidiaries is included in the consolidated statements of operations.  Intercompany profits, transactions, and balances have been eliminated in consolidation. 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.  The consolidated balance sheet at December 31, 2018, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  For further information, refer to the annual consolidated financial statements and footnotes thereto of the Company.

The Company’s significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Annual Report on Form 10-K).  During the first quarter of 2019, the Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). As a result of the adoption of Topic 842, the Company has updated its Leases accounting policies. There were no other changes to its significant accounting policies from those disclosed in its 2018 Annual Report on Form 10-K.

Leases

At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on the unique facts and circumstances present in that arrangement. Lease assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized at the lease commencement date based on

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the present value of lease payments over the lease term calculated using its incremental borrowing rate based on the information available at commencement unless the implicit rate is readily determinable.  Lease assets also include upfront lease payments, lease incentives paid, and direct costs incurred and exclude lease incentives received.  The lease term used to calculate the lease assets and related lease liabilities includes the options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. Lease expense for operating leases is recognized on a straight-line basis over the expected lease term as an operating expense while the expense for finance leases is recognized as depreciation expense over the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

The Company will account for each separate lease component separately from the nonlease components.  The depreciable life of lease assets and leasehold improvements is limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of its exercise.

Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expenses for these short-term leases and operating leases are recognized on a straight-line basis over the lease term.

Recently Adopted Accounting Pronouncements

The Company is an “emerging growth company,” as defined in the JOBS Act.  Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.  The Company has irrevocably elected not to avail itself of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as public companies that are not emerging growth companies.

In February 2016, the Financial Accounting Standards Board (FASB) issued Topic 842, amended by ASU 2018-11, Leases (Topic 842): Targeted Improvements. The new guidance requires a lessee to recognize assets and liabilities for all leases with lease terms of more than 12 months and provide additional disclosures. Topic 842 requires adoption using a modified retrospective transition approach with either 1) transition provisions at the beginning of the earliest comparative period records its cumulative adjustment to retained earnings at the beginning of the earliest period presented or 2) a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption.  We adopted this standard on January 1, 2019 using the cumulative-effect adjustment approach. We elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019 whereby these contracts were not reassessed or reclassified from their previous assessment as of December 31, 2018.  

As a result of implementing Topic 842, the Company recognized an operating lease right-of-use asset of $1,544,000 and an operating lease liability of $1,659,000 on January 1, 2019, with no impact on its beginning retained earnings, consolidated statements of operations, or cash flows.  See Note 5, Leases, for further details.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements (ASU 2018-09).  This ASU provided various minor codification updates and improvements to address comments that the FASB had received regarding unclear or vague accounting guidance.  The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year.  The adoption of this guidance did not have a material impact on our financial position, results of operations or disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808) (ASU 2018-18).  This update provides clarification on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) including the alignment of unit of account guidance between the two topics.  This update is effective in fiscal years, including interim periods, beginning after December 15, 2020, and early adoption is permitted.  The Company is currently evaluating the impact on its financial statements of adopting this guidance.

3. Collaboration Agreements

AbbVie

In December 2011, the Company entered into a collaboration agreement with AbbVie Inc. (AbbVie) (the AbbVie Collaboration Agreement) to jointly research, develop, and commercialize the Company’s portfolio of second and later generation oral Nrf2 activators.  The terms of the agreement include payment to the Company of a

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nonrefundable, up-front payment of $400,000,000. The Company is also participating with AbbVie on joint steering committees.  

The up-front payment and the Company’s collaboration on research, development, and commercialization are accounted for as a single unit of accounting.  Revenue is being recognized ratably through December 2026, which is the estimated minimum period that is needed to complete the performance obligations under the terms of the AbbVie Collaboration Agreement.  The Company began recognizing revenue related to the up-front payment upon execution of the agreement. During the three months ended June 30, 2019 and 2018, the Company recognized approximately $6,644,000, and during the six months ended June 30, 2019 and 2018, recognized $13,214,000, as collaboration revenue.  As of June 30, 2019, the Company recorded deferred revenue totaling approximately $198,430,000 of which approximately $26,720,000 is reflected as the current portion of deferred revenue.

KKC

In December 2009, the Company entered a license agreement with Kyowa Kirin Co., Ltd. (KKC) (the KKC agreement), which granted KKC an exclusive license to develop and commercialize Bard in the licensed territory.  The Company received a nonrefundable, up-front license fee of $35,000,000 in 2009 and regulatory milestones totaling $45,000,000 in 2010, 2012, and 2018 and could receive additional regulatory milestones of $52,000,000 and commercial milestones of $140,000,000, as well as tiered royalties ranging from the low teens to the low 20 percent range, depending on the country of sale and the amount of annual net sales, on net sales by KKC in the licensed territory.  

The up-front payment and regulatory milestones are accounted for as a single unit of accounting.  Revenue is being recognized ratably through December 2021, which is the estimated minimum period that is needed to complete the deliverables under the terms of the KKC agreement.  The Company began recognizing revenue related to the up-front payment upon execution of the agreement. During the three months ended June 30, 2019 and 2018, the Company recognized approximately $1,169,000 and $875,000, respectively, and during the six months ended June 30, 2019 and 2018, recognized $2,325,000 and $26,472,000, respectively, as collaboration revenue.  As of June 30, 2019, the Company recorded deferred revenue totaling approximately $11,752,000 of which approximately $4,701,000 is reflected as the current portion of deferred revenue.

4. Term Loan

On June 14, 2018, the Company entered into an Amended and Restated Loan and Security Agreement (Restated Loan Agreement) with Oxford Finance LLC and Silicon Valley Bank (collectively, the Lenders), which amended and restated the Loan and Security Agreement entered into among Reata and the Lenders on March 31, 2017, as amended on November 3, 2017 (Loan Agreement).

Under the Restated Loan Agreement, the Term A Loan was increased to $80,000,000, and the Term B Loan availability was increased to $45,000,000, available to be drawn within 30 days, but no later than December 31, 2019, after the achievement of one of two milestones.  If the Company is entitled to draw the Term B Loan but does not draw the Term B Loan by December 31, 2019, the Company is obligated to pay a non-utilization fee of $450,000.

All outstanding Term Loans will mature on June 1, 2023.  Under the Term A Loan, the Company will make interest-only payments for 24 months through June 1, 2020; however, if the Company draws the Term B Loan, the Company will make interest-only payments for 36 months through June 1, 2021.  The interest-only payment period will be followed by 36 equal monthly payments, or 24 equal monthly payments if the Company draws the Term B Loan, of principal and interest payments. The Term Loans will bear interest at a floating per annum rate calculated as 7.79% plus the greater of the 30-day U.S. Dollar LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or 1.91%, with a minimum rate of 9.7% and maximum rate of 12.29%.

The Company has the option to prepay all, but not less than all, of the borrowed amounts, provided that the Company will be obligated to pay a prepayment fee equal to (a) the aggregate amount of interest that the Company would have paid through the maturity date if prepayment is made on or before the first anniversary of the applicable funding date of the Term Loan, (b) 4.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the first anniversary date and on or before the second anniversary of the applicable

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funding date, (c) 3.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the second anniversary date and on or before the third anniversary of the applicable funding date, or (d) 1.5% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the third anniversary date and on or before the fourth anniversary of the applicable funding date.  The Company will also be required to make a final exit fee payment of 6.5% of the principal balance of the Term A Loan and 4.0% of the Term B Loan, payable on the earliest of the prepayment of the Term Loans, acceleration of any Term Loan, or at maturity of the Term Loans.

The Company may use the proceeds from the Term Loans for working capital and to fund its general business requirements.  The Company’s obligations under the Restated Loan Agreement are secured by substantially all of its current and future assets, including its owned intellectual property.

As of June 30, 2019, the Company had $80,000,000 outstanding under the Term A Loan, which was recorded at its initial carrying value of $80,000,000, less unamortized discount and debt issuance costs of approximately $5,303,000.  In connection with the Term A Loan, the discount and debt issuance costs were recorded as a reduction to debt on its balance sheet and are being accreted to interest expense over the life of the Term A Loan.  Additionally, the final exit fee of approximately $5,200,000 is being accrued over the life of the Term A Loan through interest expense.  The Term A Loan has a current effective interest rate of 10.98% before debt issuance costs and final exit fee and 13.53% including debt issuance costs and final exit fee.  The Company is in compliance with all covenants under the Restated Loan Agreement as of June 30, 2019.

The future principal payments by fiscal year for the Company’s Term A Loan:

	As of June 30, 2019
	(in thousands)
2019 (remaining six months)	$	—
2020		15,555
2021		26,667
2022		26,667
2023		11,111
	$	80,000

5. Leases

The Company’s corporate headquarters are located in Irving, Texas, where it leases approximately 34,890 square feet of office and laboratory space. In February 2019, the Company commenced a lease for approximately 122,000 square feet of additional office space in Plano, Texas.  

The Company’s leases have remaining contractual terms of up to approximately 36 months, which includes the options to extend the leases for up to one year.  Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

At June 30, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 8.3% and 2.8 years, respectively.  During the six months ended June 30, 2019, cash paid for amounts included for the measurement of lease liabilities was $952,000. During the three and six months ended June 30, 2019 the Company recorded operating lease expense of $919,000 and $1,578,000, respectively.  The Company has elected to net the amortization of the right-of-use assets and the reduction of the lease liabilities principal in accrued direct research and other current and long-term liabilities in the consolidated statements of cash flows.

Supplemental balance sheet information related to our operating leases is as follows:

	Balance Sheet Classification	As of June 30, 2019
		(in thousands)
Non-current right-of-use assets	Other assets	$	8,981
Current lease liabilities	Other current liabilities		2,568
Non-current lease liabilities	Other long-term liabilities		7,094

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Maturities of lease liabilities by fiscal year for the Company’s operating leases:

	As of June 30, 2019
	(in thousands)
2019 (remaining six months)	$	1,434
2020		3,999
2021		4,090
2022		1,178
Total lease payments		10,701
Less: Imputed interest		(1,039	)
Present value of lease liabilities	$	9,662

6. Income Taxes

The Company’s effective tax rate varies with the statutory rate due primarily to the impact of nondeductible stock-based compensation and the changes in valuation allowance related to certain deferred tax assets generated or utilized in the applicable period.  The Company’s deferred tax assets have been fully offset by a valuation allowance at June 30, 2019, and the Company expects to maintain this valuation allowance until there is sufficient evidence that future earnings can be achieved, which is uncertain at this time.

The IRS examination team has completed its examination of the Company’s 2013, 2014, and 2015 U.S. tax returns and proposed adjustments with respect to certain items that were reported by the Company for the 2013 tax year.  In June 2018, the Company received the Revenue Agent Report from the IRS.  The Company believes that it has accurately reported all amounts in its tax returns and has submitted an administrative protest with the IRS contesting the examination team’s proposed adjustments.  The Company intends to vigorously defend its reported positions and believes the ultimate resolution of the adjustments proposed by the IRS examination team will not have a material adverse effect on its consolidated financial statements.

7. Stock-Based Compensation

Stock Options

The following table summarizes stock-based compensation expense reflected in the consolidated statements of operations:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)
Research and development	$	1,659	$	974	$	3,350	$	1,935
General and administrative		2,824		1,578		5,360		3,102
	$	4,483	$	2,552	$	8,710	$	5,037

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The following table summarizes stock option activity as of June 30, 2019, and changes during the six months ended June 30, 2019, under the Second Amended and Restated Long Term Incentive Plan and standalone option agreements:

	Number of Options			Weighted- Average Exercise Price
Outstanding at January 1, 2019		3,320,571			21.20
Granted		1,160,233			60.53
Exercised		(369,076	)		16.49
Forfeited		(265,854	)		33.02
Expired		—			—
Outstanding at June 30, 2019		3,845,874			32.79
Exercisable at June 30, 2019		1,563,869			21.13

The total intrinsic value of all outstanding options and exercisable options at June 30, 2019 was $236,740,000 and $114,501,000, respectively.

8. Net Loss per Share

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders:

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands, except share and per share data)
Numerator
Net loss	$	(34,380	)	$	(28,211	)	$	(63,534	)	$	(24,129	)
Denominator
Weighted-average number of common shares    used in net loss per share – basic		30,069,048			26,178,793			29,950,241			26,167,033
Dilutive potential common shares		—			—			—			—
Weighted-average number of common shares    used in net loss per share – diluted		30,069,048			26,178,793			29,950,241			26,167,033
Net loss per share – basic	$	(1.14	)	$	(1.08	)	$	(2.12	)	$	(0.92	)
Net loss per share – diluted	$	(1.14	)	$	(1.08	)	$	(2.12	)	$	(0.92	)

The number of weighted average options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive represented 3,845,874 and 3,337,509 shares for the six months ended June 30, 2019 and 2018, respectively.

