10-Q 1 mirm-10q_20200331.htm 10-Q mirm-10q_20200331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2020 

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: 001-38981

 

Mirum Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

83-1281555

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

950 Tower Lane, Suite 1050, Foster City, California

94404

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 667-4085

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.0001 per share

 

MIRM

 

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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 May 1, 2020 the registrant had 25,389,987 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Loss

3

 

Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2020

4

 

Condensed Consolidated Statement of Redeemable Convertible Preferred Stock, Redeemable Common Stock and Stockholders’ Deficit for the Three Months Ended March 31, 2019

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

24

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 3.

Defaults Upon Senior Securities

74

Item 4.

Mine Safety Disclosures

74

Item 5.

Other Information

74

Item 6.

Exhibits

75

Signatures

76

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

(Note 2)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

72,035

 

 

$

11,970

 

Short-term investments

 

 

87,496

 

 

 

104,690

 

Prepaid expenses and other current assets

 

 

2,905

 

 

 

2,703

 

Total current assets

 

 

162,436

 

 

 

119,363

 

Long-term investments

 

 

6,530

 

 

 

23,292

 

Property and equipment, net

 

 

1,397

 

 

 

1,372

 

Operating lease right-of-use assets

 

 

2,280

 

 

 

2,361

 

Other assets

 

 

160

 

 

 

324

 

Total assets

 

$

172,803

 

 

$

146,712

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,265

 

 

$

3,351

 

Accrued expenses

 

 

9,772

 

 

 

9,328

 

Operating lease liabilities

 

 

511

 

 

 

397

 

Total current liabilities

 

 

13,548

 

 

 

13,076

 

Operating lease liabilities, noncurrent

 

 

3,103

 

 

 

3,251

 

Other liabilities

 

 

34

 

 

 

36

 

Total liabilities

 

 

16,685

 

 

 

16,363

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized

   as of March 31, 2020 and December 31, 2019, respectively; zero shares issued and

   outstanding as of March 31, 2020 and December 31, 2019, respectively; and

   liquidation value of $0 as of March 31, 2020 and December 31, 2019, respectively

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares

   authorized as of March 31, 2020 and December 31, 2019, respectively;

   25,389,987 shares issued and 25,033,736 shares outstanding, excluding 356,251 shares

   subject to repurchase as of March 31, 2020; 22,989,987 shares issued

   and 22,600,338 shares outstanding, excluding 389,649 shares subject to

   repurchase as of December 31, 2019

 

 

3

 

 

 

2

 

Additional paid-in capital

 

 

247,350

 

 

 

200,119

 

Accumulated deficit

 

 

(91,211

)

 

 

(69,901

)

Accumulated other comprehensive income (loss)

 

 

(24

)

 

 

129

 

Total stockholders’ equity

 

 

156,118

 

 

 

130,349

 

Total liabilities and stockholders’ equity

 

$

172,803

 

 

$

146,712

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

17,340

 

 

$

4,863

 

General and administrative

 

 

4,692

 

 

 

1,321

 

Total operating expenses

 

 

22,032

 

 

 

6,184

 

Loss from operations

 

 

(22,032

)

 

 

(6,184

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

749

 

 

 

232

 

Other income (expense), net

 

 

(23

)

 

 

(5

)

Net loss before provision for income taxes

 

 

(21,306

)

 

 

(5,957

)

Provision for income taxes

 

 

4

 

 

 

 

Net loss

 

$

(21,310

)

 

$

(5,957

)

Net loss per share, basic and diluted

 

$

(0.86

)

 

$

(2.37

)

Weighted-average shares of common stock outstanding, basic and diluted

 

 

24,704,651

 

 

 

2,517,743

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(21,310

)

 

$

(5,957

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale investments

 

 

(149

)

 

 

 

Cumulative translation adjustments

 

 

(4

)

 

 

 

Comprehensive loss

 

$

(21,463

)

 

$

(5,957

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance as of December 31, 2019

 

 

 

 

$

 

 

 

22,600,338

 

