AKERO THERAPEUTICS, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)
The following discussion should be read in conjunction with our financial statements and accompanying footnotes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended
December 31, 2021. 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 and related financing, includes forward-looking statements that involve risks and uncertainties. See "Special Note Regarding Forward-Looking Statements." Because of many factors, including those factors set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
We are a clinical-stage company dedicated to developing transformational treatments for patients with serious metabolic diseases marked by high unmet medical need, including non-alcoholic steatohepatitis, or NASH, a disease without any approved therapies. NASH is a severe form of nonalcoholic fatty liver disease, or NAFLD, characterized by inflammation and fibrosis in the liver that can progress to cirrhosis, liver failure, cancer and death. Our lead product candidate, efruxifermin, or EFX, is an analog of fibroblast growth factor 21, or FGF21, which is an endogenously expressed hormone that protects against cellular stress and regulates metabolism of lipids, carbohydrates and proteins throughout the body. Based on statistically significant fibrosis regression and NASH resolution among patients with biopsy-confirmed pre-cirrhotic NASH, as well as consistent results across multiple clinical trials, we believe EFX has the potential, if approved, to be a best-in-class medicine for treating NASH. EFX has been evaluated in four randomized, double-blind, placebo-controlled clinical trials, in which a total of 245 adult patients with either NASH (N=162) or T2D (N=83) were treated with EFX and evaluated for up to 24 weeks. We recently reported Week 24 results of the Phase 2b HARMONY study in patients with pre-cirrhotic NASH (F2-F3) fibrosis. Both the 50mg and 28mg EFX dose groups achieved statistical significance on primary and secondary histology endpoints after 24 weeks. On the primary endpoint of at least a one-stage improvement of fibrosis without worsening of NASH, the 50mg group (41%) and 28mg group (39%) had a response rate approximately double that of placebo (20%). In addition, 76% of patients treated with 50mg EFX and 47% of those treated with 28mg achieved NASH resolution without worsening of fibrosis, which represented response rates approximately three to five times the placebo rate of 15%. We also observed 41% and 29% response rates for the 50mg and 28mg dose groups, respectively, on a combined endpoint of at least a one-stage improvement in fibrosis and NASH resolution, which were approximately six to eight times the 5% placebo rate. Significant improvements in non-invasive fibrosis markers, liver fat, liver enzymes, lipoproteins, and glycemic control were also observed for both EFX dose groups, with an additional significant reduction in body weight observed for the 50mg dose group. Across EFX groups, the most frequent adverse events were mild gastrointestinal events. We believe these results favorably differentiate EFX within the NASH landscape. EFX is currently being evaluated in two Phase 2b clinical trials in patients with biopsy-confirmed NASH: a long-term follow-up period for the HARMONY study in patients with pre-cirrhotic NASH (F2-F3 fibrosis), for which we recently reported results after 24 weeks of treatment, and the SYMMETRY study in patients with cirrhotic NASH (F4 fibrosis, compensated). The SYMMETRY study includes an expansion cohort, known as Cohort D, evaluating the safety and tolerability of EFX compared to placebo when added to an existing GLP-1 receptor agonist in patients with pre-cirrhotic NASH (F1-F3 fibrosis) and Type 2 diabetes. We expect to report the results of Cohort D in the first half of 2023 and the results of the SYMMETRY study in the second half of 2023. Results from the 16-week BALANCED study, which included an expansion cohort of patients who had cirrhotic NASH, as well as the recent results from the 24-week HARMONY study, support our confidence that we will observe statistically significant histological improvements in the SYMMETRY main study evaluating EFX for the treatment of patients with cirrhotic NASH. For example, we observed that 4 of 12, or 33%, of patients with cirrhosis due to NASH (F4 fibrosis, compensated) achieved a one-stage improvement in fibrosis without worsening of NASH after 28
Table of Contents only 16 weeks of treatment with EFX, compared to 0 out of 5, or 0%, for the placebo group.