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

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information appearing in this Quarterly Report on Form 10-Q.  Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, operations, and product candidates, includes forward-looking statements that involve risks and uncertainties.  Factors that may cause actual results to differ materially from current expectations include, among other things, those described under the heading “Risk Factors” and discussed elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a clinical stage biopharmaceutical company focused on identifying, developing, and commercializing innovative therapies that change patients’ lives for the better.  We concentrate on small-molecule therapeutics with novel mechanisms of action for the treatment of severe, life-threatening diseases with few or no approved therapies.  We are currently conducting registrational trials with our lead product candidates, Bard and Omav, which activate the transcription factor Nrf2 to normalize mitochondrial function, restore redox balance, and resolve inflammation.

Our lead registrational programs are evaluating our product candidates for the treatment of four rare diseases: CKD caused by Alport syndrome in our CARDINAL study, FA in our MOXIe study, CTD-PAH in our CATALYST study, and ADPKD in our FALCON study.  We have fully enrolled CARDINAL and MOXIe and expect to have top-line data from both of these clinical trials in the second half of 2019.  We expect to complete enrollment of CATALYST this year and have top-line data during the first half of 2020.  We began enrollment of FALCON in May 2019.  If we receive FDA approval for any of these indications, it may provide expansion opportunities into other related indications.  We have received orphan drug designation from the FDA and the European Commission for Bard for the treatment of Alport syndrome and for Omav for the treatment of FA and from the FDA for Bard for the treatment of PAH and ADPKD.

The chart below is a summary of our current registrational programs:

Registrational Programs
Program	Next Expected Milestone	Timing of Milestone
CKD caused by Alport syndrome	Phase 3 Data	2H 2019
Bard
Friedreich’s ataxia	Phase 2 Part 2 Data	2H 2019
Omav
CTD-PAH	Phase 3 Data	1H 2020
Bard
ADPKD	Completion of Enrollment	TBD
Bard

Bard in CKD Caused by Alport Syndrome and Additional Rare Forms of CKD

Bard has been evaluated in multiple clinical trials enrolling over 2,000 patients exposed to active drug and has demonstrated consistent, clinically meaningful improvement in kidney function across several disease states as measured by estimated glomerular filtration rate (eGFR) and other markers of kidney function.  Specifically, we have observed statistically significant increases in eGFR in all Phase 2 and Phase 3 clinical trials in seven distinct patient populations treated with Bard, including patients with PAH and CKD caused by type 2 diabetes (T2D CKD), Alport syndrome, ADPKD, IgA nephropathy (IgAN), type 1 diabetic  CKD (T1D CKD), and focal segmental glomerulosclerosis (FSGS).  

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We believe these data support the potential for Bard to delay or prevent dialysis, kidney transplant, and death in patients with Alport syndrome and other rare forms of CKD.  Additional observations from the clinical trials of Bard include the following:

• Statistically significant increases in directly-measured GFR using the “gold standard” inulin clearance method, improvements in creatinine clearance, and reduction in the levels of blood waste products filtered by the kidney.  

• Statistically significant improvements in eGFR versus baseline or placebo in six different types of CKD, including Alport syndrome, ADPKD, IgAN, T1D CKD, T2D CKD, and FSGS.

• Sustained improvement in kidney function in long-term trials:  

o In the Phase 2 portion of CARDINAL, Bard treatment produced a statistically significant increase from baseline in mean eGFR of 10.4 mL/min/1.73 m² (p<0.0001) after 48 weeks of treatment, which, based on historical data available for 22 of the patients prior to enrolling in the trial, represents a recovery of over two years of average decline in kidney function.

o In two large, placebo-controlled clinical studies (BEAM and BEACON) in patients with T2D CKD, statistically significant increases in mean eGFR of 14.9 mL/min/1.73 m² (p<0.001) and 5.6 mL/min/1.73 m² (p<0.001), respectively, were sustained for at least one year.

• Reduction in risk of adverse kidney outcomes, suggesting that Bard treatment preserves kidney function and may delay the onset of kidney failure in patients with T2D and stage 4 CKD:

o In BEACON, patients randomized to Bard were significantly less likely to experience adverse kidney outcomes as defined by a composite endpoint consisting of ≥30% decline from baseline in eGFR, eGFR <15 mL/min/1.73 m², or end-stage kidney disease (ESKD) events (HR=0.48, p<0.0001).  

o In BEACON, Bard treatment resulted in a decreased number of kidney-related serious adverse events (SAEs) and ESKD events.  

• Statistically significant improvement in retained eGFR, which is the eGFR change after a four-week withdrawal of drug, above baseline in BEAM, BEACON, and the Phase 2 portion of CARDINAL.  To our knowledge, Bard is the first therapy to produce a retained eGFR benefit that is above baseline in a long-term CKD trial.  

o The FDA has provided guidance to us and other sponsors that clinical trials with a retained eGFR benefit versus placebo may support approval in certain rare forms of CKD.  The FDA has provided guidance to us that, in patients with CKD caused by Alport syndrome or ADPKD, a retained eGFR benefit versus placebo after one year of Bard treatment may support accelerated approval and after two years of Bard treatment may support full approval.

o We believe the retained eGFR benefit observed in these clinical trials demonstrates that Bard treatment improved the structure of the kidney, modified the course of the disease, and may prevent or delay kidney failure and the need for dialysis or a kidney transplant.

We are developing Bard for the treatment of patients with CKD in the following settings:  Alport syndrome in our registrational CARDINAL study, ADPKD in our registrational FALCON study, and four rare forms of CKD in our Phase 2 PHOENIX study.  In addition, KKC, one of our strategic collaborators, is currently conducting its registrational trial of Bard in diabetic (type 1 and 2) kidney disease in Japan.  KKC completed patient enrollment in this trial in June 2019, with data expected in the first half of 2022.

CARDINAL, a Study in Patients with CKD Caused by Alport Syndrome

Alport syndrome is a rare and serious hereditary disease that manifests as early as the first decade of life and causes average annual declines in eGFR of approximately 3 to 4 mL/min/1.73 m² and affects approximately 30,000 to 60,000 patients in the United States.  In patients with the most severe forms of the disease, approximately 50% progress to dialysis by age 25, 90% by age 40, and nearly 100% by age 60.  There are no approved therapies for Alport syndrome anywhere in the world.  

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In 2018, we announced positive interim safety and efficacy data for the ongoing open-label Phase 2 portion of CARDINAL.  The Phase 2 portion of the trial enrolled 30 patients, and 25 patients were available for analysis through one year.  No patients discontinued due to drug-related adverse events.  Data demonstrate that Bard significantly improved kidney function in patients with Alport syndrome as measured by eGFR.  In the Phase 2 portion of CARDINAL, we noted the following:

• A statistically significant increase from baseline in mean eGFR at Week 48 of 10.4 mL/min/1.73 m² (p<0.0001) in 25 patients was observed, which positively correlates with the previously-announced Week 12 eGFR increase from baseline of 13.4 mL/min/1.73 m² (p<0.0001) in 30 patients.  

o Historical data were available for 22 of the 25 CARDINAL Phase 2 patients.  These patients’ eGFR declined an average of 4.2 mL/min/1.73 m² per year in the three-year period prior to enrolling in the trial.

o This magnitude of improvement in eGFR represents the recovery of over two years of average decline in kidney function in patients with Alport syndrome in this trial.

• A statistically significant increase from baseline in mean retained eGFR at Week 52 of 4.1 mL/min/1.73 m² (p<0.05) in 25 patients was observed.  

o Bard and any active metabolites are eliminated from the body within approximately 10 days after withdrawal, so we believe this retained eGFR benefit is a measure of the effect of long-term treatment on the structure of the kidney and its disease-modifying potential.

o We believe this retained eGFR benefit provides evidence that increases in eGFR observed with Bard therapy may prevent or delay kidney failure.

• We utilized the Patient Global Impression of Change (PGIC) instrument, in which the patients provide self-assessments, and the Clinician Global Impression of Change (CGIC), in which clinicians provide their assessments of their patients, to assess patient quality-of-life factors after one year of treatment.  Per the PGIC, 78% of patients reported that they were clinically improved while, per the CGIC, 83% of clinicians reported that their patients were clinically improved.

• Urinary albumin-to-creatinine ratio (UACR) is a primary method used to detect elevated urinary protein.  Persistent, increased protein in the urine may be a significant risk factor for kidney damage and renal disease.  Mean changes in UACR during the 48 weeks on Bard were not clinically significant.  At Week 52, the mean UACR was not clinically significant and was not statistically significantly different from baseline.  We believe these findings further demonstrate that Bard does not increase eGFR through a damaging mechanism.

• No safety concerns were reported by the data monitoring committee (DMC) that oversees the trial and reviews all safety data.

The Phase 3 portion of CARDINAL is an international, multi-center, randomized, double-blind, placebo-controlled trial that is studying the safety and efficacy of Bard in patients with CKD caused by Alport syndrome.  We are currently conducting the Phase 3 portion of CARDINAL. The protocol allows for enrollment of approximately 150 patients randomized evenly to either Bard or placebo.  The FDA has provided us with guidance that an analysis of retained eGFR, demonstrating an improvement versus placebo after one year of Bard treatment, may support an NDA submission for accelerated approval of Bard for the treatment of CKD caused by Alport syndrome, and data demonstrating an improvement versus placebo in retained eGFR after two years of treatment may support full approval.  We expect to have one year top-line results available in the second half of 2019.  The analysis plan specifies analysis of covariance (ANCOVA) using off-treatment values as the analysis method for Week 52, and with 157 patients enrolled, the study could detect a placebo-corrected difference in change from baseline eGFR of approximately 2.5 mL/min/1.73m². No safety concerns have been reported by the DMC.

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FALCON, a Study in Patients with ADPKD

ADPKD is an inherited, rare form of CKD caused by a genetic defect in PKD1 or PKD2 and is characterized by formation of fluid-filled cysts in the kidneys.  Inflammation appears to play a role in cyst growth and is associated with disease progression in ADPKD.  PKD1 is the most common mutation, causing about 85% of ADPKD cases, and patients generally progress to ESKD, on average, by age 54.  ADPKD is the most common single-gene disorder of the kidneys, and there are an estimated 400,000 patients in the United States, with approximately 140,000 diagnosed.  The only therapy currently approved for ADPKD is tolvaptan, which was approved in the United States in 2018.

We have initiated a registrational Phase 3 trial called FALCON in patients with ADPKD.  FALCON is an international, multi-center, randomized, double-blind, placebo-controlled trial studying the safety and efficacy of Bard in approximately 300 patients with ADPKD randomized one-to-one to active drug or placebo.  We began enrollment in FALCON in May 2019.  The FDA has provided us with guidance that, in patients with ADPKD, an analysis of retained eGFR, demonstrating an improvement versus placebo after one year of Bard treatment, may support an NDA submission for accelerated approval of Bard for the treatment of ADPKD, and data demonstrating an improvement versus placebo in retained eGFR after two years of treatment may support full approval.  We will measure the retained eGFR benefit versus placebo at 52 weeks after treatment on study drug for 48 weeks and a four-week withdrawal of drug.  After 52 weeks, patients will resume study drug and will continue on study drug for a second year.  The second-year retained eGFR benefit will be measured at Week 104.

PHOENIX, a Study in Patients with Rare Forms of CKD

PHOENIX was an open-label, multi-center Phase 2 trial evaluating the safety and efficacy of Bard in patients with ADPKD, IgAN, T1D CKD, or FSGS.  In aggregate, the prevalence of these diseases exceeds 700,000 patients in the United States, representing a meaningful market for Bard in rare forms of CKD.  A total of 103 patients were enrolled in the study in four separate cohorts, including 31 patients with ADPKD, 26 with IgAN, 28 with T1D CKD, and 18 with FSGS.  Patients were treated with Bard for 12 weeks in all four cohorts, and each cohort showed statistically significant increases in mean eGFR., with the mean change in eGFR from baseline across all four cohorts of 7.8 mL/min/1.73 m² (n=103; p<0.0001).  Of the patients that reached Week 12, 88% experienced increases in eGFR at Week 12.  Bard significantly reduced mean systolic blood pressure by 3.8 mmHg (n=103; p=0.002) and mean diastolic blood pressure by 2.8mmHg (n=103; p=0.0009).  Urinary albumin excretion was low upon study entry and remained unchanged by Bard treatment (n=103; p=0.6).  The most commonly reported adverse event across all cohorts was muscle spasms, which were not associated with clinical signs or symptoms of muscle injury.  No SAEs were reported as related to Bard.

Based on the eGFR improvements observed in PHOENIX patients, we plan to pursue IgAN, T1D CKD, and FSGS as commercial indications.  We believe that registrational clinical trials similar to the design of the Phase 3 CARDINAL and FALCON trials with a two-year duration and a retained eGFR benefit endpoint after one and two years of treatment would be sufficient to form the basis of an NDA submission to the FDA seeking approval of Bard for the treatment of these forms of CKD.

Omav in FA

We are developing Omav for the treatment of patients with FA, an inherited, debilitating, and degenerative neuromuscular disorder, which is normally diagnosed during adolescence and is caused by a mutation in the frataxin gene.  Patients with FA typically become dependent on wheelchairs 10 to 15 years after disease onset, with a median age of death in the mid-30s.  Patients with FA experience an average annual worsening, or increase, in modified Friedreich’s Ataxia Rating Scale (mFARS) scores of one to two points.  FA is an ultra-orphan disease that, based on literature and proprietary research, we believe affects approximately 22,000 people globally, including 6,000 in the United States.  Approximately 2,700 worldwide patients are identified in patient registries, including approximately 1,500 in the United States.  There are no currently approved therapies for the treatment of FA anywhere in the world.  

