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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 001-38944
Akero Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
81-5266573
(I.R.S. Employer Identification No.)
601 Gateway Boulevard, Suite 350
South San Francisco, CA
(Address of Principal Executive Offices)
94080
(Zip Code)
Registrant’s telephone number, including area code (650) 487-6488
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.0001 per share
Trading Symbol(s)
AKRO
Name of each exchange on which registered
The Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None
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 and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $477,922,638 as of June 30, 2020 (based on a closing price of
$24.92 per share as quoted by the Nasdaq Global Select Market as of such date). In determining the market value of non-affiliate common stock, shares of the registrant’s
common stock beneficially owned by officers, directors and affiliates have been excluded. This determination of affiliate status is not necessarily a conclusive determination for
other purposes.
As of March 10, 2021, the total number of shares outstanding of the registrant’s Common Stock was 34,770,319 shares.
Documents Incorporated by Reference:
Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for its 2021 annual meeting of
shareholders, which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal
year end of December 31, 2020. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as
part of this Form 10-K.
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SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk
Factors” in this Annual Report on Form 10-K. The principal risks and uncertainties affecting our business include the
following:
● Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be
made more difficult or rendered impossible by multiple factors outside our control, including difficulties in
identifying patients with NASH and significant competition for recruiting such patients in clinical trials.
● We face substantial competition, which may result in others discovering, developing or commercializing products
before or more successfully than us.
● Failures or delays in the commencement or completion of, or ambiguous or negative results from, our planned
clinical trials of our product candidates could result in increased costs to us and could delay, prevent, or limit our
ability to generate revenue and continue our business.
● Clinical development is uncertain and our clinical trials for EFX and any future product candidates may experience
delays, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs
on a timely basis or at all, which would have an adverse effect on our business.
● We rely and will continue to rely on third parties to conduct our clinical trials. If these third parties do not
successfully carry out their contractual duties or meet expected deadlines or comply with regulatory requirements,
we may not be able to obtain regulatory approval of or commercialize any potential product candidates.
● The manufacture of our product candidates is complex and we may encounter difficulties in production. If we or
any of our third-party manufacturers encounter such difficulties, or fail to meet rigorously enforced regulatory
standards, our ability to provide supply of our product candidates for clinical trials or our products for patients, if
approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.
● We are heavily dependent on the success of EFX, our only product candidate.
● If we fail to develop and successfully commercialize other product candidates, our business and future prospects
may be harmed and our business will be more vulnerable to any problems that we encounter in developing and
commercializing our product candidate.
● We may develop EFX, and potentially future product candidates, in combination with other therapies, which
exposes us to additional risks.
● If we are not successful in discovering, developing, receiving regulatory approval for and commercializing EFX
and any future product candidates, our ability to expand our business and achieve our strategic objectives would be
impaired.
● We may be required to make significant payments under our license agreement for EFX.
● The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time-
consuming and inherently unpredictable. Our inability to obtain regulatory approval for EFX or any future product
candidate would substantially harm our business.
● Even if we are able to obtain regulatory approvals for our product candidate or any future product candidates, if
they exhibit harmful side effects after approval, our regulatory approvals could be revoked or otherwise negatively
impacted, and we could be subject to costly and damaging product liability claims.
● Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and
abuse, transparency and other healthcare laws and regulations, which, if violated, could expose us to criminal
sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits
and future earnings.
● We have incurred significant losses since our inception and we expect to incur losses for the foreseeable future.
● We currently have a limited operating history, have not generated any revenue to date, and may never become
profitable.
● We will require additional capital to finance our operations, which may not be available to us on acceptable terms,
or at all. As a result, we may not complete the development and commercialization of our product candidate or
develop any future product candidates.
● Business interruptions resulting from the coronavirus disease (COVID-19) outbreak or similar public health crises
could cause a disruption of the development of our product candidates and adversely impact our business.
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Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
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PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
PART III
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Item 16
Exhibits, Financial Statement Schedules
Form 10-K Summary
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements which are made pursuant to the safe
harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). These statements involve risks, uncertainties, and other factors that may
cause actual results, levels of activity, performance, or achievements to be materially different from the information
expressed or implied by these forward-looking statements. All statements, other than statements of historical facts,
contained in this Annual Report on Form 10-K, including statements regarding our strategy, future operations, future
financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market
growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended
to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These forward-looking statements include, among other things, statements about:
● the success, cost and timing of our product development activities and clinical trials, including statements
regarding the timing of initiation and completion of studies or trials and related preparatory work, the period
during which the results of the trials will become available, and our research and development programs;
● the success, cost and timing of our product development activities and clinical trials, including statements
regarding the timing of initiation and completion of studies or trials and related preparatory work, the period
during which the results of the trials will become available, and our research and development programs;
● our ability to complete data analysis for the expansion cohort (“Cohort C”) of our Phase 2a clinical trial of
efruxifermin (“EFX”) in NASH patients, known as the BALANCED study, and report preliminary results;
● our ability to complete enrollment in our ongoing Phase 2b clinical trial of EFX in NASH patients with F2/F3
fibrosis, known as the HARMONY study, including the ability to obtain data and maintain our expected timelines
during the ongoing COVID-19 pandemic;
● our ability to submit information to regulatory authorities that supports initiation of our planned Phase 2b clinical
trial of EFX in cirrhotic NASH patients with F4 fibrosis during the ongoing COVID-19 pandemic;
● the potential for COVID-19 or other pandemic, epidemic or outbreak of an infectious disease, including COVID-
19, to disrupt our business plans, product development activities, ongoing clinical trials, including the timing and
enrollment of patients, the health of our employees and the strength of our supply chain;
● our ability to advance any product candidate into or successfully complete any clinical trial;
● our ability to successfully manufacture our product candidates for future clinical trials or for commercial use, if
approved;
● the potential for our identified research priorities to advance our technologies;
● our ability to obtain and maintain regulatory approval, if obtained, of EFX or any future product candidates, and
any related restrictions, limitations and/or warnings in the label of an approved product candidate;
● the ability to license additional intellectual property relating to any future product candidates and to comply with
our existing license agreement;
● our ability to commercialize our products in light of the intellectual property rights of others;
● the success of competing therapies that are or become available;
● our ability to obtain funding for our operations, including funding necessary to complete further development and
commercialization of our product candidates;
● the commercialization of our product candidates, if approved;
● our plans to research, develop and commercialize our product candidates;
● our ability to attract collaborators with development, regulatory and commercialization expertise;
● future agreements with third parties in connection with the commercialization of our product candidates and any
other approved product;
● the size and growth potential of the markets for our product candidates, and our ability to serve those markets;
● the rate and degree of market acceptance of our product candidates;
● regulatory developments in the United States and foreign countries;
● our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
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● our ability to attract and retain key scientific or management personnel;
● the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional
financing;
● the impact of laws and regulations; and
● our expectations regarding our ability to obtain and maintain intellectual property protection for our product
candidates.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements,
and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included
important factors in the cautionary statements included in this Annual Report on Form 10-K, particularly in the “Risk
Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we
make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions,
collaborations, joint ventures or investments that we may make or into which we may enter.