The FDAand European Medicines Agency, or EMA, have respectively granted a Fast Track designation and a Priority Medicines, or PRIME, designation for EFX for the treatment of NASH. The Fast Track and PRIME programs are designed to enhance regulatory support for the development of promising investigational medicines where early clinical data suggest the potential to meet a high unmet medical need. Benefits of these programs may include more frequent regulatory interactions, enhanced guidance on the overall development plan and regulatory strategy, and accelerated assessment of marketing authorization applications. As demonstrated across four separate clinical trials in patients with NASH and/or T2D, EFX has a unique ability to reproduce the actions of native FGF21. Consequently, we believe EFX holds the potential to be a highly differentiated, best-in-class FGF21 analog and promising monotherapy for the treatment of NASH, if approved. NASH is a complex disease, and its ideal treatment would include intervening at each stage of its pathogenesis. We believe EFX could potentially address all stages of NASH pathogenesis in a single treatment: reversing fibrosis, resolving steatohepatitis, and helping to restore healthy metabolism to the whole body. We also believe EFX may be able to be used in combination with other therapies for potentially greater effect in certain subpopulations, particularly among the substantial proportion of patients with both NASH and T2D who are expected to be treated with GLP-1 therapeutics to manage their T2D. We were incorporated in January 2017and have devoted substantially all of our efforts to organizing and staffing our company, business planning, raising capital, in-licensing rights to EFX, research and development activities for EFX, building our intellectual property portfolio, exploring pipeline expansion opportunities, and providing general and administrative support for these operations. To date, we have principally raised capital through the issuance of convertible preferred stock, the initial public offering of our common stock in June 2019, and follow-on public offerings of our common stock in July 2020and September 2022. We have incurred significant operating losses since inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of EFX and any future product candidates. Our net losses were $35.5 millionand $89.0 millionfor the three and nine months ended September 30, 2022, respectively. Our net losses were $24.3 millionand $68.4 millionfor the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $399.3 million. We expect to continue to incur significant expenses for at least the next several years as we advance EFX through later-stage clinical development, develop additional product candidates and seek regulatory approval of any product candidates that complete clinical development. In addition, if we obtain marketing approval for any product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, which may include collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, reduce or eliminate the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As of September 30, 2022, we had cash and cash equivalents of $374.0 million, which we believe will be sufficient, if combined with funds available to us from Hercules Capital, Inc., upon satisfaction of certain contingent milestones, to fund our current operating plan into 2025. 29 -------------------------------------------------------------------------------- Table of Contents Impact of the COVID-19 Pandemic As of November 2022, the ongoing COVID-19 pandemic continues to evolve with emerging variants, such as BA.4 and BA.5 subvariants and other SARS-CoV-2 viruses. The effects of restrictions previously implemented by the United States, Europeand Asialed to delays in the commencement of non-COVID-19-related clinical trials. As a result, the COVID-19 pandemic has caused significant disruptions to the U.S., regional and global economies and has contributed to significant volatility and negative pressure in financial markets. We have been carefully monitoring the COVID-19 pandemic and its potential impact on our business and have taken important steps to help ensure the safety of employees and their families and to reduce the spread of COVID-19. We have established, and maintained without interruption, a work-from-home policy for all employees. We have also maintained efficient communication with our manufacturing and supply partners as the COVID-19 situation has progressed. We have taken these precautionary steps while maintaining business continuity so that we can continue to progress our programs. Our financial results for the three and nine months ended September 30, 2022and for the years ended December 31, 2021were not significantly impacted by COVID-19, and the COVID-19 pandemic did not materially impact data collection for the main portion of the BALANCED study, which was completed in 2021. In addition, our ongoing Phase 2b HARMONY trial, for which we reported topline results in September 2022, and our ongoing SYMMETRY trial, for which enrollment remains open, have not been materially impacted by the COVID-19 pandemic. Our manufacturing efforts to date have progressed without any adverse impact from COVID-19. Specifically, commercial-scale manufacture of GMP drug substance, or API, and drug product for our Phase 2b HARMONY and SYMMETRY studies was completed during 2020 and 2021. Manufacture of API for Phase 3 clinical trials was initiated on schedule in May 2021and completed during the first quarter of 2022. Scale-up of manufacturing of a new drug product formulation and delivery device for self-administration by patients in Phase 3 clinical trials was completed in the first quarter of 2022 and manufacture of GMP drug product commenced in the second quarter of 2022. Sufficient drug product/device has been released to support initiation of Phase 3 clinical trials, subject to regulatory approval. Notwithstanding the foregoing, the future impact of the COVID-19 pandemic on our industry, the healthcare system and our current and future operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the impact of new strains of the virus, the effectiveness and availability of vaccines and antiviral medications, the pace of these efforts, the actions taken to contain the pandemic or mitigate its impact, any additional preventative and protective actions that governments may direct, and the direct and indirect economic effects of the pandemic and containment measures, among others. See "Item 1A. Risk Factors" for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition.