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MOXIe, a Study in Patients with FA

Our Phase 2 trial, called MOXIe, is a two-part, international, multi-center, randomized, double-blind, placebo-controlled registrational trial that studies the safety and efficacy of Omav in patients with FA.  In part 1 of MOXIe, at the optimal dose level of Omav, we noted the following at Week 12:

• A statistically significant improvement, or decrease, in mFARS scores of 3.8 points (p=0.0001) versus baseline was observed.  This improvement represents approximately two years of average decline in MOXIe patient mFARS scores.

• A placebo-corrected decrease in mFARS scores of 2.3 points (p=0.06) was observed.  This improvement represents at least one year of average decline in MOXIe patient mFARS scores.

• Excluding pes cavus patients, a statistically significant improvement in mFARS scores of 4.4 points (p=0.01) relative to placebo was observed.  This improvement represents approximately two years of average decline in MOXIe patient mFARS scores.

• No safety concerns were noted by the data safety monitoring board (DSMB) that oversees the trial and reviews all safety data.

We are currently conducting the registrational part 2 of MOXIe, and the trial has been fully enrolled with 103 patients.  The primary endpoint of the trial is the change from baseline in mFARS score, a neurological and functional assessment tool, in patients treated with Omav compared to placebo at 48 weeks. The FDA has provided us with guidance that an analysis of mFARS scores demonstrating an improvement versus placebo after 48 weeks of Omav treatment may support an NDA submission for Omav for the treatment of FA.

The FDA recently published draft guidance titled “Enhancing the Diversity of Clinical Trial Populations” that encourages sponsors to study broader participant groups as part of the secondary efficacy and safety analyses, even when the primary efficacy analysis population is narrowed.  In part 2 of MOXIe, we have included a predictive enrichment strategy that is consistent with the recommendations in the guidance.  Patients with pes cavus, a musculoskeletal foot deformity, may represent a different subtype of FA, having a different pathophysiology and clinical phenotype.  Analysis of Part 1 data showed that treatment with Omav did not significantly improve the key studied endpoint, mFARS, in patients with pes cavus.  The presence of pes cavus may interfere with the ability to perform assessments that require standing, walking or pedaling.  We included patients with pes cavus in the study to ensure that the broad FA population is represented even though these patients may be less likely to have a measurable response in mFARS.  As a predictive enrichment strategy, the primary analysis population for Part 2 efficacy is narrowed to the 83 patients enrolled without pes cavus.  As a result, the minimum detectable placebo-corrected difference in mFARS is approximately 1.3 points assuming similar variability to that observed in part 1 of MOXIe.  FDA has reviewed and provided guidance on our revised statistical analysis plan and the predictive enrichment strategy.  

Safety and efficacy will be assessed descriptively for the broader participant group that includes all patients enrolled.  We expect to have top-line data from MOXIe available in the second half of 2019.  No safety concerns have been reported by the DSMB.

Bard in Connective Tissue Disease Associated Pulmonary Arterial Hypertension

CATALYST, a Study in Patients with CTD-PAH

We are studying Bard in CTD-PAH, which is a late and often fatal manifestation of many types of autoimmune disease, including systemic sclerosis (scleroderma), systemic lupus erythematosus, mixed connective tissue disease, and others.  CTD-PAH is a subset of PAH, which results in a progressive increase in pulmonary vascular resistance, ultimately leading to right ventricular heart failure and death.  Based on literature and proprietary research, we believe there are approximately 12,000 patients with CTD-PAH in the United States and 50,000 worldwide.  

In comparison to patients with the idiopathic form of PAH (I-PAH), patients with CTD-PAH generally have a worse prognosis and experience a higher occurrence of small vessel fibrosis and pulmonary veno-obstructive diseases.  CTD-PAH represents approximately 30% of the overall PAH population and approximately 10 to 15% of

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patients with scleroderma or lupus erythematosus. Patients with CTD-PAH are less responsive to existing vasodilator therapies than patients with I-PAH and have a five-year survival rate of approximately 44%, in contrast with a five-year survival rate of approximately 68% for patients with I-PAH.  Currently approved therapies, all systemic vasodilators, are used to treat all etiologies of PAH.  By a meta-analysis of 11 registrational trials comprised of more than 2,700 patients, the currently approved therapies were shown to be less beneficial for patients with CTD-PAH compared to patients with I-PAH as measured by 6-minute walk distance (6MWD) responses in patients with CTD-PAH of 9.6 meters, or approximately one-third, compared to the responses in patients with I-PAH of 30 meters.  Bard is an Nrf2 activator, not a systemic vasodilator, and directly targets the bioenergetic and inflammatory components of PAH.  Additionally, because Bard does not have systemic hemodynamic effects or cause drug-drug interactions in patients with PAH, it may be used in combination with other therapies to a greater incremental effect than an additional vasodilator.

Initial results from our Phase 2 LARIAT trial in patients with PAH showed that Bard provided the greatest improvement in 6MWD to patients with CTD-PAH.  Patients with CTD-PAH treated with Bard demonstrated a statistically significant increase of 38.2 meters (p<0.001) in mean 6MWD compared to baseline and a placebo-corrected change in 6MWD of 28.4 meters (p=0.07).  Further analysis of data from patients with CTD-PAH who would be eligible for inclusion in our Phase 3 trial, CATALYST, demonstrated a statistically significant increase of 42.7 meters (p<0.001) in mean 6MWD compared to baseline and a placebo-corrected change in 6MWD of 48.5 meters (p=0.005).

We are currently conducting CATALYST, an international, multi-center, randomized, double-blind, placebo-controlled Phase 3 trial that studies the safety and efficacy of Bard in patients with CTD-PAH when added to standard-of-care therapy.  The protocol includes 200 patients with CTD-PAH, and we expect to have top-line data from the CATALYST trial in the first half of 2020.  Data from CATALYST demonstrating an improvement in 6MWD versus placebo may support an NDA submission for approval of Bard for the treatment of CTD-PAH.  No safety concerns have been reported by the DSMB.

Other Programs

RTA 901 is the lead product candidate from our Hsp90 modulator program, which includes highly potent and selective C-terminal modulators of Hsp90.  We have observed favorable activity of RTA 901 in a range of preclinical models of neurodegeneration and neuroprotection, including models of diabetic neuropathy, neural inflammation, and neuropathic pain.  RTA 901, administered orally once-daily, has been observed to rescue existing nerve function, restore thermal and mechanical sensitivity, and improve nerve conductance velocity and mitochondrial function in rodent disease models.  We have completed a Phase 1 trial to evaluate the safety, tolerability, and pharmacokinetic profile of RTA 901 in healthy adult volunteers.  No safety or tolerability concerns were reported.  We are the exclusive licensee of RTA 901 and have worldwide commercial rights.

RTA 1701 is the lead product candidate from our proprietary series of RORγt inhibitors for the potential treatment of a broad range of autoimmune, inflammatory, and fibrotic diseases.  RTA 1701 is an orally-bioavailable, RORγt-selective allosteric inhibitor that suppresses Th17 differentiation in vitro and demonstrates strong efficacy in rodent disease models of autoimmune disease.  RTA 1701 also potently suppresses production of IL-17A, a clinically important cytokine, in human immune cells and when dosed orally to non-human primates.  We have conducted a Phase 1 trial to evaluate the safety, tolerability, and pharmacokinetic profile of RTA 1701 in healthy adult volunteers.  No safety or tolerability concerns were reported, and we observed an acceptable pharmacokinetic profile.  We retain all rights to our RORγt inhibitors, which are not subject to any existing commercial collaborations.

Financial Operations Overview

To date, we have focused most of our efforts and resources on developing our product candidates and conducting preclinical studies and clinical trials.  We have historically financed our operations primarily through revenue generated from our collaborations with AbbVie and KKC, from sales of our securities, and secured loans.  We have not received any payments or revenue from collaborations other than nonrefundable upfront, milestone, and cost sharing payments from our collaborations with AbbVie and KKC and reimbursements of expenses under the terms of our agreement with KKC.  We have incurred losses in each year since our inception, other than in 2014.  As of June 30, 2019, we had $280.4 million of cash and cash equivalents and an accumulated deficit of $483.9

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million.  We continue to incur significant research and development and other expenses related to our ongoing operations.  Despite contractual product development commitments and the potential to receive future payments from our collaborators, we anticipate that we will continue to incur losses for the foreseeable future, and we anticipate that our losses will increase as we continue our development of, and seek regulatory approval for, our product candidates.  If we do not successfully develop and obtain regulatory approval of our existing product candidates or any future product candidates and effectively manufacture, market, and sell any products that are approved, we may never generate revenue from product sales.  Furthermore, even if we do generate revenue from product sales, we may never again achieve or sustain profitability on a quarterly or annual basis.  Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.  Our failure to become and remain profitable could depress the market price of our Class A common stock and could impair our ability to raise capital, expand our business, diversify our product offerings, or continue our operations.

Revenue

Our revenue to date has been generated primarily from licensing fees received under our collaborative license agreements and reimbursements for expenses.  We currently have no approved products and have not generated any revenue from the sale of products to date.  In the future, we may generate revenue from product sales, royalties on product sales, reimbursements for collaboration services under our current collaboration agreements, or license fees, milestones, or other upfront payments if we enter into any new collaborations or license agreements.  We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such payments and sales.

Our license and milestone revenue has been generated primarily from our license agreement with KKC, our license agreement with AbbVie, and our collaboration agreement with AbbVie and consists of upfront payments and milestone payments.  License revenue recorded with respect to the KKC agreement, the AbbVie License Agreement, and the AbbVie Collaboration Agreement consists solely of the recognition of deferred revenue.  Under our revenue recognition policy, collaboration revenue associated with upfront, non-refundable license payments received under the license and collaboration agreements with AbbVie and KKC are deferred and recognized ratably over the expected term of the performance obligations under the agreements.  The AbbVie Collaboration Agreement and the KKC agreement extend through 2021, and 2026, respectively.  

Research and Development Expenses

The largest component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our product candidates.  From our inception through June 30, 2019, we have incurred a total of $702.5 million in research and development expense, the majority of which relates to the development of Bard and Omav.  We expect our research and development expense to continue to increase in the future as we advance our product candidates through clinical trials and expand our product candidate portfolio.  The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and we consider the active management and development of our clinical pipeline to be crucial to our long-term success.  The actual probability of success for each product candidate and preclinical program may be affected by a variety of factors, including the safety and efficacy data for product candidates, investment in the program, competition, manufacturing capability, and commercial viability.

Research and development expenses include:

• expenses incurred under agreements with clinical trial sites that conduct research and development activities on our behalf;

• expenses incurred under contract research agreements and other agreements with third parties;

• employee and consultant-related expenses, which include salaries, benefits, travel, and stock-based compensation;

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• laboratory and vendor expenses related to the execution of preclinical and non-clinical studies and clinical trials;

• the cost of acquiring, developing, manufacturing, and distributing clinical trial materials;

• the cost of development, scale up and process validation activities to support product registration; and

• facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supply costs.

Research and development costs are expensed as incurred.  Costs for certain development activities such as clinical trials are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.

We base our expense accruals related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations (CROs) that conduct and manage clinical trials on our behalf.  The financial terms of these agreements vary from contract to contract and may result in uneven payment flows.  Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.  In accruing costs, we estimate the time period over which services will be performed and the level of effort to be expended in each period.  If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.

To date, we have not experienced significant changes in our estimates of accrued research and development expenses after a reporting period.  However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities.

Currently, AbbVie is not participating in the development of Bard for the treatment of CKD caused by Alport syndrome, ADPKD, CTD-PAH, or other rare kidney diseases, and we are therefore incurring all costs for this program.  AbbVie has the right to opt-in to these programs at any time during development.  Upon opting-in, AbbVie would be required to pay an agreed upon amount of all development costs accumulated up to the point of exercising their opt-in right.  All development costs incurred after AbbVie’s opt-in would be split equally.

In September 2016, we and AbbVie mutually agreed that we would continue unilateral development of Omav.  Therefore, AbbVie no longer co-funds the exploratory development costs of this program, but retains the right to opt back in.  Depending upon what point, if any, AbbVie opts back into development, AbbVie may retain its right to commercialize a product outside the United States, or we may be responsible for commercializing the product on a worldwide basis.  Upon opting back in, AbbVie would be required to pay an agreed upon amount of all development costs accumulated up to the point of exercising their opt-in right, after which development costs incurred and product revenue worldwide would be split equally.

Currently, KKC is not participating in the development of Bard in CTD-PAH, ADPKD, or other rare kidney diseases but is reimbursing us the majority of the costs for our registrational trial in CKD caused by Alport syndrome in Japan.  The Company’s expenses were reduced by $0.3 million for KKC’s share of the study costs for the six months ended June 30, 2019.  