You should read this Annual Report on Form 10-K and the documents that we reference herein and have filed or
incorporated by reference as exhibits hereto completely and with the understanding that our actual future results may be
materially different from what we expect. 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.
NOTE REGARDING TRADEMARKS
Akero Therapeutics, Inc. is the owner of the AKERO trademark, as well as certain other trademarks, including
design versions of some of these trademarks. The symbols ™ and ® are not used in connection with the presentation of
these trademarks in this report and their absence does not indicate a lack of trademark rights. Certain other trademarks
used in this report are the property of third-party trademark owners and may be presented with or without trademark
references.
All brand names or trademarks appearing in this report are the property of their respective owners. Unless the
context requires otherwise, references in this report to “Akero,” the “Company,” “we,” “us” and “our” refer to Akero
Therapeutics, Inc. and its subsidiary.
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PART I
Item 1. Business
Overview
We are a cardio-metabolic nonalcoholic steatohepatitis, or NASH, company dedicated to developing pioneering
medicines designed to restore metabolic balance and improve overall health. 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. We conducted a Phase 2a clinical trial, the BALANCED study, to evaluate
EFX in the treatment of biopsy-confirmed NASH patients. The main portion of this study in NASH patients with F1-F3
fibrosis showed EFX’s potential to reduce liver fat, improve liver health, reverse fibrosis, improve glycemic control and
reduce risks of cardiovascular disease. In February 2021 we began screening for a Phase 2b clinical trial, the HARMONY
study, to evaluate EFX in the treatment of NASH patients with F2/F3 fibrosis. Preliminary results of the HARMONY
study, expected in the second half of 2022, will inform dose selection for a registrational Phase 3 clinical trial. An
expansion cohort of the BALANCED study in cirrhotic NASH patients, Cohort C, is currently undergoing data analysis.
We expect to report preliminary results by April 2021, including the results of paired biopsies from a subset of the enrolled
patients who consented to post-treatment biopsies after a protocol amendment. Results from Cohort C will inform next
steps in our development plans for EFX in cirrhotic NASH patients. Based on clinical data to date, we believe EFX has the
potential to be a foundational NASH monotherapy.
The rapidly rising prevalence of NAFLD and NASH is driven by the global obesity epidemic and the resulting
accumulation of excessive liver fat. In patients with NASH, excessive liver fat leads to hepatocyte stress, which triggers
localized inflammation and, as disease progresses, can lead to fibrosis and ultimately cirrhosis. According to a study
published in Hepatology (2018), the prevalence of NASH in the United States is projected to increase to 27.0 million by
2030, including a doubling in prevalence among patients with advanced fibrosis. Cardiovascular disease remains the
leading cause of death in patients with NASH. About half of all NASH patients also have Type 2 Diabetes Mellitus, or
T2D. We believe an optimal NASH therapy should improve risks of cardiovascular disease and glycemic control as well as
reverse fibrosis. Unfortunately, there are currently no approved therapies for NASH and many late-stage therapeutic
candidates have shown limited efficacy and/or have unwanted side effects that have the potential to increase certain
mortality risks for NASH patients.
EFX has been administered to a total of 162 adult patients with either NASH (n=79) or T2D (n=83) in three
randomized, double-blind, placebo-controlled clinical trials for up to 16 weeks. In all three trials, patients treated with EFX
achieved highly statistically significant improvements in lipoprotein profile, including reduction in triglycerides of up to 45
percent, a key attribute given that cardiovascular disease remains the number one cause of mortality in NASH patients. In
the BALANCED study EFX patients experienced improvements in glycemic control, including reductions in HbA1c of up
to 0.9% among diabetic NASH patients. EFX patients also achieved highly significant relative reductions in liver fat of 63
to 71 percent across dose groups, compared to 0 percent for placebo. Significant reductions in ALT (up to 51%), were also
observed. Most importantly, additional analysis of the BALANCED study data showed substantial improvements in liver
histology for EFX patients based on analysis of paired biopsies. Of the 40 EFX patients who had end-of-treatment biopsies,
we observed that 48% achieved at least a one-stage improvement in fibrosis without worsening of NASH and 48%
achieved NASH resolution with no worsening of fibrosis. Among patients who had F2/F3 fibrosis at baseline, 68% had at
least a 1-stage improvement in fibrosis, while 50% had a 2-stage fibrosis improvement. EFX was reported to be generally
well tolerated. Across EFX groups, the most frequent adverse events were grade 1 or 2 gastrointestinal events, which were
transient in nature.
Based on these clinical trial results, we believe that EFX has the potential to be a foundational monotherapy, if
approved, for treatment of a rapidly growing NASH patient population that lacks effective treatment options.
In June 2018, we acquired exclusive global development and commercialization rights to EFX from Amgen Inc.,
or Amgen, which leveraged its deep protein engineering expertise to design and develop EFX. As of February 26,
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2021, our patent portfolio relating to EFX and other peptides included 148 issued patents and 25 pending patents
worldwide, with expected patent exclusivity up to 2034 in the United States, including potential patent term extension.
Since EFX is a biologic, marketing approval would also provide twelve years of market exclusivity from the approval date
of a Biologics License Application, or BLA, in the United States.
Our management team has extensive experience in drug discovery, development and commercialization, and has
been involved in the approvals of more than 20 medicines. Our Chief Executive Officer, Andrew Cheng, MD, PhD,
previously Chief Medical Officer at Gilead, was responsible for clinical development for Gilead's HIV program. Our Chief
Development Officer, Kitty Yale, led global clinical operations and management of Gilead’s oncology, HIV, inflammation
and liver disease trials. Our Chief Scientific Officer, Tim Rolph, DPhil, formerly Chief Scientific Officer of Pfizer's
Cardiovascular & Metabolic Disease Research Unit, previously oversaw Pfizer's FGF21 program. We believe that our team
is well positioned to leverage its collective experience in drug development and in-depth knowledge of FGF21 biology and
metabolic diseases to develop and commercialize products that will have significant benefits for patients with NASH and
other serious metabolic diseases with high unmet medical need.
Our strategy
Our goal is to become a leading biotechnology company focused on developing and commercializing
transformative treatments for serious metabolic diseases with high unmet medical need, starting with NASH. The key
components of our strategy are to:
Advance EFX through clinical development in NASH, for both pre-cirrhotic (F2/F3) and cirrhotic (F4)
patients. We believe that EFX's differentiated profile as an FGF21 analog has the potential to result in a leading endocrine
FGF analog, if approved, for the treatment of NASH. Data from our Phase 2a BALANCED data suggest that EFX has the
potential to achieve industry-leading reductions in liver fat, restore metabolic balance, improve lipoproteins, resolve
NASH, and reverse liver fibrosis. We are committed to accelerating development as much as possible for both pre-cirrhotic
and cirrhotic NASH patients, consistent with guidance from regulatory authorities.