 

$

2

 

 

$

200,119

 

 

$

(69,901

)

 

$

129

 

 

$

130,349

 

Issuance of common stock in follow-on public

   offering, net of issuance costs of $3,342

 

 

 

 

 

 

 

 

2,400,000

 

 

 

1

 

 

 

44,658

 

 

 

 

 

 

 

 

 

44,659

 

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

33,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,573

 

 

 

 

 

 

 

 

 

2,573

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,310

)

 

 

 

 

 

(21,310

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(153

)

 

 

(153

)

Balance as of March 31, 2020

 

 

 

 

$

 

 

 

25,033,736

 

 

$

3

 

 

$

247,350

 

 

$

(91,211

)

 

$

(24

)

 

$

156,118

 

 


4


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statement of Redeemable Convertible Preferred Stock, Redeemable Common Stock and Stockholders’ Deficit

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Series A Redeemable Convertible

Preferred Stock

 

 

Redeemable

Common Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Deficit

 

Balance as of December 31, 2018

 

 

59,908,284

 

 

$

59,849

 

 

 

1,859,151

 

 

$

6,990

 

 

 

 

636,719

 

 

$

1

 

 

$

34

 

 

$

(17,348

)

 

$

 

 

$

(17,313

)

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35,156

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

218

 

 

 

 

 

 

 

 

 

218

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,957

)

 

 

 

 

 

(5,957

)

Balance as of March 31, 2019

 

 

59,908,284

 

 

$

59,849

 

 

 

1,859,151

 

 

$

6,990

 

 

 

 

671,875

 

 

$

1

 

 

$

252

 

 

$

(23,305

)

 

$

 

 

$

(23,052

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(21,310

)

 

$

(5,957

)

Reconciliation of net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

2,573

 

 

 

218

 

Depreciation and amortization

 

 

73

 

 

 

 

Amortization of operating lease right-of-use assets

 

 

83

 

 

 

27

 

Net accretion of discounts on investments

 

 

(52

)

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(158

)

 

 

(251

)

Operating lease right-of-use assets

 

 

 

 

 

(32

)

Other assets

 

 

 

 

 

(125

)

Accounts payable, accrued expenses and other liabilities

 

 

476

 

 

 

3,677

 

Operating lease liabilities

 

 

(36

)

 

 

17

 

Net cash used in operating activities

 

 

(18,351

)

 

 

(2,426

)

Investing activities

 

 

 

 

 

 

 

 

Proceeds from maturities of investments

 

 

29,500

 

 

 

 

Proceeds from paydowns of investments

 

 

4,359

 

 

 

 

Purchase of property and equipment

 

 

(98

)

 

 

(44

)

Net cash provided by (used in) investing activities

 

 

33,761

 

 

 

(44

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock in public offering, net of issuance costs

 

 

44,659

 

 

 

 

Net cash provided by financing activities

 

 

44,659

 

 

 

 

Effect of exchange rate on cash and cash equivalents

 

 

(4

)

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

60,065

 

 

 

(2,470

)

Cash and cash equivalents at beginning of period

 

 

11,970

 

 

 

51,963

 

Cash and cash equivalents at end of period

 

$

72,035

 

 

$

49,493

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Operating lease right-of-use asset obtained in exchange for operating lease liability

 

$

 

 

$

1,268

 

Landlord paid tenant improvements

 

$

 

 

$

409

 

Deferred initial public offering costs in accounts payable

 

$

 

 

$

302

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

Mirum Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

1. Description of Business

Mirum Pharmaceuticals, Inc. (the “Company”) was incorporated in the State of Delaware on May 2, 2018, and is headquartered in Foster City, California. The Company is a biopharmaceutical company focused on the development and commercialization of a late-stage pipeline of novel therapies for debilitating liver diseases. The Company’s pipeline consists of two clinical-stage product candidates, maralixibat and volixibat, with mechanisms of action that have potential utility across a wide range of orphan liver diseases. The Company commenced significant operations in November 2018.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Mirum Pharmaceuticals AG. All intercompany balances and transactions among the consolidated entities have been eliminated in consolidation.