The following table summarizes our research and development expenses incurred:

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
	(unaudited; in thousands)
Bardoxolone methyl	$	10,713	$	11,266		$	19,393	$	21,056
Omaveloxolone	$	5,676		4,707			11,479		7,288
RTA 901	$	719		(117	)		1,055		266
RTA 1701	$	653		542			982		1,503
Other research and development expenses	$	11,793		7,031			22,759		14,722
Total research and development expenses	$	29,554	$	23,429		$	55,668	$	44,835

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The program-specific expenses summarized in the table above include costs that we directly allocate to our product candidates.  Our other research and development expenses include research and development salaries, benefits, stock-based compensation and preclinical, research, and discovery costs, which we do not allocate on a program-specific basis.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses for executive, operational, finance, legal, compliance, and human resource functions.  Other general and administrative expenses include facility-related costs, professional fees, accounting and legal services, depreciation expense, other external services, and expenses associated with obtaining and maintaining our intellectual property rights.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates.  We have also incurred, and anticipate incurring in the future, increased expenses associated with being a public company, including exchange listing and SEC requirements, director and officer insurance premium, legal, audit and tax fees, compliance with the Sarbanes-Oxley Act, regulatory compliance programs, and investor relations costs.  Additionally, if and when we believe the first regulatory approval of one of our product candidates appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially for the sales and marketing of our product candidates.

Other Income

Other income represents interest and gains earned on our cash and cash equivalents, which include money market funds.

Provision for Taxes on Income

Provision for taxes on income consists of net loss, taxed at federal tax rates and adjusted for certain permanent differences.  We maintain a full valuation allowance against our net deferred tax assets.  Changes in this valuation allowance also affect the tax provision.

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Results of Operations

Comparison of the Three Months Ended June 30, 2019 and 2018 (unaudited)

The following table sets forth our results of operations for the three months ended June 30:

	2019			2018			Change $			Change %
	(in thousands)
Collaboration revenue
License and milestone	$	7,813		$	7,519		$	294			4
Other revenue		20			52			(32	)		(62	)
Total collaboration revenue		7,833			7,571			262			3
Expenses
Research and development		29,554			23,429			6,125			26
General and administrative		11,706			10,689			1,017			10
Depreciation		232			105			127			121
Total expenses		41,492			34,223			7,269			21
Other income (expense)
Investment income		1,705			357			1,348			378
Interest expense		(2,413	)		(903	)		(1,510	)		(167	)
Loss on extinguishment of debt		—			(1,007	)		1,007			100
Other income (expense)		7			—			7			100
Total other income (expense)		(701	)		(1,553	)		852			55
Loss before taxes on income		(34,360	)		(28,205	)		(6,155	)		(22	)
Provision for taxes on income		20			6			14			233
Net loss	$	(34,380	)	$	(28,211	)	$	(6,169	)		(22	)

Collaboration Revenue

License and milestone revenue represented approximately 100% and 99% of total revenue for the three months ended June 30, 2019 and 2018, respectively.  License and milestone revenue during the three months ended June 30, 2019, was consistent with the three months ended June 30, 2018.

Other revenue was immaterial for the three months ended June 30, 2019 and 2018.

The following table summarizes the sources of our revenue for the three months ended June 30:

	2019		2018
	(in thousands)
License and milestone
AbbVie collaboration agreement	$	6,644	$	6,644
KKC agreement		1,169		875
Total license and milestone		7,813		7,519
Other revenue		20		52
Total collaboration revenue	$	7,833	$	7,571

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Research and Development Expenses

Research and development expenses increased by $6.1 million, or 26%, for the three months ended June 30, 2019, compared to the three months ended June 30, 2018.  The increase was primarily due to $2.8 million in increased personnel and equity compensation expenses to support growth of our development activities, $1.6 million in increased medical affairs and other research activities, and $1.3 million caused by two components: increased manufacturing to support product registration and startup activities for FALCON and the extension trials for our registrational programs, which were offset by decreased clinical expenses due to fully enrolled and completed studies.

Research and development expenses, as a percentage of total expenses, was 71% and 68% for the three months ended June 30, 2019 and 2018, respectively.  The increase of 3% was primarily due to increased personnel and equity compensation expenses to support growth in our development activities and increased medical affairs activities.

General and Administrative Expenses

General and administrative expenses increased by $1.0 million, or 10%, for the three months ended June 30, 2019, compared to the three months ended June 30, 2018.  The increase was primarily due to $2.6 million in increased personnel and equity compensation expenses, $1.3 million in increased rent and office expenses to support growth in our development activities, and $0.4 million in increased professional fees due to audit, legal, and tax-related services, offset by a decrease of $3.6 million due to sublicense fees and other expenses from the achievement of a KKC milestone in 2018.

General and administrative expenses, as a percentage of total expenses, was 28% and 31%, for the three months ended June 30, 2019 and 2018, respectively.  The decrease of 3% was primarily due to decreased sublicense fees and other expenses related to the achievement of a KKC milestone in 2018 and to a larger increase in research and development activities.

Investment Income

Investment income increased by $1.3 million, or 378%, for the three months ended June 30, 2019, compared to the three months ended June 30, 2018, due to investment and interest income earned on higher balances of cash and cash equivalents.

Interest Expense

Interest expense increased by $1.5 million, or 167%, for the three months ended June 30, 2019, compared to the three months ended June 30, 2018, due to increased interest charges associated with additional borrowings under our Restated Loan Agreement entered in June 2018.

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Provision for Taxes on Income

Provision for taxes on income was immaterial for the three months ended June 30, 2019 and 2018.

Comparison of the Six Months Ended June 30, 2019 and 2018 (unaudited)

The following table sets forth our results of operations for the six months ended June 30:

	2019			2018			Change $			Change %
	(in thousands)
Collaboration revenue
License and milestone	$	15,539		$	39,686		$	(24,147	)		(61	)
Other revenue		64			276			(212	)		(77	)
Total collaboration revenue		15,603			39,962			(24,359	)		(61	)
Expenses
Research and development		55,668			44,835			10,833			24
General and administrative		21,744			17,317			4,427			26
Depreciation		401			206			195			95
Total expenses		77,813			62,358			15,455			25
Other income (expense)
Investment income		3,502			693			2,809			405
Interest expense		(4,810	)		(1,413	)		(3,397	)		(240	)
Loss on extinguishment of debt		—			(1,007	)		1,007			100
Other income (expense)		7			—			7			100
Total other income (expense)		(1,301	)		(1,727	)		426			25
Loss before taxes on income		(63,511	)		(24,123	)		(39,388	)		(163	)
Provision for taxes on income		23			6			17			283
Net loss	$	(63,534	)	$	(24,129	)	$	(39,405	)		(163	)

Collaboration Revenue

License and milestone revenue represented approximately 100% and 99% of total revenue for the six months ended June 30, 2019 and 2018, respectively.  License and milestone revenue decreased by $24.1 million, or 61%, for the six months ended June 30, 2019, compared to the six months ended June 30, 2018.  The decrease was primarily due to revenue recognized during 2018, which was related to variable consideration that was included in the transaction price for which we did not have a similar event during the six months ended June 30, 2019.

Other revenue decreased by $0.2 million or 77%, during the six months ended June 30, 2019, compared to the six months ended June 30, 2018, primarily due to a decrease in reimbursements of expenses from KKC for expenses incurred.

The following table summarizes the sources of our revenue for the six months ended June 30:

	2019		2018
	(in thousands)
License and milestone
AbbVie collaboration agreement	$	13,214	$	13,214
KKC agreement		2,325		26,472
Total license and milestone		15,539		39,686
Other revenue		64		276
Total collaboration revenue	$	15,603	$	39,962

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Research and Development Expenses

Research and development expenses increased by $10.8 million, or 24%, for the six months ended June 30, 2019, compared to the six months ended June 30, 2018.  The increase was primarily due to $5.3 million in increased personnel and equity compensation expenses to support growth of our development activities, $2.5 million in increased medical affairs and other research activities, and $2.8 million caused by two components: increased manufacturing to support product registration and startup activities for FALCON and the extension trials for our registrational programs, which were offset by decreased clinical expenses due to fully enrolled and completed studies.

Research and development expenses, as a percentage of total expenses, was comparable to the prior period at 72% for the six months ended June 30, 2019 and 2018.

General and Administrative Expenses

General and administrative expenses increased by $4.4 million, or 26%, for the six months ended June 30, 2019, compared to the six months ended June 30, 2018.  The increase was primarily due to $5.0 million in increased personnel and equity compensation expenses, $2.0 million in increased rent and office expenses to support growth in our development activities, and $0.5 million in increased professional fees due to audit, legal, and tax-related services, offset by decreased sublicense fees and other expenses related to the achievement of a KKC milestone in 2018.

General and administrative expenses, as a percentage of total expenses, was comparable to the prior period at 28% for the six months ended June 30, 2019 and 2018.

Investment Income

Investment income increased by $2.8 million, or 405%, for the six months ended June 30, 2019, compared to the six months ended June 30, 2018, due to investment and interest income earned on higher balances of cash and cash equivalents.

Interest Expense

Interest expense increased by $3.4 million, or 240%, for the six months ended June 30, 2019, compared to the six months ended June 30, 2018, due to increased interest charges associated with additional borrowings under our Restated Loan Agreement entered in June 2018.

Provision for Taxes on Income

Provision for taxes on income was immaterial for the six months ended June 30, 2019 and 2018.

Cash-based Operating Expenses (non-GAAP) for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)

Total expenses (GAAP) were $41.5 million and $77.8 million for the three and six months ended June 30, 2019, respectively, compared to $34.2 million and $62.4 million for the three and six months ended June 30, 2018, respectively. Our cash-based operating expenses (a non-GAAP measure calculated as total expenses, less stock-based compensation expense and depreciation expense) were $36.8 million and $68.7 million for the three and six months ended June 30, 2019, respectively, compared to $31.6 million and $57.1 million for the three and six months ended June 30, 2018, respectively.

We expect our cash-based operating expenses to continue to increase in the future as we advance Bard and Omav through ongoing and future clinical trials, scale manufacturing for registrational and validation purposes, advance other product candidates into mid and later stage clinical trials, expand our product candidate portfolio, increase both our research and development and administrative personnel, and plan for commercialization of our product candidates.  

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We believe cash-based operating expenses, in addition to GAAP financial measures, provides a meaningful measure of our ongoing business and operating performance, by allowing investors to analyze our financial results similarly to how management analyzes our financial results by viewing period expense totals more indicative of effort directly expended to advance the business and our product candidates. The table below reconciles cash-based operating expenses to total expenses as reported on the Unaudited Consolidated Statements of Operations:

	2019						2018
	June 30			March 31			December 31			September 30			June 30			March 31
	(in thousands)
Total expenses - GAAP	$	41,492		$	36,322		$	33,373		$	34,735		$	34,223		$	28,136
Stock-based compensation    expense		(4,483	)		(4,227	)		(2,768	)		(2,745	)		(2,552	)		(2,485	)
Depreciation		(232	)		(170	)		(120	)		(105	)		(105	)		(101	)
Cash-based operating    expenses - Non-GAAP	$	36,777		$	31,925		$	30,485		$	31,885		$	31,566		$	25,550
Change from previous    quarter	$	4,852		$	1,440		$	(1,400	)	$	319		$	6,016		$	961
Percentage change from    previous quarter		15	%		5	%		-4	%		1	%		24	%		4	%

For additional information about our non-GAAP financial measure, see “Non-GAAP Financial Measure” in Item 2.

Liquidity and Capital Resources

Since our inception, we have funded our operations primarily through collaboration and license agreements, the sale of preferred and common stock, and secured loans.  Through June 30, 2019, we have raised gross cash proceeds of $476.6 million through the sale of convertible preferred stock and $780.0 million from payments under license and collaboration agreements. We also obtained $402.3 million in net proceeds from our IPO and follow-on offerings of our Class A common stock, and $77.2 million in net proceeds from our Restated Loan Agreement.  We have not generated any revenue from the sale of any products.  As of June 30, 2019, we had available cash and cash equivalents of approximately $280.4 million.  Our cash and cash equivalents are invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

Cash Flows

The following table sets forth the primary sources and uses of cash for each of the six months ended June 30 (unaudited):

	2019			2018
	(in thousands)
Net cash (used in) provided by:
Operating activities	$	(61,441	)	$	(49,428	)
Investing activities		(2,092	)		(268	)
Financing activities		6,192			58,592
Net change in cash and cash equivalents	$	(57,341	)	$	8,896

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Operating Activities

Net cash used in operating activities was $61.4 million for the six months ended June 30, 2019, consisting primarily of a net loss of $63.5 million adjusted for non-cash items including stock-based compensation expense of $8.7 million, depreciation and amortization expense of $1.1 million, and a net decrease in operating assets and liabilities of $7.7 million.  The significant items in the change in operating assets that impacted our use of cash in operations include increases in accrued direct research and other current and long-term liabilities of $9.8 million due to activities related to clinical trials and personnel-related activities, an increase in prepaid expenses and other current assets of $3.2 million due to increases in prepaid subscriptions and insurance premiums, and decreases in amounts earned or due from collaboration agreements of $0.9 million and deferred revenue of $15.5 million.  The decrease in deferred revenue is due to the ratable recognition of revenue over the expected term of the performance obligations under our collaboration agreements with AbbVie and KKC, which resulted in recognition of $15.5 million of license and milestone revenue.