Components of our operating results
We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all. If our development efforts for EFX or additional product candidates that we may develop in the future are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements.
Research and development costs
Research and development expenses consist primarily of costs incurred in connection with the development of EFX, as well as unrelated discovery program expenses. We expense research and development costs as incurred. These expenses include: 30 -------------------------------------------------------------------------------- Table of Contents • employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions; • expenses incurred under agreements with CROs that are primarily engaged in the oversight and conduct of our clinical trials; CMOs that are primarily engaged to provide drug substance and product for our clinical trials, research and development programs, as well as investigative sites and consultants that conduct our clinical trials, nonclinical studies and other scientific development services; • the cost of acquiring and manufacturing nonclinical and clinical trial materials, including manufacturing registration and validation batches; • costs related to compliance with quality and regulatory requirements; and • payments made under third-party licensing agreements. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. Product candidates in later stages of clinical development, such as EFX, generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned clinical development activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of EFX and any future product candidates.
Our clinical development costs can vary significantly depending on factors such as:
• per patient trial costs; • the number of sites included in the trials; • the countries in which the trials are conducted; • the length of time required to enroll eligible patients; • the number of patients that participate in the trials; • the number of doses that patients receive; • the drop-out or discontinuation rates of patients enrolled in clinical trials; • potential additional safety monitoring requested by regulatory agencies; • the duration of patient participation in the trials and follow-up; • any setbacks or delays to the initiation or completion of preclinical or non-clinical studies, product development or clinical trials due to the COVID-19 pandemic; • the cost and timing of manufacturing our product candidates, including on account of any disruption or delays to the supply of our product candidates due to the COVID-19 pandemic; • the phase of development of our product candidates; and • the efficacy and safety profile of our product candidates. The successful development and commercialization of product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:
the timing and progress of nonclinical and clinical development activities; • the number and scope of nonclinical and clinical programs we decide to pursue; • the ability to raise necessary additional funds; • the progress of the development efforts of parties with whom we may enter into collaboration arrangements; • our ability to maintain our current development program and to establish new ones; • our ability to establish new licensing or collaboration arrangements; • the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority; • the receipt and related terms of regulatory approvals from applicable regulatory authorities; • the availability of drug substance, drug product, and delivery devices utilized in the production of our product candidate; 31 -------------------------------------------------------------------------------- Table of Contents • establishing and maintaining agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidate is approved; • our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in
the United Statesand internationally; • our ability to protect our rights in our intellectual property portfolio; • the commercialization of our product candidate, if and when approved; • obtaining and maintaining third-party insurance coverage and adequate reimbursement; • the acceptance of our product candidate, if approved, by patients, the medical community and third-party payors; • competition with other products; • the impacts of a pandemic, epidemic or outbreak of an infectious disease, including COVID-19, on the supply of our product candidate and ability to successfully initiate and complete preclinical and non-clinical studies and clinical trials, to receive regulatory approval for our product candidate and to commercialize our product candidate, if approved; and • a continued acceptable safety profile of our therapy following approval. A change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, corporate and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; marketing expenses and other operating costs. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support development of EFX and our continued research activities. We also anticipate that we will incur increased accounting, audit, legal, tax, regulatory, compliance, and director and officer insurance costs, as well as investor and public relations expenses associated with maintaining compliance with exchange listing and
Interest expense primarily consists of interest expense on our term loan with Hercules.