 

Reverse Stock Split

On July 3, 2019, the Company effected a 1-for-8 reverse stock split of its common stock. The par value and the authorized number of shares of common stock were not adjusted as a result of the reverse stock split. The reverse stock split resulted in an adjustment to the conversion price of the Company’s Series A redeemable convertible preferred stock (the “Series A Preferred Stock”) to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. The accompanying consolidated financial statements and notes to the consolidated financial statements give retroactive effect to the reverse stock split for all periods presented.

 

Follow-on Public Offering

On January 13, 2020, the Company completed a follow-on public offering of its common stock, pursuant to which the Company sold 2,400,000 shares of common stock at a price of $20.00 per share, resulting in net proceeds of $44.7 million after deducting underwriting discounts, commissions and offering expenses.

 

Liquidity

The Company has a limited operating history, has incurred significant operating losses since its inception, and the revenue and income potential of the Company’s business and market are unproven. As of March 31, 2020, the Company had an accumulated deficit of $91.2 million and cash, cash equivalents and investments of $166.1 million, which is available to fund future operations. The Company believes that its cash, cash equivalents and investments as of March 31, 2020 provide sufficient capital resources to continue its operations for at least twelve months from the issuance date of the accompanying unaudited condensed consolidated financial statements. As such, the unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities.

7


 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The unaudited interim financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. The unaudited condensed consolidated balance sheet as of December 31, 2019 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by GAAP for complete financial statements. The operating results presented in these unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for any future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2019, as filed with the SEC on March 12, 2020.

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the financial statements and accompanying notes. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to accrued research and development expenses, the valuation of investments, the valuation of common stock, equity awards and the valuation allowance of deferred tax assets resulting from net operating losses. These estimates and assumptions are based upon historical experience, knowledge of current events and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could differ materially from those estimates.

In December 2019, a novel strain of coronavirus, which causes COVID-19, was identified. Due to the rapid and global spread of the virus, on March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. To slow the proliferation of COVID-19, governments have implemented extraordinary measures, which include the mandatory closure of businesses, restrictions on travel and gatherings, and quarantine and physical distancing requirements.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including clinical trials delays and costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets. There were no significant estimates contained in the preparation of the Company’s consolidated financial statements or impacts to the Company’s consolidated financial statements for the three months ended March 31, 2020 that were directly a result of the COVID-19 pandemic.

Significant Accounting Policies

There have been no significant changes to the accounting policies during the three months ended March 31, 2020, as compared to the significant accounting policies described in Note 2 of the “Notes to Consolidated Financial Statements” in the Company’s audited financial statements included in the Annual Report.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average shares of common stock outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average shares of common stock and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. Diluted net loss per share excludes the potential impact of the Company’s common stock subject to repurchase and common stock options because their effect would be anti-dilutive due to the Company’s net loss. Since the Company had a net loss in each of the periods presented, basic and diluted net loss per share were the same.

8


 

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

 

 

 

As of March 31,

 

 

As of December 31,

 

 

 

2020

 

 

2019

 

Options to purchase common stock

 

 

4,436,862

 

 

 

3,366,812

 

Common stock subject to repurchase

 

 

356,251

 

 

 

389,649

 

Total

 

 

4,793,113

 

 

 

3,756,461

 

 

Recently Adopted Accounting Pronouncements

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which eliminated the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 assets, the policy for timing and transfers between levels and the valuation process for Level 3 fair value measurements. The guidance modified disclosure requirements for investments in certain entities that calculate net asset value and clarifies the purpose of the measurement uncertainty disclosure. The guidance added requirements to disclose changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements and to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. There was no impact on the accompanying unaudited condensed consolidated financial statements as of the adoption date, January 1, 2020.