Net cash used in operating activities was $49.4 million for the six months ended June 30, 2018, consisting primarily of net loss of $24.1 million adjusted for non-cash items including stock-based compensation expense of $5.0 million, depreciation and amortization expense of $0.4 million, loss on extinguishment of debt of $1.0 million and a net increase in operating assets and liabilities of $31.7 million.  The significant items in the change in operating assets and liabilities include an increase in receivables from collaboration arrangements, prepaid expenses, other current assets, and other assets of $30.4 million primarily due to receivables from collaboration arrangements related to achievement of the KKC milestone, an increase in accrued direct research and other current and long-term liabilities of $8.3 million due clinical trial activities and sublicense fees and other expenses related to the KKC milestone, and a decrease in deferred revenue of $9.7 million.  The decrease in deferred revenue is due to the ratable recognition of revenue over the expected term of the performance obligations under our collaboration agreements with AbbVie and KKC, which resulted in recognition of $39.7 million of license and milestone revenue.

Investing Activities

Net cash used in investing activities of $2.1 million for the six months ended June 30, 2019 were primarily due to capital expenditures in connection with an expansion of our office space and purchase of property and equipment.

Net cash used in investing activities for the six months ended June 30, 2018 was not significant.

Financing Activities

Net cash provided by financing activities of $6.2 million for the six months ended June 30, 2019 were primarily due to option exercises.

Net cash provided by financing activities was $58.6 million, primarily due to net proceeds of $57.8 million from our Restated Loan Agreement for the six months ended June 30, 2018.

Operating Capital Requirements

To date, we have not generated any revenue from product sales.  We do not know when or whether we will generate any revenue from product sales.  We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one or more of our current or future product candidates.  We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products.  We are subject to all the risks related to the development and commercialization of novel therapeutics, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.  We continue to incur additional costs associated with operating as a public company.  We anticipate that we will need substantial additional funding in connection with our continuing operations.

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On June 14, 2018, we amended and restated our Loan Agreement.  Under our Restated Loan Agreement, the Term A Loan was increased from $20.0 million to $80.0 million, of which Reata borrowed an additional $60.0 million on June 14, 2018, which resulted in an outstanding principal balance of $80.0 million under the Term A Loan at June 14, 2018.  We may, at our sole discretion, borrow an additional $45.0 million under the Term B Loan within 30 days, but no later than December 31, 2019, after the achievement, of one of two milestones.  If we borrow under the Term B Loan, we expect to incur additional related interest expense.

In November 2017, the Company entered into an at-the-market equity offering sales agreement with Stifel, Nicolaus & Company, Incorporated, that established a program pursuant to which they may offer and sell up to $50.0 million of our Class A common stock from time to time in at-the-market transactions as stated in the prospectus supplement filed with the SEC pursuant to Rule 424(b)(5), dated as of November 9, 2017.  To date, no sales have been made under the Company’s at-the-market offering program.

On July 27, 2018, the Company closed a follow-on underwritten public offering of 3,450,000 shares of its Class A common stock for gross proceeds of $248.4 million.  Net proceeds to the Company from the offering were approximately $232.9 million, after deducting underwriting discounts and commissions and offering expenses.

Our longer term liquidity requirements will require us to raise additional capital, such as through additional equity or debt financings.  Our future capital requirements will depend on many factors, including the receipt of milestones under our current collaboration agreements and the timing of our expenditures related to clinical trials.  We believe our existing cash and cash equivalents, combined with available future debt, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into 2021.  However, we anticipate opportunistically raising additional capital before that time through equity offerings, collaboration or license agreements, or additional debt in order to maintain adequate capital reserves.  In addition, we may choose to raise additional capital at any time for the further development of our existing product candidates and may also need to raise additional funds sooner to pursue other development activities related to additional product candidates.  Decisions about the timing or nature of any financing will be based on, among other things, our perception of our liquidity and of the market opportunity to raise equity or debt.  Additional securities may include common stock, preferred stock, or debt securities.  We may explore strategic collaborations or license arrangements for certain of our earlier stage assets, including RTA 901 and RTA 1701.  If we do explore any arrangements, there can be no assurance that any agreement will be reached, and we may determine to cease exploring a potential transaction for any or all of the assets at any time.  If an agreement is reached, there can be no assurance that any such transaction would provide us with a material amount of additional capital resources.

Until we can generate a sufficient amount of revenue from our product candidates, if ever, we expect to finance future cash needs through public or private equity or debt offerings, commercial loans, and collaboration or license transactions.  Additional capital may not be available on reasonable terms, if at all.  If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back, or discontinue the development or commercialization of one or more of our product candidates.  If we raise additional funds through the issuance of additional equity or debt securities, it could result in dilution to our existing stockholders or increased fixed payment obligations, and any such securities may have rights senior to those of our common stock.  If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell, or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business, and any such debt could be secured by some or all of our assets.  Any of these events could significantly harm our business, financial condition, and prospects.  For a description of the numerous risks and uncertainties associated with product development and raising additional capital, see “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2018.

Our forecast of the period through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors.  We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.  Our future funding requirements, both near- and long-term, will depend on many factors, including, but not limited to:

• the scope, rate of progress, results, and cost of our clinical trials, preclinical testing, and other activities related to the development of our product candidates;

• the number and characteristics of product candidates that we pursue;

29

• the costs of development efforts for our product candidates that are not subject to reimbursement from our collaborators;

• the costs necessary to obtain regulatory approvals, if any, for our product candidates in the United States and other jurisdictions, and the costs of post-marketing studies that could be required by regulatory authorities in jurisdictions where approval is obtained;

• the continuation of our existing collaborations and entry into new collaborations and the receipt of any collaboration payments;

• the time and unreimbursed costs necessary to commercialize products in territories in which our product candidates are approved for sale;

• the revenue from any future sales of our products for which we are entitled to a profit share, royalties, and milestones;

• the level of reimbursement or third-party payor pricing available to our products;

• the costs of obtaining third-party commercial supplies of our products, if any, manufactured in accordance with regulatory requirements;

• the costs associated with being a public company; and

• the costs we incur in the filing, prosecution, maintenance, and defense of our patent portfolio and other intellectual property rights.

If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition, and results of operations could be materially adversely affected.

Contractual Obligations and Commitments

As of June 30, 2019, there have been no material changes, outside of the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management's Discussion and Analysis of Financial Condition and Results of Operations”, as contained in our Annual Report on Form 10-K for year ended December 31, 2018.

Below are our contractual obligations as of June 30, 2019 (unaudited):

	Payments due by period
	Less than 1 year		1 to 3 years		4 to 5 years		Total
	(in thousands)
Operating lease obligations	$	3,022	$	3,454	$	—	$	6,476
Outstanding secured term loan		—		55,556		24,444		80,000
Total contractual obligations	$	3,022	$	59,010	$	24,444	$	86,476

Clinical Trials

As of June 30, 2019, we have several on-going clinical trials in various stages.  Under agreements with various CROs and clinical trial sites, we incur expenses related to clinical trials of our product candidates and potential other clinical candidates.  The timing and amounts of these disbursements are contingent upon the achievement of certain milestones, patient enrollment, and services rendered or as expenses are incurred by the CROs or clinical trial sites.  Therefore, we cannot estimate the potential timing and amount of these payments and they have been excluded from the table above.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets

30

and liabilities in our financial statements.  On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued research and development expenses, income taxes, and stock-based compensation.  We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part I, Item 7, “Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2018.  During the quarter ended March 31, 2019 we adopted Topic 842.  As a result of this adoption, we updated our Leases policies.  There have been no other changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2018.

Off-Balance Sheet Arrangements

Since our inception, we have not had any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements, and we have not engaged in any other off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, please see Note 2 of Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

Non-GAAP Financial Measures

In addition to the U.S. GAAP financial measures, this Quarterly Report on Form 10-Q includes cash-based operating expenses, a non-GAAP financial measure, which the Company defines as total expenses excluding stock-based compensation expense and depreciation expense.  A reconciliation of this non-GAAP financial measure to its most directly comparable U.S. GAAP financial measure is included in “—Results of Operations—Cash-based Operating Expenses (non-GAAP) for the three and six months ended June 30, 2019” above.  

Non-GAAP financial measures should be considered in addition to, not in isolation or as a substitute for, U.S. GAAP financial measures.  In addition, our non-GAAP financial measure may differ from similarly named measures used by other companies.  You should carefully evaluate our non-GAAP financial measure, the adjustments included in our non-GAAP financial measure and the reasons we consider it appropriate for analysis supplemental to our GAAP information. This non-GAAP financial measure has important limitations as an analytical tool due to the exclusion of some but not all items that affect the most directly comparable GAAP financial measure.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business.  These market risks are principally limited to interest rate fluctuations.  We had cash and cash equivalents of $280.4 million at June 30, 2019, consisting primarily of funds in operating cash accounts.  The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk.  We do not enter into investments for trading or speculative purposes.  Due to the short-term nature of our investment portfolio, we do not believe an immediate increase of 100 basis points in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect a sudden change in market interest rates to affect materially our operating results or cash flows.

We also have interest rate exposure as a result of our Term A Loan.  As of June 30, 2019, the outstanding principal amount of our Term A Loan was $80.0 million.  Our Term A Loan bears interest at a floating per annum rate calculated as 7.79% plus the greater of the 30-day U.S. Dollar LIBOR rate reported in The Wall Street Journal or 1.91%, with a minimum rate of 9.7% and a maximum rate of 12.29%.  Changes in the U.S. Dollar LIBOR rate may therefore affect our interest expense associated with the Term A Loan.  An increase of 100 basis points in

31

interest rates would increase expense by approximately $0.8 million annually based on the amounts currently outstanding and would not materially affect our results of operations.

We contract with research, development, and manufacturing organizations and investigational sites globally.  Generally, these contracts are denominated in United States dollars.  However, we may be subject to fluctuations in foreign currency rates in connection with agreements not denominated in United States dollars.  We do not hedge our foreign currency exchange rate risk.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that 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 SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.  Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on the evaluation of our disclosure controls and procedures as of June 30, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.  

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, during the three months ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently subject to any material legal proceedings.

Item 1A. Risk Factors.

In addition to other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2018, which could materially affect our businesses, financial condition, or future results.  Additional risks and uncertainties currently unknown to us, or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition, or future results.

Our business and operations may be materially adversely affected in the event of computer system failures or security breaches.

Despite the implementation of security measures, our internal computer systems, and those of our CROs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, fire, terrorism, war, and telecommunication and electrical failures.  If such an event were to occur and interrupt our operations, it could result in a material disruption of our drug development programs.  For example, the loss of clinical trial data from ongoing or planned clinical trials could result in delays in our regulatory

32

approval efforts and significantly increase our costs to recover or reproduce the data.  To the extent that any disruption or security breach results in a loss of or damage to our data or applications, loss of trade secrets or inappropriate disclosure of confidential or proprietary information, including protected health information or personal data of employees or former employees, access to our clinical data, or disruption of the manufacturing process, we could incur liability, the further development of our drug candidates could be delayed, and we may be subject to regulatory actions, including fines or other penalties.  We may also be vulnerable to cyber-attacks by hackers or other malfeasance.  This type of breach of our cybersecurity may compromise our confidential information and/or our financial information and adversely affect our business or result in legal proceedings. Further, these cybersecurity breaches may inflict reputational harm upon us that may result in decreased market value and erode public trust.

We are increasingly dependent upon technology systems and data to operate our business.  Our ability to effectively manage our business depends on the security, reliability and adequacy of our technology systems and data.  Cyber-attacks are increasing in their frequency, sophistication and intensity, while also becoming increasingly difficult to detect. They are often carried out by motivated, well-resourced, skilled and persistent actors, including nation states, organized crime groups, “hacktivists” and employees or contractors acting with malicious intent. Cyber-attacks could include the deployment of harmful malware and key loggers, ransomware, a denial-of-service attack, a malicious website, the use of social engineering, impersonation, telephony and/or e-mail spear phishing, and other means to compromise the confidentiality, integrity and availability of our technology systems, data, and other corporate assets. E-mail fraud, including various types of business email compromise, may cause payments or information to be transmitted to unintended recipients.  Cyber-attacks could also include supply chain attacks, which could cause delays in the manufacturing of our products or products produced for contract manufacturing. While we have not experienced a system failure, accident, cyber-attack or security breach that has resulted in a material loss of assets or operational capabilities to date, there can be no assurance that our efforts will prevent additional future cyber-attacks and/or security breaches in our systems that could materially and adversely affect our business, assets, or operations, even as we continue to strengthen the security posture of our infrastructure, systems, and corporate cybersecurity training.  In addition, our liability insurance is not sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related incidents.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit Number	Description
10.1+	Notice of Stock Option Grant for employees and directors/consultants (incorporated by reference to Exhibit 4.5 to the Company’s Form S-8 (File No. 333-232099), filed with the SEC on June 13, 2019).
31.1*	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	Inline XBRL Instance Document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

** Furnished herewith.

+ Indicates management contract or compensatory plan.