Scale our capabilities to support development and commercialization of EFX. We plan to scale our
manufacturing and organizational capabilities to capitalize on our exclusive, global rights to market EFX for all
indications. We have contracted with Boehringer Ingelheim to manufacture new drug substance for future clinical trials and
support the potential commercialization of EFX with commercial-scale manufacturing. When appropriate, we intend to
develop the commercial infrastructure required for bringing EFX to patients with NASH in the United States, if approved.
We also plan to evaluate options for delivering EFX, if approved, to patients in other key markets, such as Europe, Japan
and China, which may include strategic collaborations.
Enhance our position as a leading metabolic disease company by leveraging our knowledge of FGF21 biology.
Numerous publications have shown that increases in endogenous FGF21 expression occur in response to various types of
metabolic and cellular stress arising from obesity, diabetes, mitochondrial diseases and cardiovascular disease, as well as
NASH. EFX has been engineered to reproduce the biological activity profile of native FGF21 while also addressing certain
therapeutic limitations, such as a short half-life. We are exploring opportunities to develop EFX for additional indications
where there is a compelling scientific rationale, strong clinical tractability and significant unmet medical need.
Develop, acquire or in-license product candidates that enhance our potential to become a leading metabolic
disease company. We are continually evaluating opportunities to build a robust pipeline of potential leading treatments for
metabolic diseases. Additional assets may be selected for their potential as stand-alone monotherapies or for eventual use
in combination with other products.
NASH overview
We are developing EFX as a potential treatment for patients with NASH, a disease with high unmet medical need
and no approved therapies. NASH is a severe form of NAFLD, which is driven by the global obesity epidemic. Patients
with NAFLD have an excessive accumulation of fat in the liver resulting from an excess of caloric intake over
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energy needs. In patients with NASH, excessive liver fat leads to hepatocyte stress, which triggers localized inflammation
and can ultimately lead to fibrosis and scarring in the liver, or cirrhosis.
Patients with NASH are at increased risk of liver-related morbidity and mortality, including liver failure and
hepatocellular carcinoma. As NASH progresses, cardiovascular-related morbidity and mortality also increase, with
cardiovascular disease being the most frequent cause of death in NASH patients. The prevalence of patients with advanced
fibrosis in the United States is projected to more than double between 2016 and 2030. We believe that EFX has the
potential to be a leading endocrine FGF analog, if approved, for treatment of this rapidly growing patient population.
Disease diagnosis and disease burden
NASH is currently diagnosed only through liver biopsy and its severity is measured using scoring systems that
assess the extent and severity of steatosis, lobular inflammation, hepatocellular ballooning and fibrosis. Some patients may
be diagnosed with NASH after presenting with symptoms such as general fatigue and nondescript abdominal discomfort.
However, NASH diagnosis more commonly follows detection of elevated liver enzymes on routine lab tests or detection of
an enlarged steatotic liver by abdominal imaging. Although non-invasive methods, including a combination of imaging,
such as Magnetic Resonance Imaging Protein Density Fat Fraction, or MRI-PDFF, and fibroscan, and plasma biomarkers
of fibrosis, such as Pro-C3, are being evaluated as potential diagnostic tools, none have yet been validated for use in formal
NASH diagnosis.
Two different scoring systems are most commonly used in the United States to measure the severity of NASH: the
NAFLD activity score, or NAS, and fibrosis stage. The NAS, which was developed for, and generally only used in, clinical
trials, is a measure of liver histology that grades disease activity in patients with NAFLD and NASH. A patient may
receive a composite NAS score of zero to eight, which is comprised of three individual scores: (1) steatosis, scored zero to
three according to the percentage of a microscopic field showing steatosis, (2) lobular inflammation, scored zero to three
according to the number of immune cell foci per 20x optical field in a microscope, and (3) hepatocellular ballooning,
scored zero to two according to the number of ballooning cells in a microscopic field. In addition, fibrosis staging is used
to classify the extent and severity of fibrosis. A scoring system based on a scale from zero to four (F0-F4) is used. Early,
discrete fibrosis is classified as F1 or F2, whereas bridging fibrosis is classified as F3. As more hepatocytes die and
scarring becomes extensive, the liver becomes cirrhotic, which is classified as stage F4. F0 corresponds to steatohepatitis
with no evidence of fibrosis.
Patients with NASH are at increased risk of liver damage and other complications. Fibrosis is generally reversible
in its early-to-mid stages. However, late-stage fibrosis can be irreversible in the absence of therapy and prevents the liver
from performing its natural functions.
NASH is commonly associated with metabolic comorbidities, including obesity, T2D, dyslipidemia and
hypertension. In addition, the majority of NASH patients also present with metabolic syndrome. Liver-related mortality
increases with fibrosis stage, as shown in the figure below. As compared to healthy individuals, patients with NASH also
experience higher all-cause morbidity and mortality resulting from major adverse cardiovascular events, or MACE, and
non-liver cancers. The most common cause of death in NASH patients is cardiovascular disease. As with liver-related
mortality, all-cause mortality also increases with fibrosis stage. Our focus is on NASH patients with F2-F4 fibrosis, which
have the highest liver-related and non-liver-related mortality rates among NASH patients.
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All-cause NASH mortality
Market size and trends
According to studies published in Hepatology (2018) and F1000Research (2018), more than one billion people
worldwide were estimated to have NAFLD in 2016, including an estimated 85 million individuals in the United States.
Approximately 10-20% of patients with NAFLD progress to NASH, including an estimated 17.3 million individuals in the
United States and 16.4 million aggregate individuals in France, Germany, Italy, Spain, the United Kingdom, and Japan in
2016. As the population ages, the prevalence of NASH is projected to increase approximately 50% by 2030 to a total of
27.0 million individuals in the United States and 22.5 million aggregate individuals in France, Germany, Italy, Spain, the
United Kingdom and Japan. However, NASH afflicts all age groups, including teenagers and young adults, for whom the
loss of quality-adjusted life years will be very substantial unless progression to late-stage diseases can be halted or
reversed. According to a study published in Hepatology (2016), in the absence of approved therapies, direct healthcare
costs associated with NAFLD and NASH in the United States were estimated to be approximately $100 billion in 2016.
Growth in prevalence of NASH in the United States is projected to be greatest in patients with stage F2-F4
fibrosis, with more than a doubling across stages between 2016 and 2030 and higher growth rates with each advancing
fibrosis stage. More than 14 million Americans are projected to have NASH with F2, F3 or F4 fibrosis in the United States
by 2030, with over ten million aggregate individuals in France, Germany, Italy, Spain, the United Kingdom, and Japan.