Other recent accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial position, results of operations or cash flows.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires an entity to utilize a new impairment model that requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. The new guidance requires the use of forward-looking expected credit loss models based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new guidance. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU does not change the core principle of the guidance in ASU 2016-13, instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses guidance. The FASB also subsequently issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 842), which did not change the core principle of the guidance in ASU 2016-13 but clarified that expected recoveries of amounts previously written off and expected to be written off should be included in the valuation account and should not exceed amounts previously written off and expected to be written off. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 for public business entities, excluding smaller reporting companies. Early adoption is permitted. As a smaller reporting company, the guidance will be effective for the Company during the first quarter of 2023. The Company is in the process of assessing the impact adoption will have on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The guidance eliminates certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. This guidance also includes guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual and interim periods in fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements.

 

9


 

3. Fair Value Measurements

Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type as of March 31, 2020 and December 31, 2019 are presented in the following table (in thousands):  

 

 

 

March 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

70,659

 

 

$

 

 

$

 

 

$

70,659

 

Corporate debt securities

 

 

 

 

 

39,451

 

 

 

 

 

 

39,451

 

Commercial paper

 

 

 

 

 

15,145

 

 

 

 

 

 

15,145

 

U.S. government bonds

 

 

 

 

 

15,063

 

 

 

 

 

 

15,063

 

Asset backed securities

 

 

 

 

 

24,367

 

 

 

 

 

 

24,367

 

Total

 

$

70,659

 

 

$

94,026

 

 

$

 

 

$

164,685

 

 

 

 

December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

10,621

 

 

$

 

 

$

 

 

$

10,621

 

Corporate debt securities

 

 

 

 

 

41,668

 

 

 

 

 

 

41,668

 

Commercial paper

 

 

 

 

 

35,016

 

 

 

 

 

 

35,016

 

U.S. government bonds

 

 

 

 

 

22,511

 

 

 

 

 

 

22,511

 

Asset-backed securities

 

 

 

 

 

28,787

 

 

 

 

 

 

28,787

 

Total

 

$

10,621

 

 

$

127,982

 

 

$

 

 

$

138,603

 

 

The carrying amounts of certain financial instruments such as cash and cash equivalents, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses, and other current liabilities as of March 31, 2020 and December 31, 2019 approximate their related fair values due to the short-term maturities of these instruments.

The fair value of certain financial instruments was measured and classified within Level 1 of the fair value hierarchy based on quoted prices. Certain financial instruments classified within Level 2 of the fair value hierarchy include the types of instruments that trade in markets that are not considered to be active, but are valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

 

 

4. Financial Instruments

The fair value and amortized cost of cash equivalents and available-for-sale investments by major security type are presented in the following table (in thousands):

 

 

 

March 31, 2020

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Estimated

Fair

Value

 

Cash equivalents and investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

70,659

 

 

$

 

 

$

 

 

$

70,659

 

Corporate debt securities

 

 

39,464

 

 

 

28

 

 

 

(41

)

 

 

39,451

 

Commercial paper

 

 

15,145

 

 

 

 

 

 

 

 

 

15,145

 

U.S. government bonds

 

 

15,000

 

 

 

63

 

 

 

 

 

 

15,063

 

Asset back securities

 

 

24,410

 

 

 

11

 

 

 

(54

)

 

 

24,367

 

Total cash equivalents and investments

 

$

164,678

 

 

$

102

 

 

$

(95

)

 

$

164,685

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

70,659

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

87,496

 

Long-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,530

 

Total cash equivalents and investments

 

 

 

 

 

 

 

 

 

 

 

 

 

$

164,685

 

 

10


 

 

 

December 31, 2019

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Estimated

Fair

Value

 

Cash equivalents and investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

10,621

 

 

$

 

 

$

 

 

$

10,621

 

Corporate debt securities

 

 

41,556

 

 

 

113

 

 

 

(1

)

 

 

41,668

 

Commercial paper

 

 

35,016

 

 

 

 

 

 

 

 

 

35,016

 

U.S. government bonds

 

 

22,492

 

 

 

19

 

 

 

 

 

 

22,511

 

Asset-backed securities

 

 

28,762

 

 

 