34

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 8, 2019	REATA PHARMACEUTICALS, INC.
	By:	/s/ J. Warren Huff
	Name:	J. Warren Huff
	Title:	Chief Executive Officer and President

By:	/s/ Jason D. Wilson
Name:	Jason D. Wilson
Title:	Chief Financial Officer

35

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, J. Warren Huff, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Reata Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 8, 2019	By:	/s/ J. Warren Huff
		J. Warren Huff
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jason D. Wilson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Reata Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 8, 2019	By:	/s/ Jason D. Wilson
		Jason D. Wilson
		Chief Financial Officer
		(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Reata Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Warren Huff, as Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: August 8, 2019	By:	/s/ J. Warren Huff
		J. Warren Huff
		Chief Executive Officer
		(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Reata Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jason D. Wilson, Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: August 8, 2019	By:	/s/ Jason D. Wilson
		Jason D. Wilson
		Chief Financial Officer
		(Principal Financial Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 05, 2019
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Trading Symbol	RETA
Entity Registrant Name	REATA PHARMACEUTICALS INC
Entity Central Index Key	0001358762
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Current Reporting Status	Yes
Entity File Number	001-37785
Entity Tax Identification Number	113651945
Entity Address, Address Line One	2801 Gateway Dr
Entity Address, Address Line Two	Suite 150
Entity Address, City or Town	Irving
Entity Address, State or Province	Texas
Entity Address, Postal Zip Code	75063
City Area Code	972
Local Phone Number	865-2219
Common Stock A
Document Information [Line Items]
Entity Common Stock Shares Outstanding		24,481,663
Common Stock B
Document Information [Line Items]
Entity Common Stock Shares Outstanding		5,624,681

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Assets
Cash and cash equivalents	$ 280,449	$ 337,790
Prepaid expenses and other current assets	6,762	4,483
Total current assets	287,211	342,273
Property and equipment, net	2,814	1,445
Other assets	10,463	1,490
Total assets	300,488	345,208
Liabilities and stockholders’ (deficit) equity
Accounts payable	4,361	4,473
Accrued direct research liabilities	20,871	15,416
Other current liabilities	11,056	4,696
Current portion of deferred revenue	31,421	31,335
Total current liabilities	67,709	55,920
Other long-term liabilities	7,594	524
Term loan, net of current portion and debt issuance costs	79,897	79,219
Deferred revenue, net of current portion	178,761	194,386
Total noncurrent liabilities	266,252	274,129
Commitments and contingencies
Stockholders’ (deficit) equity:
Additional paid-in capital	450,354	435,452
Accumulated deficit	(483,857)	(420,323)
Total stockholders’ (deficit) equity	(33,473)	15,159
Total liabilities and stockholders’ (deficit) equity	300,488	345,208
Common Stock A
Stockholders’ (deficit) equity:
Common stock value	24	24
Total stockholders’ (deficit) equity	24	24
Common Stock B
Stockholders’ (deficit) equity:
Common stock value	6	6
Total stockholders’ (deficit) equity	$ 6	$ 6

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Common Stock A
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	24,466,407	24,000,683
Common stock, shares outstanding	24,466,407	24,000,683
Common Stock B
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	5,631,527	5,728,175
Common stock, shares outstanding	5,631,527	5,728,175

XML

Unaudited Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Collaboration revenue
Collaboration revenue	$ 7,833	$ 7,571	$ 15,603	$ 39,962
Expenses
Research and development	29,554	23,429	55,668	44,835
General and administrative	11,706	10,689	21,744	17,317
Depreciation	232	105	401	206
Total expenses	41,492	34,223	77,813	62,358
Other income (expense)
Investment income	1,705	357	3,502	693
Interest expense	(2,413)	(903)	(4,810)	(1,413)
Loss on extinguishment of debt		(1,007)		(1,007)
Other income (expense)	7		7
Total other income (expense)	(701)	(1,553)	(1,301)	(1,727)
Loss before taxes on income	(34,360)	(28,205)	(63,511)	(24,123)
Provision for taxes on income	20	6	23	6
Net loss	$ (34,380)	$ (28,211)	$ (63,534)	$ (24,129)
Net loss per share—basic and diluted	$ (1.14)	$ (1.08)	$ (2.12)	$ (0.92)
Weighted-average number of common shares used in net loss per share basic and diluted	30,069,048	26,178,793	29,950,241	26,167,033
License and milestone
Collaboration revenue
Collaboration revenue	$ 7,813	$ 7,519	$ 15,539	$ 39,686
Other revenue
Collaboration revenue
Collaboration revenue	$ 20	$ 52	$ 64	$ 276

XML

Unaudited Consolidated Statements of Stockholders' (Deficit) Equity - USD ($) $ in Thousands	Total	Common Stock A	Common Stock B	Additional Paid-In Capital	Shareholder Notes Receivable	Total Accumulated Deficit
Balance, value at Dec. 31, 2017	$ (146,973)	$ 20	$ 7	$ 190,145	$ (2)	$ (337,143)
Balance, shares at Dec. 31, 2017		19,975,340	6,166,166
Net loss	(24,129)					(24,129)
Compensation expense related to stock options	5,030			5,037		(7)
Exercise of options, value	824		$ (1)	825
Exercise of options, shares			64,352
Proceeds from payments of shareholder promissory notes	8			6	2
Conversion of common stock Class B to Class A, shares		269,335	(269,335)
Adoption of new accounting guidance	(2,634)					(2,634)
Balance, value at Jun. 30, 2018	(167,874)	$ 20	$ 6	196,013		(363,913)
Balance, shares at Jun. 30, 2018		20,244,675	5,961,183
Balance, value at Mar. 31, 2018	(142,701)	$ 20	$ 7	192,962	(2)	(335,688)
Balance, shares at Mar. 31, 2018		19,991,082	6,171,517
Net loss	(28,211)					(28,211)
Compensation expense related to stock options	2,538			2,552		(14)
Exercise of options, value	492		$ (1)	493
Exercise of options, shares			43,259
Proceeds from payments of shareholder promissory notes	8			6	$ 2
Conversion of common stock Class B to Class A, shares		253,593	(253,593)
Balance, value at Jun. 30, 2018	(167,874)	$ 20	$ 6	196,013		(363,913)
Balance, shares at Jun. 30, 2018		20,244,675	5,961,183
Balance, value at Dec. 31, 2018	15,159	$ 24	$ 6	435,452		(420,323)
Balance, shares at Dec. 31, 2018		24,000,683	5,728,175
Net loss	(63,534)					(63,534)
Compensation expense related to stock options	8,710			8,710
Exercise of options, value	$ 6,085			6,085
Exercise of options, shares	369,076		369,076
Conversion of common stock Class B to Class A, shares		465,724	(465,724)
Other shareholder transactions	$ 107			107
Balance, value at Jun. 30, 2019	(33,473)	$ 24	$ 6	450,354		(483,857)
Balance, shares at Jun. 30, 2019		24,466,407	5,631,527
Balance, value at Mar. 31, 2019	(4,610)	$ 24	$ 6	444,837		(449,477)
Balance, shares at Mar. 31, 2019		24,403,477	5,639,666
Net loss	(34,380)					(34,380)
Compensation expense related to stock options	4,483			4,483
Exercise of options, value	1,034			1,034
Exercise of options, shares			54,791
Conversion of common stock Class B to Class A, shares		62,930	(62,930)
Balance, value at Jun. 30, 2019	$ (33,473)	$ 24	$ 6	$ 450,354		$ (483,857)
Balance, shares at Jun. 30, 2019		24,466,407	5,631,527

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Unaudited Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Operating activities
Net loss	$ (63,534)	$ (24,129)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	401	206
Amortization of debt issuance costs	678	210
Stock-based compensation expense	8,710	5,037
Loss on extinguishment of debt		1,007
Changes in operating assets and liabilities:
Amounts earned or due from collaboration agreements	933	(29,438)
Prepaid expenses and other current assets	(3,212)	(969)
Other assets	8	13
Accounts payable	312	46
Accrued direct research and other current and long-term liabilities	9,802	8,275
Deferred revenue	(15,539)	(9,686)
Net cash used in operating activities	(61,441)	(49,428)
Investing activities
Purchases of property and equipment	(2,092)	(268)
Net cash used in investing activities	(2,092)	(268)
Financing activities
Proceeds from long-term debt		60,000
Payments on deferred issuance costs		(2,240)
Exercise of options	6,085	832
Other shareholder transactions	107
Net cash provided by financing activities	6,192	58,592
Net (decrease) increase in cash and cash equivalents	(57,341)	8,896
Cash and cash equivalents at beginning of year	337,790	129,780
Cash and cash equivalents at end of period	280,449	138,676
Supplemental disclosures
Cash paid for interest	4,153	1,354
Purchases of equipment in accounts payable and other current liabilities	170	$ 41
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations	$ 8,981

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Description of Business

6 Months Ended

Jun. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Description of Business

1. Description of Business

The Company’s mission is to develop innovative therapies that change patients’ lives for the better.  The Company focuses on developing small-molecule therapeutics with novel mechanisms of action for the treatment of severe, life-threatening diseases with few or no approved therapies.  The Company’s lead product candidates, bardoxolone methyl (Bard) and omaveloxolone (Omav), activate the transcription factor Nrf2, which plays an important role in regulating the cellular response to injury.  By activating Nrf2, Bard and Omav normalize mitochondrial function, restore redox balance, and resolve inflammation.  The Company has fully enrolled two registrational clinical trials: CARDINAL, studying Bard in chronic kidney disease (CKD) caused by Alport syndrome, and MOXIe, studying Omav in Friedreich’s ataxia (FA).  CKD caused by Alport syndrome and FA are rare, serious diseases with no approved therapy.  The Company designed CARDINAL and MOXIe based on the results of earlier clinical studies and guidance from the FDA on a potential path to approval.  The Company expects to have top-line data from both of these clinical trials in the second half of 2019.  With each of these indications, FDA approval may provide expansion opportunities into other related indications.  The Company is also conducting two additional registrational trials, CATALYST, to study Bard in patients with a rare and serious form of pulmonary arterial hypertension caused by connective tissue disease (CTD-PAH) and FALCON, to study Bard in patients with autosomal dominant polycystic kidney disease (ADPKD).  The Company expects to have top-line data from CATALYST during the first half of 2020 and initiated enrollment in FALCON in May 2019.  The Company expects its current cash to fund its operations through data readouts for CARDINAL, MOXIe, and CATALYST.  In addition to its lead programs, the Company is currently exploring a battery of additional clinical and preclinical programs in diseases that may include meaningful expansion opportunities for Bard and Omav.

The Company’s consolidated financial statements include the accounts of all majority-owned subsidiaries.  Accordingly, the Company’s share of net earnings and losses from these subsidiaries is included in the consolidated statements of operations.  Intercompany profits, transactions, and balances have been eliminated in consolidation. 

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.  The consolidated balance sheet at December 31, 2018, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  For further information, refer to the annual consolidated financial statements and footnotes thereto of the Company.

The Company’s significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Annual Report on Form 10-K).  During the first quarter of 2019, the Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). As a result of the adoption of Topic 842, the Company has updated its Leases accounting policies. There were no other changes to its significant accounting policies from those disclosed in its 2018 Annual Report on Form 10-K.

Leases

At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on the unique facts and circumstances present in that arrangement. Lease assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized at the lease commencement date based on

the present value of lease payments over the lease term calculated using its incremental borrowing rate based on the information available at commencement unless the implicit rate is readily determinable.  Lease assets also include upfront lease payments, lease incentives paid, and direct costs incurred and exclude lease incentives received.  The lease term used to calculate the lease assets and related lease liabilities includes the options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. Lease expense for operating leases is recognized on a straight-line basis over the expected lease term as an operating expense while the expense for finance leases is recognized as depreciation expense over the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

The Company will account for each separate lease component separately from the nonlease components.  The depreciable life of lease assets and leasehold improvements is limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of its exercise.

Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expenses for these short-term leases and operating leases are recognized on a straight-line basis over the lease term.

Recently Adopted Accounting Pronouncements

The Company is an “emerging growth company,” as defined in the JOBS Act.  Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.  The Company has irrevocably elected not to avail itself of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as public companies that are not emerging growth companies.

In February 2016, the Financial Accounting Standards Board (FASB) issued Topic 842, amended by ASU 2018-11, Leases (Topic 842): Targeted Improvements. The new guidance requires a lessee to recognize assets and liabilities for all leases with lease terms of more than 12 months and provide additional disclosures. Topic 842 requires adoption using a modified retrospective transition approach with either 1) transition provisions at the beginning of the earliest comparative period records its cumulative adjustment to retained earnings at the beginning of the earliest period presented or 2) a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption.  We adopted this standard on January 1, 2019 using the cumulative-effect adjustment approach. We elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019 whereby these contracts were not reassessed or reclassified from their previous assessment as of December 31, 2018.  