This rapid growth in advanced fibrosis reflects the time required for the late 20th century obesity epidemic to result in
patients progressing through NAFLD to advanced NASH.
Emerging therapies in development
There are no therapies currently approved for the treatment of NASH. The current standard of care is diet and
exercise. Although diet and exercise are effective in the treatment of NASH when maintained, adherence to this treatment
regimen is generally poor.
The multistep progression of NASH pathogenesis offers a variety of potential approaches for therapeutic
intervention and many of these approaches have been explored with one or more therapeutic candidates. During the last
two years, many NASH therapeutic candidates have had discouraging results from clinical trials due to unfavorable
efficacy and/or safety results; a substantial number of programs have been discontinued. Disappointing clinical results have
especially been associated with therapeutic candidates designed to target late-stage disease by mitigating inflammation and
reversing fibrosis, which have been labeled as “anti-fibrotic” mechanisms. Available data suggest that focusing only on
suppressing inflammation and fibrosis is unlikely to deliver sustained reversal of fibrosis or resolution of NASH because
the processes underlying NASH pathogenesis are not being addressed.
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Clinical data has been more promising for “metabolic” therapeutic mechanisms that target earlier-stages of NASH
pathogenesis, including excessive liver fat accumulation. Recent data for metabolic therapeutic candidates are consistent
with data from anti-viral treatment of hepatitis C and modification of diet and exercise as a treatment for NASH. In each of
these two cases, targeting the processes underlying inflammation and fibrosis of the liver can lead to reversal of fibrosis,
even without a directly anti-fibrotic intervention. However, some of the encouraging data for metabolic therapeutic
mechanisms has been offset by unwanted side effects, which may limit their ability to be used as treatment for patients with
NASH. For instance, some NASH candidates have been shown to substantially increase plasma levels of low-density
lipoprotein cholesterol, or LDL-C, or triglycerides, each of which is an independent causal risk factor for cardiovascular
disease. NASH patients are already at increased risk for cardiovascular events. We therefore believe interventions that
could be associated with increased cardiovascular risk may struggle to gain marketing approval from regulatory authorities
and, if approved, may not be prescribed widely by treating physicians.
We believe the greatest potential for effective NASH treatment requires addressing both the late-stage fibrosis and
the underlying processes of NASH pathogenesis with a favorable cardiovascular profile and without increasing the
potential for drug-drug interactions associated with small molecules. Some NASH candidates are being evaluated for use in
combination with one or more other investigational or marketed dugs to intervene at different stages of NASH
pathogenesis and manage unwanted side effects. However, combining multiple interventions, particularly multiple small
molecules, places an additional burden of drug metabolism and clearance upon already stressed hepatocytes.
We believe EFX has unique properties with the potential to address the complex pathogenesis of NASH as a
foundational monotherapy: reducing liver fat, restoring metabolic balance, and reversing fibrosis while simultaneously
improving independent risks of cardiovascular disease, without worsening any aspect of NASH pathogenesis.
Our approach to NASH: harnessing FGF21's natural metabolic and anti-fibrotic potential for therapeutic effect
EFX harnesses the natural properties of FGF21 as a potential treatment of NASH. Specifically, EFX has been
engineered to overcome the limitations of endogenous FGF21 by extending half-life from less than two hours to 3-4 days
while maintaining FGF21’s natural role in alleviating cellular stress and regulating whole-body metabolism. Consequently,
EFX has the potential to address the underlying metabolic disease drivers of NASH while also reversing liver fibrosis. We
believe EFX has the potential to be the leading FGF21 analog that most closely mimics the native protein with a long half-
life that supports convenient weekly dosing.
Overview of FGF21 biology
Fibroblast growth factors, or FGFs, are a large family of cell-signaling proteins involved in the regulation of many
processes within the body. A sub-family of FGFs, known as endocrine FGFs, which include FGF21 and FGF19, are unique
among FGFs because they initiate their biological effects by binding tightly to a cell surface receptor known as Beta
Klotho, or bKlotho.
After this initial binding, FGF21 and FGF19 trigger signaling pathways within cells, such as hepatocytes and
adipocytes, by binding to a second class of cell-surface receptor, known as the FGF receptors, or FGFRs. Both FGF21 and
FGF19 bind to three specific FGFRs, known as FGFR1c, FGFR2c, and FGFR3c, which, based on nonclinical studies and
clinical trials, appear to be responsible for mediating the desired therapeutic actions of FGF21 and FGF19 in NASH.
However, unlike FGF21, FGF19 also binds specifically to another FGFR known as FGFR4. We believe, based on results
from the BALANCED study and other preclinical studies and clinical trials conducted by third parties, that activation of
FGFR4 is required neither for ameliorating the underlying steatosis and insulin resistance nor reversing fibrosis; instead,
FGFR4 is associated with undesirable biological effects such as elevating LDL-C and potentially increasing the risk of
developing hepatocellular carcinoma.
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The C-terminus of FGF21 initially binds to bKlotho. This enables the N-terminus to form an expanded complex
with one of the FGFRs. Once the co-receptor complex has formed with bKlotho and one of the FGFRs, a series of
intracellular signaling cascades is initiated. These signaling cascades enable FGF21 to exert its biological functions, which
include regulation of energy homeostasis, glucose-lipid-protein metabolism and insulin sensitivity, and modulation of
pathways that mitigate against intracellular stress. FGF21 cannot signal through cell membranes without both an intact C-
terminus and an intact N-terminus to bind, respectively, to bKlotho and FGFR. We believe EFX has been engineered to
maximize binding at both the C-terminus and N-terminus.
EFX is designed to overcome the limitations of native FGF21 as a therapeutic
EFX has been engineered to overcome the limitations of native FGF21 while retaining balanced agonism across
FGFR1c, FGFR2c and FGFR3c. Specifically, EFX delivers: (1) protection against proteolysis and reduction of renal
clearance, (2) an increase half-life from less than two hours to 3-4 days, (3) minimization of the potential for aggregation in
solution and (4) improved binding affinity for bKlotho. These attributes are accomplished through a combination of three
amino acid substitutions in the FGF21 protein sequence and an Fc-fusion protein scaffold similar to the platform used for
Enbrel and Trulicity. As illustrated in the figure below, each EFX molecule consists of two Fc-FGF21 molecules linked by
two disulfide bridges to form a single molecule. The N-terminus of the FGF21 moiety is connected to the Fc portion of
EFX through a polyglycine-serine linker. Our patents include claims directed to Fc fusion with a recombinantly modified
FGF21 as well as claims directed to an FGF21 polypeptide comprising combinations of point mutations at positions 98,
171 and 180.