32 -------------------------------------------------------------------------------- Table of Contents Other income
Other income consists primarily of interest income earned on our cash, cash equivalents and short-term marketable securities.
Comparison of the three months ended
The following table summarizes our operating results for the three months ended
Three Months Ended September 30, 2022 2021 $ Change % Change (in thousands, except percentages) Operating expenses: Research and development
$ 25,087 $ 19,470 $ 5,61729 % General and administrative 11,004 4,883 6,121 125 % Total operating expenses 36,091 24,353 11,738 48 % Loss from operations (36,091 ) (24,353 ) (11,738 ) 48 % Interest expense (324 ) - (324 ) - - Other income, net 873 23 850 3,696 % Net loss $ (35,542 ) $ (24,330 ) $ (11,212 )46 %
Research and development costs
The following table summarizes our research and development expenses incurred during the three months ended
Three Months Ended September 30, 2022 2021 $ Change % Change (in thousands, except percentages) Research and development expenses: Direct EFX program expenses
$ 18,873 $ 16,883 $ 1,99012 % Personnel and other R&D related expenses 6,214 2,587 3,627 140 % Total research and development expenses $ 25,087 $ 19,470 $ 5,61729 % Research and development expenses were $25.1 millionand $19.5 millionfor the three months ended September 30, 2022and 2021, respectively, an increase of $5.6 million. Direct costs for our EFX program increased $2.0 million, attributed primarily to a $3.2 millionincrease in CRO expenses related to our ongoing HARMONY and SYMMETRY clinical trials and a $0.7 millionincrease in other research and development costs offset by a $1.9 milliondecrease due to the timing of third-party contract manufacturing expenses for EFX. Personnel and other research and development expenses increased $3.6 million, due to a $3.4 millionincrease in stock-based compensation and a $0.2 millionincrease in wage and wage-related expenses resulting from increased staff. We expect that our research and development expenses will increase substantially in connection with our planned manufacturing and clinical development activities in the near term and in the future to support the ongoing programs.
General and administrative expenses
General and administrative expenses were
$11.0 millionand $4.9 millionfor the three months ended September 30, 2022and 2021, respectively, an increase of $6.1 millionwhich was due primarily to a $5.7 millionincrease in stock-based compensation and a $0.4increase in other expenses and wage and wage-related expenses resulting from increased staff. 33 -------------------------------------------------------------------------------- Table of Contents Interest expense
Interest expense for the three months ended
Other income for the three months ended
September 30, 2022is comprised primarily of $0.9 millionof interest income from our cash, cash equivalents and short-term marketable securities compared to less than $0.1 millionfor the three months ended September 30, 2021. This increase is related to increased investment returns on our cash, cash equivalents and short-term and marketable securities.