As a result of implementing Topic 842, the Company recognized an operating lease right-of-use asset of $1,544,000 and an operating lease liability of $1,659,000 on January 1, 2019, with no impact on its beginning retained earnings, consolidated statements of operations, or cash flows.  See Note 5, Leases, for further details.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements (ASU 2018-09).  This ASU provided various minor codification updates and improvements to address comments that the FASB had received regarding unclear or vague accounting guidance.  The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year.  The adoption of this guidance did not have a material impact on our financial position, results of operations or disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808) (ASU 2018-18).  This update provides clarification on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) including the alignment of unit of account guidance between the two topics.  This update is effective in fiscal years, including interim periods, beginning after December 15, 2020, and early adoption is permitted.  The Company is currently evaluating the impact on its financial statements of adopting this guidance.

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Collaboration Agreements

6 Months Ended

Jun. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Collaboration Agreements

3. Collaboration Agreements

AbbVie

In December 2011, the Company entered into a collaboration agreement with AbbVie Inc. (AbbVie) (the AbbVie Collaboration Agreement) to jointly research, develop, and commercialize the Company’s portfolio of second and later generation oral Nrf2 activators.  The terms of the agreement include payment to the Company of a

nonrefundable, up-front payment of $400,000,000. The Company is also participating with AbbVie on joint steering committees.  

The up-front payment and the Company’s collaboration on research, development, and commercialization are accounted for as a single unit of accounting.  Revenue is being recognized ratably through December 2026, which is the estimated minimum period that is needed to complete the performance obligations under the terms of the AbbVie Collaboration Agreement.  The Company began recognizing revenue related to the up-front payment upon execution of the agreement. During the three months ended June 30, 2019 and 2018, the Company recognized approximately $6,644,000, and during the six months ended June 30, 2019 and 2018, recognized $13,214,000, as collaboration revenue.  As of June 30, 2019, the Company recorded deferred revenue totaling approximately $198,430,000 of which approximately $26,720,000 is reflected as the current portion of deferred revenue.

KKC

In December 2009, the Company entered a license agreement with Kyowa Kirin Co., Ltd. (KKC) (the KKC agreement), which granted KKC an exclusive license to develop and commercialize Bard in the licensed territory.  The Company received a nonrefundable, up-front license fee of $35,000,000 in 2009 and regulatory milestones totaling $45,000,000 in 2010, 2012, and 2018 and could receive additional regulatory milestones of $52,000,000 and commercial milestones of $140,000,000, as well as tiered royalties ranging from the low teens to the low 20 percent range, depending on the country of sale and the amount of annual net sales, on net sales by KKC in the licensed territory.  

The up-front payment and regulatory milestones are accounted for as a single unit of accounting.  Revenue is being recognized ratably through December 2021, which is the estimated minimum period that is needed to complete the deliverables under the terms of the KKC agreement.  The Company began recognizing revenue related to the up-front payment upon execution of the agreement. During the three months ended June 30, 2019 and 2018, the Company recognized approximately $1,169,000 and $875,000, respectively, and during the six months ended June 30, 2019 and 2018, recognized $2,325,000 and $26,472,000, respectively, as collaboration revenue.  As of June 30, 2019, the Company recorded deferred revenue totaling approximately $11,752,000 of which approximately $4,701,000 is reflected as the current portion of deferred revenue.

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Term Loan

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Term Loan

4. Term Loan

On June 14, 2018, the Company entered into an Amended and Restated Loan and Security Agreement (Restated Loan Agreement) with Oxford Finance LLC and Silicon Valley Bank (collectively, the Lenders), which amended and restated the Loan and Security Agreement entered into among Reata and the Lenders on March 31, 2017, as amended on November 3, 2017 (Loan Agreement).

Under the Restated Loan Agreement, the Term A Loan was increased to $80,000,000, and the Term B Loan availability was increased to $45,000,000, available to be drawn within 30 days, but no later than December 31, 2019, after the achievement of one of two milestones.  If the Company is entitled to draw the Term B Loan but does not draw the Term B Loan by December 31, 2019, the Company is obligated to pay a non-utilization fee of $450,000.

All outstanding Term Loans will mature on June 1, 2023.  Under the Term A Loan, the Company will make interest-only payments for 24 months through June 1, 2020; however, if the Company draws the Term B Loan, the Company will make interest-only payments for 36 months through June 1, 2021.  The interest-only payment period will be followed by 36 equal monthly payments, or 24 equal monthly payments if the Company draws the Term B Loan, of principal and interest payments. The Term Loans will bear interest at a floating per annum rate calculated as 7.79% plus the greater of the 30-day U.S. Dollar LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or 1.91%, with a minimum rate of 9.7% and maximum rate of 12.29%.

The Company has the option to prepay all, but not less than all, of the borrowed amounts, provided that the Company will be obligated to pay a prepayment fee equal to (a) the aggregate amount of interest that the Company would have paid through the maturity date if prepayment is made on or before the first anniversary of the applicable funding date of the Term Loan, (b) 4.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the first anniversary date and on or before the second anniversary of the applicable

funding date, (c) 3.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the second anniversary date and on or before the third anniversary of the applicable funding date, or (d) 1.5% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the third anniversary date and on or before the fourth anniversary of the applicable funding date.  The Company will also be required to make a final exit fee payment of 6.5% of the principal balance of the Term A Loan and 4.0% of the Term B Loan, payable on the earliest of the prepayment of the Term Loans, acceleration of any Term Loan, or at maturity of the Term Loans.

The Company may use the proceeds from the Term Loans for working capital and to fund its general business requirements.  The Company’s obligations under the Restated Loan Agreement are secured by substantially all of its current and future assets, including its owned intellectual property.

As of June 30, 2019, the Company had $80,000,000 outstanding under the Term A Loan, which was recorded at its initial carrying value of $80,000,000, less unamortized discount and debt issuance costs of approximately $5,303,000.  In connection with the Term A Loan, the discount and debt issuance costs were recorded as a reduction to debt on its balance sheet and are being accreted to interest expense over the life of the Term A Loan.  Additionally, the final exit fee of approximately $5,200,000 is being accrued over the life of the Term A Loan through interest expense.  The Term A Loan has a current effective interest rate of 10.98% before debt issuance costs and final exit fee and 13.53% including debt issuance costs and final exit fee.  The Company is in compliance with all covenants under the Restated Loan Agreement as of June 30, 2019.

The future principal payments by fiscal year for the Company’s Term A Loan:

	As of June 30, 2019
	(in thousands)
2019 (remaining six months)	$	—
2020		15,555
2021		26,667
2022		26,667
2023		11,111
	$	80,000

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Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

5. Leases

The Company’s corporate headquarters are located in Irving, Texas, where it leases approximately 34,890 square feet of office and laboratory space. In February 2019, the Company commenced a lease for approximately 122,000 square feet of additional office space in Plano, Texas.  

The Company’s leases have remaining contractual terms of up to approximately 36 months, which includes the options to extend the leases for up to one year.  Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

At June 30, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 8.3% and 2.8 years, respectively.  During the six months ended June 30, 2019, cash paid for amounts included for the measurement of lease liabilities was $952,000. During the three and six months ended June 30, 2019 the Company recorded operating lease expense of $919,000 and $1,578,000, respectively.  The Company has elected to net the amortization of the right-of-use assets and the reduction of the lease liabilities principal in accrued direct research and other current and long-term liabilities in the consolidated statements of cash flows.

Supplemental balance sheet information related to our operating leases is as follows:

	Balance Sheet Classification	As of June 30, 2019
		(in thousands)
Non-current right-of-use assets	Other assets	$	8,981
Current lease liabilities	Other current liabilities		2,568
Non-current lease liabilities	Other long-term liabilities		7,094

Maturities of lease liabilities by fiscal year for the Company’s operating leases:

	As of June 30, 2019
	(in thousands)
2019 (remaining six months)	$	1,434
2020		3,999
2021		4,090
2022		1,178
Total lease payments		10,701
Less: Imputed interest		(1,039	)
Present value of lease liabilities	$	9,662

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Income Taxes

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

6. Income Taxes

The Company’s effective tax rate varies with the statutory rate due primarily to the impact of nondeductible stock-based compensation and the changes in valuation allowance related to certain deferred tax assets generated or utilized in the applicable period.  The Company’s deferred tax assets have been fully offset by a valuation allowance at June 30, 2019, and the Company expects to maintain this valuation allowance until there is sufficient evidence that future earnings can be achieved, which is uncertain at this time.

The IRS examination team has completed its examination of the Company’s 2013, 2014, and 2015 U.S. tax returns and proposed adjustments with respect to certain items that were reported by the Company for the 2013 tax year.  In June 2018, the Company received the Revenue Agent Report from the IRS.  The Company believes that it has accurately reported all amounts in its tax returns and has submitted an administrative protest with the IRS contesting the examination team’s proposed adjustments.  The Company intends to vigorously defend its reported positions and believes the ultimate resolution of the adjustments proposed by the IRS examination team will not have a material adverse effect on its consolidated financial statements.

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

7. Stock-Based Compensation

Stock Options

The following table summarizes stock-based compensation expense reflected in the consolidated statements of operations:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)
Research and development	$	1,659	$	974	$	3,350	$	1,935
General and administrative		2,824		1,578		5,360		3,102
	$	4,483	$	2,552	$	8,710	$	5,037

The following table summarizes stock option activity as of June 30, 2019, and changes during the six months ended June 30, 2019, under the Second Amended and Restated Long Term Incentive Plan and standalone option agreements:

	Number of Options			Weighted- Average Exercise Price
Outstanding at January 1, 2019		3,320,571			21.20
Granted		1,160,233			60.53
Exercised		(369,076	)		16.49
Forfeited		(265,854	)		33.02
Expired		—			—
Outstanding at June 30, 2019		3,845,874			32.79
Exercisable at June 30, 2019		1,563,869			21.13

The total intrinsic value of all outstanding options and exercisable options at June 30, 2019 was $236,740,000 and $114,501,000, respectively.

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Net Loss per Share

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Net Loss per Share

8. Net Loss per Share

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders:

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands, except share and per share data)
Numerator
Net loss	$	(34,380	)	$	(28,211	)	$	(63,534	)	$	(24,129	)
Denominator
Weighted-average number of common shares    used in net loss per share – basic		30,069,048			26,178,793			29,950,241			26,167,033
Dilutive potential common shares		—			—			—			—
Weighted-average number of common shares    used in net loss per share – diluted		30,069,048			26,178,793			29,950,241			26,167,033
Net loss per share – basic	$	(1.14	)	$	(1.08	)	$	(2.12	)	$	(0.92	)
Net loss per share – diluted	$	(1.14	)	$	(1.08	)	$	(2.12	)	$	(0.92	)

The number of weighted average options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive represented 3,845,874 and 3,337,509 shares for the six months ended June 30, 2019 and 2018, respectively.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.  The consolidated balance sheet at December 31, 2018, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  For further information, refer to the annual consolidated financial statements and footnotes thereto of the Company.

The Company’s significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Annual Report on Form 10-K).  During the first quarter of 2019, the Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). As a result of the adoption of Topic 842, the Company has updated its Leases accounting policies. There were no other changes to its significant accounting policies from those disclosed in its 2018 Annual Report on Form 10-K.

Leases

Leases

At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on the unique facts and circumstances present in that arrangement. Lease assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized at the lease commencement date based on

the present value of lease payments over the lease term calculated using its incremental borrowing rate based on the information available at commencement unless the implicit rate is readily determinable.  Lease assets also include upfront lease payments, lease incentives paid, and direct costs incurred and exclude lease incentives received.  The lease term used to calculate the lease assets and related lease liabilities includes the options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. Lease expense for operating leases is recognized on a straight-line basis over the expected lease term as an operating expense while the expense for finance leases is recognized as depreciation expense over the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

The Company will account for each separate lease component separately from the nonlease components.  The depreciable life of lease assets and leasehold improvements is limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of its exercise.

Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expenses for these short-term leases and operating leases are recognized on a straight-line basis over the lease term.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

The Company is an “emerging growth company,” as defined in the JOBS Act.  Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.  The Company has irrevocably elected not to avail itself of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as public companies that are not emerging growth companies.

In February 2016, the Financial Accounting Standards Board (FASB) issued Topic 842, amended by ASU 2018-11, Leases (Topic 842): Targeted Improvements. The new guidance requires a lessee to recognize assets and liabilities for all leases with lease terms of more than 12 months and provide additional disclosures. Topic 842 requires adoption using a modified retrospective transition approach with either 1) transition provisions at the beginning of the earliest comparative period records its cumulative adjustment to retained earnings at the beginning of the earliest period presented or 2) a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption.  We adopted this standard on January 1, 2019 using the cumulative-effect adjustment approach. We elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019 whereby these contracts were not reassessed or reclassified from their previous assessment as of December 31, 2018.  