Protein engineering of EFX
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EFX maintains balanced agonism of FGFR1c, FGFR2c and FGFR3c to mimic native FGF21
The engineering of EFX was an empirical discovery process that incorporated in vitro and in vivo measurements
of receptor agonism to assess which of many tested discovery candidates yielded the most attractive drug properties. EFX
was selected for clinical evaluation over earlier discovery candidates, which included a proprietary PEGylated FGF21
analog, and two versions of a two-point mutation Fc-fusion protein known as RG (with mutations at positions 98 and 171,
but not 180), one of which had the Fc fused to the C-terminus while the other had it fused to the N-terminus of the
modified FGF21. In comparative in vitro receptor agonism assays, EFX exhibited the greatest potency for each of FGFR1c,
FGFR2c, and FGFR3c among the candidates tested. Furthermore, the potency of EFX for FGFR1c, FGFR2c and FGFR3c
was comparable to that of recombinantly-expressed human FGF19, or rhFGF19, and rhFGF21. However, neither rhFGF21
nor EFX are agonists of FGFR4, in contrast to rhFGF19's potent agonism of FGFR4.
In vitro receptor agonism assays do not necessarily predict receptor binding when administered in vivo in humans.
We therefore believe human clinical data is necessary to confirm whether balanced agonism of the FGF receptors is truly
achieved. Because certain FGF receptors are expressed predominantly in liver tissue while others are expressed
predominantly in peripheral tissue, the extent of binding to different receptors can be assessed from the pharmacodynamic
effects in human clinical trials. Increases in adiponectin, for example, depend on activation of FGFR1c in adipose tissue.
We believe EFX’s balanced effects when administered in human clinical trials confirm that EFX’s unique engineering
results in balanced agonism in vivo as well as in vitro. The effects observed in clinical trials with EFX contrast with
observations from clinical trials evaluating certain pegylated versions of FGF21, which we believe may be attributed to the
potential for pegylated moieties to accumulate in the liver.
EFX exerts both metabolic and anti-fibrotic effects with a favorable cardiovascular profile
We believe intervening across the core processes underlying NASH pathogenesis is the most effective way to
restore health to the liver of patients with NASH and reduce the risk of cardiovascular disease, which is the leading
contributor to mortality and morbidity among these patients. By mimicking FGF21, EFX has the potential to intervene in
each of the core processes underlying NASH pathogenesis acting as both a metabolic and anti-fibrotic therapeutic agent.
EFX acts to leverage whole-body metabolism to redirect calories away from the liver to peripheral tissues, including
adipose tissue, thereby reducing fat deposited in the liver and decreasing the rate of fat oxidation by the liver. In so doing,
EFX reduces fibrosis both indirectly, as a result of alleviating hepatocyte stress, and directly, by suppressing local
inflammation and activation of collagen secreting myofibroblasts that lay down fibrotic tissue.
As described further below, clinical data from the BALANCED study demonstrate that EFX is capable of
achieving reductions in liver fat that are among the strongest results that have been reported in NASH to date. We believe
EFX achieves its robust reductions in liver fat by acting on all key sources of liver fat. The biggest source of liver fat
among NASH patients is the flux of fat from adipose tissue, which accounts for nearly half of the fat deposited in liver.
EFX intervenes in this flow of peripheral fat by redirecting calories, including calories derived from dietary fat,
carbohydrates and protein in the GI tract, away from the liver. This effect of EFX appears to be mediated by agonism of
FGFR1c, which enhances insulin's action on adipose tissue to increase uptake of energy and store it as fat within adipose
tissue. Enhancing insulin's action also suppresses release of fat from adipose tissue, or lipolysis, back to the liver. At the
same time, EFX promotes greater uptake by adipose tissue of two forms of triglyceride transported by blood: VLDL
secreted by liver and chylomicrons secreted by the GI tract, thereby reducing plasma triglycerides. The net effect of a
sustained redirection of energy away from liver is to reduce both the amount of fat in liver and the rate of fat oxidation.
EFX also intervenes in the second largest source of liver fat, which is the synthesis of new fat in the liver through
a process termed de novo lipogenesis, or DNL. DNL accounts for about a third of liver fat in NASH patients. EFX reduces
DNL in liver by suppressing a transcription factor known as SREBP1c. Suppression of SREBP1c reduces the amount of
lipid droplets, comprised of triglyceride and phospholipid species, deposited within hepatocytes, and lowers the amount of
triglyceride secreted as VLDL into the circulation. FGF21’s inhibition of SREBP1c is believed to be mediated through
FGFRs expressed in the liver, predominantly FGFR2c and 3c.
By reproducing the biological actions of FGF21, EFX appears to act both indirectly and directly to reverse liver
fibrosis. As illustrated in the figure below, excessively stressed hepatocytes trigger cell-death pathways with the release
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of pro-inflammatory molecules that activate liver-resident Kupffer cells. These amplify local inflammation leading to
differentiation of co-localized hepatic stellate cells (HSC) into collagen-secreting myofibroblasts, which results in
development of fibrosis. By reducing liver fat and lipotoxicity while inducing anti-oxidant pathways, EFX alleviates
oxidative stress and thus lessens formation of lipid peroxides and damage to DNA and proteins. The increase in
endoplasmic reticulum, or ER, stress associated with accumulation of misfolded and damaged proteins is mitigated by EFX
stimulating their degradation by lysosomes.
EFX direct and indirect anti-fibrotic effects
In reducing these different stress-related pathways in hepatocytes, EFX suppresses progression from hepatocyte
stress to cell death, or apoptosis. EFX also inhibits expression of a transcription factor known as ATF4, which triggers
apoptosis, particularly in response to ER stress. By suppression of pro-apoptotic signaling, EFX reduces release of
molecules from hepatocytes known as damage-associated molecular patterns (DAMPs), which trigger local inflammation.
These actions of EFX indirectly reduce the profibrotic drive in the liver of patients with NASH.
In addition, data from nonclinical studies suggest that FGF21 agonism directly suppresses activation of
macrophages, and by inference Kupffer cells, thereby reducing release of pro-inflammatory cytokines, as well as directly
inhibiting differentiation of HSC into collagen-secreting myofibroblasts.
The apparently rapid improvement of liver fibrosis observed among EFX patients in the BALANCED study after
only 16 weeks of treatment suggests EFX not only indirectly suppresses fibrogenesis by reducing hepatocyte stress but also
directly inhibits Kupffer cells and differentiation of HSC into collagen-secreting myofibroblasts.
EFX clinical development
EFX has been administered to a total of 162 patients with either T2D (n=83) or NASH (n=79) for up to 16 weeks
in three prior clinical trials: two T2D Phase 1 trials in NASH patients conducted by Amgen and the Phase 2a
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BALANCED study in NASH patients conducted by us. We believe the combined results of these trials provide compelling
evidence for EFX’s potential to address all core aspects of NASH pathogenesis and, if approved, to emerge as a
foundational NASH monotherapy. We recently initiated a Phase 2b clinical trial in patients with biopsy-confirmed NASH
(F2-3), and we expect preliminary results to be available in the second half of 2022. We also expect to report preliminary
results from Cohort C, an expansion cohort of the BALANCED study, evaluating EFX in the treatment of cirrhotic NASH
patients (F4 fibrosis) by April 2021.