25

 

 

 

 

 

 

28,787

 

Total cash equivalents and investments

 

$

138,447

 

 

$

157

 

 

$

(1

)

 

$

138,603

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

10,621

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

104,690

 

Long-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,292

 

Total cash equivalents and investments

 

 

 

 

 

 

 

 

 

 

 

 

 

$

138,603

 

 

 

As of March 31, 2020, the remaining contractual maturities of available-for-sale debt securities were as follows (in thousands):

 

 

 

Estimated

Fair Value

 

 

Due within one year

 

$

85,863

 

 

One to two years

 

 

8,163

 

 

Total

 

$

94,026

 

 

 

During the three months ended March 31, 2020, there have been no significant realized gains or losses on available-for-sale investments. During the three months ended March 31, 2020, the Company did not recognize any other-than-temporary impairment losses.

5. Accrued Expenses

Accrued expenses consists of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued clinical trials

 

$

4,539

 

 

$

4,795

 

Accrued professional service fees

 

 

812

 

 

 

777

 

Accrued contract manufacturing and non-clinical costs

 

 

3,219

 

 

 

1,540

 

Accrued compensation and related benefits

 

 

1,202

 

 

 

2,216

 

Total accrued expenses

 

$

9,772

 

 

$

9,328

 

 

6. Asset Acquisitions

Assignment and License Agreement with Shire International GmbH

On November 5, 2018, the Company entered into an Assignment and License Agreement (the “Shire Agreement”) with Shire International GmbH (“Shire”). Under the terms of the Shire Agreement, Shire granted the Company an exclusive, royalty bearing worldwide license to develop and commercialize its two product candidates, maralixibat and volixibat. As part of the Shire Agreement, the Company was assigned license agreements held by Shire with Satiogen Pharmaceuticals, Inc. (“Satiogen”), Pfizer Inc. (“Pfizer”) and Sanofi-Aventis Deutschland GmbH (“Sanofi”). The Company has the right to sublicense under the Shire Agreement and additionally has the right to sublicense under the Satiogen, Pfizer and Sanofi licenses subject to the terms of those license agreements.

In consideration for the rights granted to the Company under the Shire Agreement, the Company made an upfront payment to Shire on November 5, 2018 of $7.5 million and issued Shire 1,859,151 shares of its redeemable common stock with an estimated fair value of $7.0 million, or $3.76 per share. The fair value of the shares was determined using an option pricing model with key assumptions as of the date of issuance including the probabilities of liquidity scenarios, enterprise value, time to liquidity, risk-free interest rates, volatility and discount for lack of marketability.

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The Company accounted for the transaction as an asset acquisition as substantially all of the fair value of the gross assets acquired were concentrated in a group of similar identifiable assets thus satisfying the requirements of the screen test in ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The assets acquired in the transaction were measured based on the upfront payment to Shire and the fair value of the common stock shares issued to Shire, as the fair value of the consideration given was more readily determinable than the fair value of the assets received. Because the assets had not yet received regulatory approval and have no alternative future use, the fair value attributable to these assets were initially recorded as in process research and development expenses.

The Company is also obligated to pay Shire up to an aggregate of $109.5 million upon the achievement of certain clinical development and regulatory milestones for maralixibat in certain indications and an additional $25.0 million upon regulatory approval of maralixibat for each and every other indication. In addition, the Company is required to pay up to an aggregate of $30.0 million upon the achievement of certain clinical development and regulatory milestones for volixibat solely for the first indication sought. Upon commercialization, the Company is obligated to pay Shire product sales milestones on total licensed products up to an aggregate of $30.0 million. The Company is also obligated to pay tiered royalties with rates ranging from low double-digits to mid-teens based upon annual worldwide net sales for all licensed products; however, these royalties are reduced in part by royalties due under the Satiogen and Sanofi licenses, as discussed below, related to maralixibat and volixibat, as applicable. The Company’s royalty obligations will continue on a licensed product-by-licensed product and country-by-country basis until the later to occur of the expiration of the last valid claim in a licensed patent covering the applicable licensed product in such country, expiration of any regulatory exclusivity for the licensed product in a country and ten years after the first commercial sale of a licensed product in such country. In July 2019, the Company achieved a development milestone related to the initiation of the Phase 3 MARCH-PFIC clinical trial and made a $2.5 million payment to Shire. As of March 31, 2020, no additional milestones had been accrued as there were no other potential milestones yet considered probable.