Comparison of the nine months ended
The following table summarizes our operating results for the nine months ended
Nine Months Ended September 30, 2022 2021 $ Change % Change (in thousands, except percentages) Operating expenses: Research and development
$ 66,964 $ 54,048 $ 12,91624 % General and administrative 22,772 14,399 8,373 58 % Total operating expenses 89,736 68,447 21,289 31 % Loss from operations (89,736 ) (68,447 ) (21,289 ) 31 % Interest expense (377 ) - (377 ) - - Other income, net 1,139 94 1,045 1,112 % Net loss $ (88,974 ) $ (68,353 ) $ (20,621 )30 %
Research and development costs
The following table summarizes our research and development expenses incurred during the nine months ended
Nine Months Ended September 30, 2022 2021 $ Change % Change (in thousands, except percentages) Research and development expenses: Direct EFX program expenses
$ 54,110 $ 47,179 $ 6,93115 % Personnel and other R&D related expenses 12,854 6,869 5,985 87 % Total research and development expenses $ 66,964 $ 54,048 $ 12,91624 % Research and development expenses were $67.0 millionand $54.0 millionfor the nine months ended September 30, 2022and 2021, respectively, an increase of $13.0 million. Direct costs for our EFX program increased $6.9 million, attributed primarily to a $11.0 millionincrease in CRO expenses related to our ongoing HARMONY and SYMMETRY clinical trials and a $0.9 millionincrease in other research and development costs offset by a $5.0 milliondecrease due to the timing of third-party contract manufacturing expenses for EFX. Personnel and other research and development expenses increased $6.0 million, due to a $4.6 millionincrease in stock-based compensation and a $1.4 millionincrease in other R&D, wage and wage-related expenses resulting from increased staff. We expect that our 34 -------------------------------------------------------------------------------- Table of Contents research and development expenses will increase substantially in connection with our planned manufacturing and clinical development activities in the near term and in the future to support the ongoing programs.
General and administrative expenses
General and administrative expenses were
$22.8 millionand $14.4 millionfor the nine months ended September 30, 2022and 2021, respectively, an increase of $8.4 millionwhich was due primarily to a $7.2 millionincrease in stock-based compensation and a $1.1 millionincrease in other expenses and wage and wage-related expenses resulting from increased staff.
Interest expense for the nine months ended
Other income for the nine months ended
September 30, 2022is comprised primarily of $1.1 millionof interest income from our cash, cash equivalents and short-term marketable securities compared to $0.1 millionfor the nine months ended September 30, 2021. This increase is related to increased investment returns on our cash, cash equivalents and short-term and marketable securities.
Cash and capital resources
From our inception through
September 30, 2022, we have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of products for several years, if at all. Through September 30, 2022, we had funded our operations primarily with proceeds from the sale of our redeemable convertible preferred stock, the initial public offering of our common stock in June 2019, and follow-on public offerings of our common stock in July 2020and in September 2022. In June 2022, we received $25.0 millionfrom an equity investment from Pfizer, Inc. and $10.0 millionfrom a Term Loan provided by Hercules. From our inception through September 30, 2022, these and other funding sources have provided gross proceeds totaling $677.7 million. As of September 30, 2022, we had cash and cash equivalents of $374.0 million. We have invested our cash resources primarily in liquid money market accounts.
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended September 30, 2022 2021 (in thousands) Net cash used in operating activities
$ (67,009 ) $ (52,986 )Net cash provided by investing activities 37,620
Net cash provided by financing activities 252,909
Net increase (decrease) in cash, cash equivalents and restricted cash
$ 223,520 $ (22,347 )
Cash flow from operating activities
Cash used in operating activities for the nine months ended
September 30, 2022was $67.0 million, consisting of a net loss of $89.0 millionoffset by non-cash charges of $19.7 million, including $19.2 millionof stock-based compensation expense, and changes in our operating assets and liabilities of $2.3 million. The changes in operating assets and liabilities was primarily due to the timing of prepayments and payments to our CMOs and CROs for ongoing clinical trial and manufacturing activities. Cash used in operating activities for the nine months ended September 30, 2021was $53.0 million, consisting of a net loss of $68.4 millionwhich was partially offset by non-cash charges of $8.2 millionand changes in our operating assets and liabilities of $7.2 million. The non-cash charges are primarily related to $7.4 millionof stock-based compensation expense. The change in operating assets and liabilities was primarily due to increases of $3.2 millionin 35 -------------------------------------------------------------------------------- Table of Contents prepaid expenses and other assets, $3.5 millionin accounts payable and $7.1 millionin accrued expenses and other current liabilities, all of which are related to the timing of payments and prepayments to our CROs and CMOs.