Phase 2b clinical trial of EFX in biopsy-confirmed pre-cirrhotic (F2/F3) NASH patients for 24 weeks
The Phase 2b HARMONY study is a multicenter randomized, double-blind, placebo-controlled clinical trial in
patients with biopsy-confirmed NASH (F2/F3), a NAFLD activity score of at least 4, and baseline liver fat of at least 8%
on MRI-PDFF screening. Patients will be randomized to receive once-weekly subcutaneous doses of either 28 or 50mg of
EFX or placebo for 24 weeks.
The primary endpoint of the HARMONY study is the proportion of subjects who achieve at least a one-stage
improvement in fibrosis based on paired liver biopsies at week 24. Additional secondary and exploratory measures include
non-invasive measures of liver function, fibrosis biomarkers, insulin sensitivity, lipoproteins and body weight, as well as
other histological measures based on liver biopsies.
Screening for the HARMONY study began on February 16, 2021 and we expect the first patient to be dosed in
April 2021. Preliminary results are expected to be available in the second half of 2022. As illustrated in the figure below,
we plan to request an End-of-Phase 2 meeting with FDA to review the 24-week biopsy results and finalize the proposed
Phase 3 protocol, including dose selection and study size. The timing of our Phase 3 start in F2/F3 NASH patients will
depend in part on availability of drug product in a new freeze-dried, or lyophilized, formulation that is more suitable for
patient self-administration. We currently anticipate drug product will be available for Phase 3 initiation in the first half of
2023.
Phase 2b HARMONY study design
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Phase 2a clinical trial of EFX in biopsy-confirmed F1-F3 NASH patients for 16 weeks
The main portion of the Phase 2a BALANCED study was a multicenter randomized, double-blind, placebo-
controlled, dose-ranging clinical trial in adult patients with biopsy-confirmed NASH (F1-F3), a NAFLD activity score of at
least 4, and baseline liver fat of at least 10% on MRI-PDFF screening. Patients were randomized to receive once-weekly
subcutaneous doses of either 28, 50 or 70mg of EFX (n=59) or placebo (n=21) for 16 weeks. The primary endpoint was
absolute reduction in liver fat at week 12 as measured by MRI-PDFF. Additional secondary and exploratory measures
included non-invasive measures of liver function, fibrosis biomarkers, insulin sensitivity, lipoproteins and body weight, as
well as histological measures based on liver biopsies.
EFX reduced liver fat
As summarized in the table below, highly statistically significant absolute reductions of 12 to 14 percent and
relative reductions of 63 to 71 percent of liver fat were observed for the 28, 50 and 70mg dose groups, respectively,
compared with 0.3 and 0 for placebo. More than two thirds of EFX patients achieved at least a 50 percent relative reduction
in liver fat and more than half of EFX patients achieved at least a 70 percent relative reduction of liver fat. In addition, 25
to 67 percent of EFX patients normalized their liver fat levels, which is defined as less than or equal to 5 percent absolute
liver fat content.
Summary of Week 12 Liver Fat Endpoints
EFX (once weekly dose)
Placebo
(N=21)
-0.3
0
Placebo
(N=20)
10
5
5
5
28 mg
(N=19)
-12.3***
-63***
28 mg
(N=16)
100***
69**
50*
25*
50 mg
(N=20)
-13.4***
-71***
50 mg
(N=17)
100***
100***
53**
53**
70 mg
(N=20)
-14.1***
-72***
70 mg
(N=15)
100***
93***
80***
67***
Measure (Mean)
Absolute reduction in liver fat1 (%)
Relative reduction in liver fat1 (%)
Measure (Mean)
≥30% relative reduction in fat2 (%)
≥50% relative reduction in fat2 (%)
≥70% relative reduction in fat2 (%)
≤ 5% absolute liver fat2 (%)
1 Full Analysis Set (all patients randomized into the study)
2 MRI-PDFF Analysis Set (all patients with week 12 MRI-PDFF)
*p<0.05, **p<0.01, ***p<0.001, versus placebo
EFX improved markers of liver injury
The substantial reductions in liver fat among EFX patients correlated with various markers of liver health,
including the liver enzyme ALT, as shown in the figure below. Each of the EFX groups achieved highly statistically
significant ALT reductions of about 40 percent by week 8 and sustained these reductions through the post-treatment
follow-up at week 20. Similar dose-related improvements were observed for other liver health markers, including AST,
GGT, and ALP. We believe the rapid and sustained reductions in ALT are particularly noteworthy as ALT reductions have
been positively correlated with histological response.
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ALT LS mean change from baseline1
1 Full analysis set
**p<0.01, ***p<0.001, versus placebo
EFX improved non-invasive markers of liver fibrosis
EFX was observed to significantly improve two important non-invasive markers of liver fibrosis. Pro-C3 is a
serum biomarker of collagen synthesis and fibrogenesis in the liver. The Enhanced Liver Fibrosis, or ELF, score is a
composite biomarker that has strong correlations with fibrosis stage. Reductions in Pro-C3 indicate lower levels of new
fibrosis formation while reductions in the ELF score suggest lower overall fibrosis. Pro-C3 and the ELF score are clinically
important because they 1) quantitate fibrotic activity throughout the liver rather than in a single segment of the liver and 2)
are noninvasive and therefore can be measured repeatedly over time, thus overcoming two core limitations of liver biopsy.
As shown in the table below at left, we observed highly significant absolute reductions in Pro-C3 of about 6-7 ug/L across
EFX dose groups, compared with a reduction of 1.5 ug/L for placebo. As shown in the table below at right, we also
observed highly significant reductions in ELF score of 0.70, 0.75 and 0.44 for the 28mg, 50mg and 70mg EFX groups,
compared with a nominal increase for placebo.
Summary of Week 12 Non-invasive Measures of Liver Fibrosis
Pro-C3, LS Mean (ug/L)
Enhanced Liver Fibrosis (ELF) Score, LS Mean
Dose Group
Baseline
Δ Wk 12
Dose Group
Baseline
Δ Wk 12
Placebo
28mg
50mg
70mg
16.1
19.2
16.2
17.2
-1.5
-6.1***
-5.9***
-6.7***
Placebo
28mg
50mg
70mg
9.4
9.5
9.5
9.6
0.02
-0.70***
-0.75***
-0.44*
*p<0.05, **p<0.01, ***p<0.001, versus placebo
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EFX improved histology, as measured by both NASH resolution and fibrosis improvement
The BALANCED study generated biopsy results among treatment responders, where response was defined as
achieving at least a 30 percent relative reduction in liver fat as measured by MRI-PDFF at week 12. Among patients with a
week 12 MRI, only two out of 20 placebo patients were responders, or 10 percent, compared with 100 percent among 48
EFX patients. A total of 42 biopsies were collected among placebo (n=2) and EFX patients (n=40).