In January 2019, the Company also entered into a Transition Services Agreement (“TSA”) with Shire, which covered services provided by Shire to transfer the research and development activities and the related know-how from Shire to the Company, including continuation of work on any existing clinical trials and manufacturing activities until fully transferred. All transition services were completed and all pass-through costs were settled as of June 30, 2019. As such, for the three months ended March 31, 2020, there were no expenses for Shire provided services or pass-through costs recorded. For the three months ended March 31, 2019, the Company recorded $0.3 million for services provided by Shire under the TSA and $0.1 million for pass-through costs related to continuation of work on existing clinical trials and manufacturing activities.

 

Satiogen License

Through the Shire Agreement, the Company was assigned a license agreement with Satiogen pursuant to which the Company obtained an exclusive, worldwide license to certain patents and know-how, with the right to sublicense to a third party subject to certain financial considerations. The Company is obligated to pay to Satiogen up to an aggregate of $10.5 million upon the achievement of certain milestones, of which $0.5 million was for initiation of certain development activities, $5.0 million for the completion of regulatory approvals and $5.0 million for commercialization activities. Additionally, the Company will be required to pay a low single-digit royalty on net sales. The Company’s royalty obligations continue on a licensed product-by-licensed product and country-by-country basis until the expiration of the last valid claim in a licensed patent covering the applicable licensed product in such country. Royalty obligations under the Satiogen license are creditable against the royalty obligations to Shire under the Shire Agreement. In July 2019, the Company achieved a development milestone related to the initiation of the Phase 3 MARCH-PFIC clinical trial and made a $0.5 million payment to Satiogen. As of March 31, 2020, no additional milestones had been accrued as there were no other potential milestones yet considered probable.  

Pfizer License

Through the Shire Agreement, the Company was assigned a license agreement with Pfizer pursuant to which the Company obtained an exclusive, worldwide license to certain Pfizer know-how with a right to sublicense. Upon commercialization of any product utilizing the licensed product, the Company will be required to pay to Pfizer a low single-digit royalty on net sales of product sold by the Company, its affiliates or sublicensees. The Company’s royalty obligations continue on a licensed product-by-licensed product basis until the eighth anniversary of the first commercial sale of such licensed product anywhere in the world.

12


 

Sanofi License

Through the Shire Agreement, the Company was assigned a license agreement with Sanofi pursuant to which the Company obtained an exclusive, worldwide license to certain patents and know-how with the right to sublicense to a third party subject to certain financial considerations. The Company is obligated to pay up to an aggregate of $36.0 million upon the achievement of certain regulatory, commercialization and product sales milestones. Additionally, upon commercialization, the Company is required to pay tiered royalties in the mid to high single-digit range based upon net sales of licensed products sold by the Company and sublicensees in a calendar year, subject to adjustments in certain circumstances. The Company’s royalty obligations continue on a licensed product-by-licensed product and country-by-country basis until the later to occur of the expiration of the last valid claim in a licensed patent covering the applicable licensed product in such country and ten years after the first commercial sale of a licensed product in such country. Royalty obligations under the Sanofi license are creditable against the royalty obligations to Shire under the Shire Agreement. As of March 31, 2020, no milestones had been accrued as there were no potential milestones yet considered probable.

7. Stockholders’ Equity (Deficit)

In connection with the Company’s initial public offering in July 2019, all of the outstanding shares of the Company’s Series A Preferred Stock automatically converted into 14,969,118 shares of common stock and the 1,859,151 shares of the Company’s redeemable common stock classified in mezzanine equity were reclassified to permanent equity due to the expiration of the deemed redemption feature associated with the stock. 