Cash flow from investing activities
Cash flow from investing activities for the nine months ended
Cash flow from investing activities for the nine months ended
Cash flow from financing activities
Cash provided by financing activities for the nine months ended
September 30, 2022was $252.9 million, including $216.2 millionfrom follow-on public offering proceeds, net of underwriting discounts, $25.0 millionfrom an equity investment from Pfizer, Inc. through a registered direct common stock offering, $10.0 millionfrom a Term Loan provided by Hercules and $2.4 millionin proceeds from the exercise of stock options and the issuance of employee stock purchase plan shares.
Cash flow from financing activities for the nine months ended
Description of the debt
We have outstanding borrowings of
$10.0 millionunder a loan and security agreement with Hercules. We may borrow an additional $10.0 millionat our sole discretion. Upon the occurrence of certain clinical development milestones, an additional $15.0 millionmay become available to us and upon the occurrence of certain clinical and financial milestones, an additional $20.0 millionmay become available to us. In addition, up to an additional $45.0 millionwill become available to us at Hercules' sole discretion. Borrowings under the loan are repayable in monthly interest-only payments until July 1, 2024, with the option to extend. The interest-only period will be followed by equal monthly payments of principal plus interest until the loan maturity date of January 1, 2027. Outstanding borrowings bear interest at the greater of (i) 7.65% and (ii) the prime rate as reported in the Wall Street Journalplus 3.65%.
Our primary uses of capital are, and we expect will continue to be, research and development services, compensation and related expenses and general overhead costs. We expect to continue to incur significant expenses and operating losses for the foreseeable future. In addition, since the closing of our IPO, we have incurred and expect to continue to incur additional costs associated with operating as a public company. We anticipate that our expenses will increase significantly in connection with our ongoing activities. The timing and amount of our operating expenditures will depend largely on:
the initiation, progress, timing, costs and results of nonclinical studies and clinical trials for EFX or any future product candidates we may develop; • timing delays, if any, with respect to preclinical and clinical development of EFX or any future product candidates we may develop as a result of a pandemic, epidemic or outbreak of an infectious disease, including COVID-19; • our ability to maintain our license to EFX from Amgen; • the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more nonclinical studies or clinical trials than those that we currently expect or change their requirements on studies or trials that had previously been agreed to; 36 -------------------------------------------------------------------------------- Table of Contents • the cost to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing any patents or other intellectual property rights; • the effect of competing technological and market developments; • market acceptance of any approved product candidate, including product pricing, as well as product coverage and the adequacy of reimbursement by third-party payors; • the cost of acquiring, licensing or investing in additional businesses, products, product candidates and technologies; • the cost and timing of selecting, auditing and potentially validating a manufacturing site for commercial scale manufacturing; • the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval and that we determine to commercialize; and • our need to implement additional internal systems and infrastructure, including financial and reporting systems. We expect that we will require additional funding to complete the clinical development of EFX, commercialize EFX, if we receive regulatory approval, and pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approval for EFX or other product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on whether we choose to commercialize EFX ourselves. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual obligations and other commitments
During the three and nine months ended
September 30, 2022, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments from those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of our Fiscal 2021 Form 10-K, other than the Term Loan to Hercules Capital, Inc. discussed in Part I, Item 1, Footnote 6 to the Unaudited Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q and to changes in our non-cancelable purchase arrangements. Non-cancelable purchase and other arrangements increased to $9.4 millionas of September 30, 2022, compared to $9.3 millionas of December 31, 2021. The increase of $0.1 millionwas primarily attributable to $0.3 millionincrease in the purchase and other obligations to support the growth and expansion of our clinical trials activities and a $0.2 milliondecrease in operating lease obligations for the office space in South San Francisco, California.
Significant Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with
United Statesgenerally accepted accounting principles. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. Our critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and 37 -------------------------------------------------------------------------------- Table of Contents Results of Operations- Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2021which was filed with the Securities and Exchange Commissionon February 25, 2022. There were no material changes to our critical accounting policies through September 30, 2022from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Recent accounting statements
See Note 2 to our unaudited condensed consolidated financial statements included in Part I, Item 1, "Notes to Unaudited Condensed Consolidated Financial Statements," of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our business.
© Edgar Online, source