The figure below shows the biopsy results for patients who achieved NASH resolution without worsening of
fibrosis. This is the first of two histology endpoints defined by both the FDA and EMA for use in Phase 3 registrational
trials. High levels of NASH resolution were observed across all EFX dose groups, with a combined 19 patients across EFX
dose groups for an overall 48 percent response rate. With only two placebo patients in the biopsy analysis set, a meaningful
comparison of histologic improvement against placebo is not possible. A single placebo patient with a positive response
resulted in a 50 percent placebo response rate for NASH resolution without worsening of fibrosis. Notably, this one
placebo patient had an 11%, or 25-pound, reduction in body weight over 16 weeks.
NASH Resolution1,2,3 and No Worsening of Fibrosis
1 Liver biopsy evaluable analysis set
2 NAS score of 0 or 1 for lobular inflammation and a score of 0 for ballooning
3 Secondary and exploratory histological endpoints were not powered for statistical significance
* A single placebo responder lost 25 pounds over 16 weeks (11% weight reduction)
The figure below summarizes the percentage of patients with fibrosis improvement of greater than or equal to one
stage without worsening of NASH. This is the second defined NASH histology endpoint for use in Phase 3 registrational
trials. Fibrosis improvement without worsening of NAS was 48 percent across EFX does groups compared to zero percent
in the placebo group, with responses for individual EFX dose groups ranging from 36 to 62 percent. The 62 percent rate
among patients treated with 50mg EFX is among the strongest fibrosis improvement results reported to date among
published NASH clinical trial results.
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Fibrosis Improvement ≥1 Stage and No Worsening of NAS1,2,3
1 Biopsy evaluable analysis set
2 Improvement in liver fibrosis greater than or equal to one stage and no worsening of NASH (defined
as no increase in NAS for ballooning, inflammation, or steatosis)
3 Secondary and exploratory histological endpoints were not powered for statistical significance
Importantly, the substantial levels of fibrosis improvement shown above are driven largely by patients with more
advanced fibrosis at baseline (F2/F3), rather than merely patients with the earliest stage of F1 fibrosis. As illustrated in the
figure below, while roughly half of all EFX patients experienced an improvement in fibrosis, two thirds of patients with
baseline fibrosis of F2 or F3 experienced at least a one-stage improvement in fibrosis. Moreover, half of all patients with
F2/F3 fibrosis at baseline experienced a two-stage improvement in fibrosis. These histological results following only 16
weeks of treatment underscore EFX’s potential to achieve rapid fibrosis improvement among patients with advanced
NASH. The results in F2/F3 patients are also an important early sign of potential efficacy in Phase 3 as we understand the
FDA guidance for use of surrogate histological endpoints in Phase 3 trials to recommend evaluation of patients with F2/F3
(and not F1) fibrosis. We are not aware of any published data showing a comparable proportion of two-stage improvement
in fibrosis among F2/F3 patients following any treatment duration, let alone following only 16 weeks of treatment.
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Fibrosis Improvement Among Patients with Baseline F2-3 Fibrosis
EFX improved glycemic control, reduced body weight and restored a healthy lipoprotein profile
As summarized in the table below, treatment with EFX was also associated with improvements in multiple
metabolic parameters, including markers of glycemic control, body weight, and lipoproteins. This favorable metabolic
profile is important because cardiovascular disease remains the greatest mortality risk for NASH patients. The
BALANCED study shows that EFX has the potential to be consistent with the FDA guidance by improving multiple
metabolic parameters or (as in the case of LDL) at least not causing any worsening of key metabolic metrics.
Summary of Cardio-Metabolic Biomarkers
Measure (Change From Baseline)
HbA1C (%, absolute)1
Body Weight (kg)2
Triglycerides (%)1
HDL Cholesterol (%)1
Non-HDL Cholesterol (%)1
LDL Cholesterol (%)1
Placebo
(N=21)
+0.1
+0.1
+6
+4
-1
0
28 mg
(N=19)
-0.1
-0.3
-39***
+34***
-22***
-16*
50 mg
(N=20)
-0.4*
-2.3
-48***
+39***
-15*
-2
70 mg
(N=20)
-0.5**
-3.7*
-46***
+41***
-17**
-6
1 Full Analysis Set (all patients randomized into the study), LS Mean
2 Full Analysis Set (all patients randomized into the study), Mean
*p<0.05, **p<0.01, ***p<0.001, versus placebo
EFX’s potential to improve glycemic control is an important feature of its therapeutic profile because
approximately 50% of F2/F3 NASH patients have Type-2 Diabetes, which is generally poorly controlled among NASH
patients. FDA encourages later-stage clinical trials in NASH patients to stratify for T2D status, signifying the importance
of assessing the unique impact of any therapy on patients with both NASH and T2D. As illustrated below, EFX treatment
resulted in reductions in HbA1c of 0.1, 0.4 and 0.5 percent for the 28, 50 and 70mg doses, respectively,
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compared with an increase of 0.1 percent for placebo. These results exceeded our expectations because EFX was dosed on
top of antidiabetic medications for approximately 50% of patients in the study with type 2 diabetes. EFX’s insulin
sensitizing effects are seen more clearly in analysis of the subpopulation of T2D patients, with reductions in HbA1c of 0.6
and 0.9 observed for the 50 and 70mg dose groups.
Reduction in HbA1c (LS Mean Change From Baseline to Week 161)
1 Absolute change from baseline, %; 2 Full Analysis Set
* p<0.05, ** p<0.01, versus placebo (ANCOVA)
The overall improvement in glycemic control is consistent with observations previously reported by Amgen after
treating T2D patients for 4 weeks, underscoring the reproducibility of this effect. Achieving better glycemic control by
improving insulin sensitization is highly desirable because it is rectifying the fundamental driver of type-2 diabetes, which
is insulin resistance. This means EFX has the potential to achieve a sustained reduction in HbA1c, in contrast to diabetes
therapies that promote insulin secretion whose efficacy wanes over time.
The improvement in glycemic control at 50 and 70mg was accompanied by mean reductions in body weight of 2.3
and 3.7kg, after 16 weeks, corresponding to a mean decrease of 5 and 8 pounds. The trend toward weight loss observed
with EFX contrasts with another class of insulin sensitizers, the PPAR gamma agonists. This class includes established
antidiabetic drugs like pioglitazone, whose use has declined substantially because of weight gain and edema, and
Lanifibranor, which was associated with weight gain of about 2.4-2.7kg and 6 to 8% edema. The weight loss observed with
EFX also contrasts with the weight gain observed with another FGF21 analog targeting only the FGFR1c receptor. We
believe the potential for weight loss will be attractive to clinicians and NASH patients.