Common Stock

In August and October 2018, the Company issued 1,187,500 shares of common stock as founder shares for services rendered to the Company, valued at $0.0001 per share for consideration of approximately $950. On November 5, 2018, in connection with the issuance of the Series A Preferred Stock, vesting conditions were placed on 562,500 previously issued founder shares. These shares vest over 4 years and are subject to repurchase by the Company in the event of termination of services. Shares subject to repurchase are not deemed, for accounting purposes, to be outstanding until those shares vest. In April 2019, the Company repurchased 25,782 shares of the common stock from a former employee in connection with termination of employment.

As of March 31, 2020 and December 31, 2019, 356,251 and 389,649 shares of common stock, respectively, were subject to repurchase by the Company. The unvested stock liability related to these shares is immaterial to all periods presented.

Each share of common stock is entitled to one voting right. Common stockholders are entitled to dividends when funds are legally available and declared by the Company’s board of directors.

Common Stock Reserved for Issuance

Common stock reserved for issuance is as follows:

 

 

 

As of March 31,

 

 

As of December 31,

 

 

 

2020

 

 

2019

 

Stock options issued and outstanding

 

 

4,436,862

 

 

 

3,366,812

 

Reserved for future stock awards or option grants

 

 

1,941,892

 

 

 

1,112,443

 

Reserved for employee stock purchase plan

 

 

729,899

 

 

 

500,000

 

 

 

 

7,108,653

 

 

 

4,979,255

 

 

8. Stock-Based Compensation

Equity Incentive Plans

On November 5, 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) which permits the granting of stock awards and incentive and nonstatutory stock options to employees, directors and consultants of the Company.

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In July 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan became effective on July 17, 2019. Under the 2019 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other stock or cash-based awards to individuals who are then employees, officers, directors or consultants of the Company. A total of 1,401,443 shares of common stock were approved to be initially reserved for issuance under the 2019 Plan, including 101,443 shares that remained available for issuance under the 2018 Plan as of July 17, 2019. Shares subject to outstanding awards under the 2018 Plan as of the effective date of the 2019 Plan that are subsequently canceled, forfeited or repurchased by the Company will be added to the shares reserved under the 2019 Plan. In addition, the number of shares of common stock available for issuance under the 2019 Plan will be automatically increased on the first day of each calendar year during the ten-year term of the 2019 Plan, beginning with January 1, 2020 and ending with January 1, 2029, by an amount equal to 5% of the outstanding number of shares of the Company’s common stock on December 31st of the preceding calendar year or such lesser amount as determined by the Company’s board of directors. As of March 31, 2020, 1,191,892 shares of common stock were available for issuance under the 2019 Plan.

On March 18, 2020, the compensation committee of the Company’s board of directors approved and adopted the 2020 Inducement Plan (the “2020 Inducement Plan”). Under the 2020 Inducement Plan, the Company may grant nonstatutory stock options, stock appreciation rights, restricted stock and restricted stock units to new employees entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4). The 2020 Inducement Plan authorized 750,000 shares of the Company’s common stock for future issuance. As of March 31, 2020, no awards had been granted under the 2020 Inducement Plan.

Stock Options

The fair value of each employee and non-employee stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company estimated expected volatility based on the historical volatility of a group of similar companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The following assumptions were used to estimate the fair value of stock option awards granted during the following periods:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Exercise price

 

$10.40 - $24.52

 

 

$

2.94

 

Expected term (in years)

 

5.50 - 6.08

 

 

6.25

 

Expected volatility

 

77.07% - 88.11%

 

 

 

74.53%

 

Risk-free interest rate

 

0.51% - 1.73%

 

 

 

2.46%

 

Expected dividend yield

 

 

 

 

 

 

Grant date fair value of options granted

 

$7.38 - $16.59

 

 

$

4.35

 

 

The following table summarizes stock option activity during the three months ended March 31, 2020 (in thousands, except share and per share data):

 

 

 

Number of

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Life

(in Years)