As a result of implementing Topic 842, the Company recognized an operating lease right-of-use asset of $1,544,000 and an operating lease liability of $1,659,000 on January 1, 2019, with no impact on its beginning retained earnings, consolidated statements of operations, or cash flows.  See Note 5, Leases, for further details.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements (ASU 2018-09).  This ASU provided various minor codification updates and improvements to address comments that the FASB had received regarding unclear or vague accounting guidance.  The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year.  The adoption of this guidance did not have a material impact on our financial position, results of operations or disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808) (ASU 2018-18).  This update provides clarification on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) including the alignment of unit of account guidance between the two topics.  This update is effective in fiscal years, including interim periods, beginning after December 15, 2020, and early adoption is permitted.  The Company is currently evaluating the impact on its financial statements of adopting this guidance.

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Term Loan (Tables)

6 Months Ended

Jun. 30, 2019

Term Loan A

Debt Instrument [Line Items]

Schedule of Future Principal Payments by Fiscal Year for Term A Loan

The future principal payments by fiscal year for the Company’s Term A Loan:

	As of June 30, 2019
	(in thousands)
2019 (remaining six months)	$	—
2020		15,555
2021		26,667
2022		26,667
2023		11,111
	$	80,000

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Leases (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Summary of Supplemental Balance Sheet Information Related to Operating Leases

Supplemental balance sheet information related to our operating leases is as follows:

	Balance Sheet Classification	As of June 30, 2019
		(in thousands)
Non-current right-of-use assets	Other assets	$	8,981
Current lease liabilities	Other current liabilities		2,568
Non-current lease liabilities	Other long-term liabilities		7,094

Schedule of Maturities of Lease Liabilities

Maturities of lease liabilities by fiscal year for the Company’s operating leases:

	As of June 30, 2019
	(in thousands)
2019 (remaining six months)	$	1,434
2020		3,999
2021		4,090
2022		1,178
Total lease payments		10,701
Less: Imputed interest		(1,039	)
Present value of lease liabilities	$	9,662

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Stock Based Compensation Expense

The following table summarizes stock-based compensation expense reflected in the consolidated statements of operations:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)
Research and development	$	1,659	$	974	$	3,350	$	1,935
General and administrative		2,824		1,578		5,360		3,102
	$	4,483	$	2,552	$	8,710	$	5,037

Summary of Stock Option Activity

The following table summarizes stock option activity as of June 30, 2019, and changes during the six months ended June 30, 2019, under the Second Amended and Restated Long Term Incentive Plan and standalone option agreements:

	Number of Options			Weighted- Average Exercise Price
Outstanding at January 1, 2019		3,320,571			21.20
Granted		1,160,233			60.53
Exercised		(369,076	)		16.49
Forfeited		(265,854	)		33.02
Expired		—			—
Outstanding at June 30, 2019		3,845,874			32.79
Exercisable at June 30, 2019		1,563,869			21.13

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Net Loss per Share (Tables)

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Computation of Basic and Diluted Net Loss per Share

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders:

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands, except share and per share data)
Numerator
Net loss	$	(34,380	)	$	(28,211	)	$	(63,534	)	$	(24,129	)
Denominator
Weighted-average number of common shares    used in net loss per share – basic		30,069,048			26,178,793			29,950,241			26,167,033
Dilutive potential common shares		—			—			—			—
Weighted-average number of common shares    used in net loss per share – diluted		30,069,048			26,178,793			29,950,241			26,167,033
Net loss per share – basic	$	(1.14	)	$	(1.08	)	$	(2.12	)	$	(0.92	)
Net loss per share – diluted	$	(1.14	)	$	(1.08	)	$	(2.12	)	$	(0.92	)

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Summary of Significant Accounting Policies - Additional Information (Details) - USD ($)	Jun. 30, 2019	Jan. 01, 2019
Accounting Policies [Abstract]
Operating lease, right-of-use asset	$ 8,981,000	$ 1,544,000
Operating lease, liability	$ 9,662,000	$ 1,659,000

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Collaboration Agreements - Additional Information (Details) - USD ($)	1 Months Ended		3 Months Ended		6 Months Ended
	Dec. 31, 2011	Dec. 31, 2009	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Collaboration revenue			$ 7,833,000	$ 7,571,000	$ 15,603,000	$ 39,962,000
Deferred revenue, current			31,421,000		$ 31,421,000		$ 31,335,000
AbbVie | Collaborative Arrangement
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Up-front collaboration payment received	$ 400,000,000
Deferred revenue, expected timing of recognition					2026-12
Collaboration revenue			6,644,000	6,644,000	$ 13,214,000	13,214,000
Deferred revenue			198,430,000		198,430,000
Deferred revenue, current			26,720,000		$ 26,720,000
KKC Agreement | License Agreement Terms
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Deferred revenue, expected timing of recognition					2021-12
Collaboration revenue			1,169,000	$ 875,000	$ 2,325,000	$ 26,472,000
Deferred revenue			11,752,000		11,752,000
Deferred revenue, current			4,701,000		4,701,000
Upfront license fee received		$ 35,000,000
Collaboration revenue, total milestone payments received in 2010, 2012, 2018					45,000,000
Collaboration revenue, potential milestone payments			52,000,000		52,000,000
Collaboration revenue, additional potential commercial milestone payments			$ 140,000,000		$ 140,000,000

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Term Loan - Additional Information (Details) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 14, 2018
Term Loan A
Debt Instrument [Line Items]
Debt instrument, outstanding amount	$ 80,000,000
Amended and Restated Loan and Security Agreement
Debt Instrument [Line Items]
Debt instrument, prepayment terms	The Company has the option to prepay all, but not less than all, of the borrowed amounts, provided that the Company will be obligated to pay a prepayment fee equal to (a) the aggregate amount of interest that the Company would have paid through the maturity date if prepayment is made on or before the first anniversary of the applicable funding date of the Term Loan, (b) 4.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the first anniversary date and on or before the second anniversary of the applicable funding date, (c) 3.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the second anniversary date and on or before the third anniversary of the applicable funding date, or (d) 1.5% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the third anniversary date and on or before the fourth anniversary of the applicable funding date.
Amended and Restated Loan and Security Agreement | Loan Prepayment After First Anniversary
Debt Instrument [Line Items]
Debt instrument prepayment fee percentage	4.00%
Amended and Restated Loan and Security Agreement | Loan Prepayment After Second Anniversary
Debt Instrument [Line Items]
Debt instrument prepayment fee percentage	3.00%
Amended and Restated Loan and Security Agreement | Loan Prepayment After Third Anniversary
Debt Instrument [Line Items]
Debt instrument prepayment fee percentage	1.50%
Amended and Restated Loan and Security Agreement | Term Loan A
Debt Instrument [Line Items]
Debt instrument, interest only payments period	24 months through June 1, 2020
Debt instrument final exit fee payment percentage	6.50%
Debt instrument, outstanding amount		$ 80,000,000
Debt instrument, unamortized discount and debt issuance costs	$ 5,303,000
Debt instrument, effective interest rate before debt issuance costs and final exit fee	10.98%
Debt instrument, effective interest rate including debt issuance costs and final exit fee	13.53%
Debt instrument, final exit fee accrued	$ 5,200,000
Amended and Restated Loan and Security Agreement | Term Loan A | Achievement of One of Two Milestones
Debt Instrument [Line Items]
Maximum borrowing capacity		80,000,000
Amended and Restated Loan and Security Agreement | Term Loan B
Debt Instrument [Line Items]
Period to borrow funds after achievement of milestone	30 days
Debt instrument, possible borrowing date	Dec. 31, 2019
Payment of unused line fee	$ 450,000
Debt instrument, interest only payments period	36 months through June 1, 2021
Debt instrument final exit fee payment percentage	4.00%
Amended and Restated Loan and Security Agreement | Term Loan B | Achievement of One of Two Milestones
Debt Instrument [Line Items]
Maximum borrowing capacity		$ 45,000,000
Amended and Restated Loan and Security Agreement | Term Loans
Debt Instrument [Line Items]
Debt instrument, payment terms	All outstanding Term Loans will mature on June 1, 2023.  Under the Term A Loan, the Company will make interest-only payments for 24 months through June 1, 2020; however, if the Company draws the Term B Loan, the Company will make interest-only payments for 36 months through June 1, 2021.  The interest-only payment period will be followed by 36 equal monthly payments, or 24 equal monthly payments if the Company draws the Term B Loan, of principal and interest payments.
Debt instrument, maturity date	Jun. 01, 2023
Debt instrument, interest rate terms	The Term Loans will bear interest at a floating per annum rate calculated as 7.79% plus the greater of the 30-day U.S. Dollar LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or 1.91%, with a minimum rate of 9.7% and maximum rate of 12.29%.
Debt instrument, annual interest rate	7.79%
Debt instrument, basis spread on variable rate	1.91%
Amended and Restated Loan and Security Agreement | Term Loans | Minimum
Debt Instrument [Line Items]
Debt instrument, annual interest rate	9.70%
Amended and Restated Loan and Security Agreement | Term Loans | Maximum
Debt Instrument [Line Items]
Debt instrument, annual interest rate	12.29%

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Term Loan - Schedule of Future Principal Payments by Fiscal Year for Term A Loan (Details) - Term Loan A	Jun. 30, 2019 USD ($)
Debt Instrument [Line Items]
2019 (remaining six months)	$ 0
2020	15,555,000
2021	26,667,000
2022	26,667,000
2023	11,111,000
Term Loan	$ 80,000,000

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Leases - Additional Information (Details)	3 Months Ended	6 Months Ended
	Jun. 30, 2019 USD ($) ft²	Jun. 30, 2019 USD ($) ft²
Lessee Lease Description [Line Items]
Contractual term	36 months	36 months
Weighted-average remaining lease term	2 years 9 months 18 days	2 years 9 months 18 days
Cash paid for amounts included in the measurement of lease liabilities | $		$ 952,000
Operating lease, expense | $	$ 919,000	$ 1,578,000
Weighted average incremental borrowing rate	8.30%	8.30%
Office And Laboratory Space
Lessee Lease Description [Line Items]
Area of real estate property | ft²	34,890	34,890
Additional Office Space
Lessee Lease Description [Line Items]
Area of real estate property | ft²	122,000	122,000

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Leases - Summary of Supplemental Balance Sheet Information Related to Operating Leases (Details) - USD ($)	Jun. 30, 2019	Jan. 01, 2019
Assets And Liabilities Lessee [Abstract]
Non-current right-of-use assets	$ 8,981,000	$ 1,544,000
Current lease liabilities	2,568,000
Non-current lease liabilities	$ 7,094,000

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Leases - Schedule of Maturities of Lease Liabilities (Details) - USD ($)	Jun. 30, 2019	Jan. 01, 2019
Leases [Abstract]
2019 (remaining six months)	$ 1,434,000
2020	3,999,000
2021	4,090,000
2022	1,178,000
Total lease payments	10,701,000
Less: Imputed interest	(1,039,000)
Operating lease, liability	$ 9,662,000	$ 1,659,000

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Income Taxes - Additional Information (Details)	6 Months Ended
	Jun. 30, 2019
Internal Revenue Service (IRS)
Income Tax Disclosure [Line Items]
Examination of U.S. income tax returns, year	2013 2014 2015

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Stock-Based Compensation - Summary of Stock Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 4,483	$ 2,552	$ 8,710	$ 5,037
Research and development
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	1,659	974	3,350	1,935
General and administrative
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 2,824	$ 1,578	$ 5,360	$ 3,102

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Stock-Based Compensation - Summary of Stock Option Activity (Details) - $ / shares	6 Months Ended
	Jun. 30, 2019
Number of Options, Abstract
Number of Options, Outstanding - Beginning balance	3,320,571
Number of Options, Granted	1,160,233
Number of Options, Exercised	(369,076)
Number of Options, Forfeited	(265,854)
Number of Options, Outstanding - Ending balance	3,845,874
Number of Options, Exercisable	1,563,869
Weighted Average Exercise Price, Abstract
Weighted-Average Exercise Price, Outstanding - Beginning balance	$ 21.20
Weighted-Average Exercise Price, Granted	60.53
Weighted-Average Exercise Price, Exercised	16.49
Weighted-Average Exercise Price, Forfeited	33.02
Weighted-Average Exercise Price, Outstanding - Ending balance	32.79
Weighted-Average Exercise Price, Exercisable	$ 21.13

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Stock-Based Compensation - Additional Information (Details)	Jun. 30, 2019 USD ($)
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Total intrinsic value of outstanding options	$ 236,740,000
Total intrinsic value of exercisable options	$ 114,501,000

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Net Loss per Share - Computation of Basic and Diluted Net (Loss) Income per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Numerator
Net loss	$ (34,380)	$ (28,211)	$ (63,534)	$ (24,129)
Denominator
Weighted-average number of common shares used in net loss per share – basic	30,069,048	26,178,793	29,950,241	26,167,033
Weighted-average number of common shares used in net loss per share – diluted	30,069,048	26,178,793	29,950,241	26,167,033
Net loss per share – basic	$ (1.14)	$ (1.08)	$ (2.12)	$ (0.92)
Net loss per share – diluted	$ (1.14)	$ (1.08)	$ (2.12)	$ (0.92)

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Net Loss per Share - Additional Information (Details) - shares	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Earnings Per Share [Abstract]
Weighted average anti-dilutive shares excludes from computation of earnings per share	3,845,874	3,337,509