These encouraging metabolic data are best viewed holistically rather than in isolation. The BALANCED study
showed that EFX has the potential to rectify each aspect of the metabolic dysfunction associated with NASH: improved
glycemic control through enhanced insulin sensitivity, restoration of a healthy lipoprotein profile and reduced body weight.
These broad-based improvements increase our confidence that the rapid reduction of steatohepatitis and collagen
deposition seen in BALANCED could be sustained over longer treatment periods. The magnitude of metabolic
improvements, particularly regarding lipoproteins that are associated with increased risk of cardiovascular disease, also
points to the potential of EFX to achieve meaningful reductions in markers of cardiovascular risk.
In summary, while head-to-head preclinical studies and clinical trials have not been conducted, we believe the
breadth of desirable clinical effects elicited by EFX sets it apart from other candidates in development for NASH, which
frequently trade off efficacy improvements against detrimental effects on lipoproteins, increased body weight, and/or no
improvement in glycemic control. With EFX, we see potential to restore a healthy metabolic profile not only to the liver,
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but also to the whole body. The results are consistent with our predictions based on FGF21 biology and EFX’s engineering.
EFX was generally well tolerated
EFX was generally well tolerated in the BALANCED study. There were no deaths in the study and there were two
Serious Adverse Events, one of which occurred prior to dosing and the second of which was related to acute pancreatitis in
a patient who was morbidly obese with high insulin resistance at baseline. Across EFX groups, the most frequent Adverse
Events, or AEs, were grade 1 or 2 gastrointestinal events, which were transient in nature. There were no discontinuations
due to treatment-emergent adverse events in the 50 mg dose group and no discontinuations due to the most common
adverse event, diarrhea. There were no treatment-related effects on blood pressure, heart rate, or bone mineral density.
As with all therapeutic proteins, there is potential for immunogenicity following treatment with EFX. The
detection of anti-drug antibody, or ADA, formation is highly dependent on the sensitivity and specificity of the assay. In
the evaluable subjects receiving at least 1 dose of EFX, our assay detected the formation of ADAs in 72% of EFX patients,
with none in the placebo group. Measured antibody titers were low, with a median observed titer value of less than 1:9 at
20 weeks. In addition, only 4 EFX patients demonstrated emergence of FGF21 cross-reactive antibodies, with only a single
subject testing positive for neutralizing antibodies at a single time point who subsequently tested negative for ADAs. There
was no discernible effect on efficacy parameters among patients with ADA formation.
Phase 2a expansion cohort of EFX in biopsy-confirmed cirrhotic NASH patients (F4)
We expanded the BALANCED study to include a cohort of patients with compensated cirrhosis (F4), Child-Pugh
Class A, or Cohort C. Thirty patients were randomized to receive either EFX (n=20) or placebo (n=10) for 16 weeks. The
primary endpoint for Cohort C is to assess safety & tolerability of EFX in treatment of cirrhotic NASH patients. Additional
non-invasive efficacy measures are included as secondary and exploratory endpoints, including liver enzymes, markers of
liver fibrosis, and measures of insulin insensitivity. The Cohort C protocol was amended to include voluntary end-of-
treatment biopsies, which will enable assessment of whether histological improvements are evident after just 16 weeks of
treatment. The figure below summarizes the design of the Cohort C trial.
Cohort C Trial Design
The last Cohort C patient visit was completed in February 2021 and we are currently undergoing data analysis. We
expect to report results from Cohort C by April 2021, including safety & tolerability of EFX in cirrhotic patients along with
analyses of paired biopsies, non-invasive measures of liver injury and other markers of liver health.
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Phase 1b clinical trial of EFX in patients with T2D for 4 weeks
A Phase 1b clinical trial was conducted to evaluate the safety, tolerability, pharmacokinetics and
pharmacodynamics of EFX in patients with T2D. This trial was a multicenter, randomized, double-blind, placebo-
controlled, ascending multiple-dose clinical trial. Sixty-nine patients enrolled into one of eight cohorts were randomized to
receive EFX (n=52, with roughly six patients per group) or placebo (n=17). Doses of 7, 21, 70 and 140mg were
administered subcutaneously either once every two weeks, or Q2W, or once weekly, or QW, for 4 weeks.
EFX exhibited linear, dose-proportional pharmacokinetics
Linear, dose-proportional pharmacokinetics were observed across the range of EFX doses tested. The observed
median time of maximum serum concentration, or Tmax, ranged from two to 3.5 days. The observed half-life of the intact
C-terminus of EFX ranged from three to four days.
As shown in the figure below, there was an approximately two-fold accumulation of EFX observed in serum
following repeated QW administration, with steady state achieved by the third or fourth dose. No meaningful accumulation
was observed following administration of two Q2W doses. QW dosing was also associated with a four-fold smaller peak-
to-trough ratio than observed with Q2W dosing, suggesting that serum concentrations of EFX are maintained more
effectively with QW than Q2W dosing.
Pharmacokinetics of EFX administered weekly and every other week
Dose-related effects on pharmacodynamic measures were observed for both the QW and Q2W cohorts, with
maximal or near-maximal effects achieved with the 70mg QW dose of EFX. Significant decreases in triglycerides and
increases in HDL-C were observed for all QW dose groups, with additional significant decreases in non-HDL-C observed
at doses greater than or equal to 70mg QW. Significant increases in triglycerides and increases in HDL-C were also
observed at Q2W doses greater than or equal to 70 and 21mg Q2W, respectively, illustrating the biological impact of EFX’s
half-life extension of three to four days even with an inter-dose interval equivalent to four half-lives.
Multiple markers of insulin sensitivity, including C-peptide, HOMA-IR and adiponectin, were also observed to be
improved after just 4 weeks of dosing. There was also a trend toward slight weight loss at the 70 and 140mg QW doses,
which we do not believe contributed to the substantial improvement of lipoproteins and markers of insulin sensitivity. The
positive effects on insulin sensitivity and body weight were only observed among the QW cohorts and not seen when dosed
once every two weeks.
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A comparison of the magnitude of pharmacodynamic changes between the 70mg QW and 140mg Q2W cohorts
informed our decision to pursue only weekly dosing in additional clinical trials. Each of the 70mg QW and 140mg Q2W
doses yielded approximately equivalent total drug exposure (7-day exposure of 31,900 day*ng/mL for 70mg QW vs. 14-
day exposure of 55,600 day*ng/mL for 140mg Q2W). However, the magnitude and level of significance for effects at
70mg QW were much higher than at 140mg Q2W. On most measures, the effects observed at 70mg QW were at least two-
fold higher than the corresponding changes at 140mg Q2W. We believe the higher sustained exposure observed with QW
administration, with its four-fold smaller peak-to-trough ratio, is necessary to achieve desirable insulin-sensitizing effects,
which we believe are critical to treating patients with biopsy-confirmed NASH.
EFX safety and tolerability
All Q2W doses and doses of 70mg QW or less were reported to be well-tolerated. There were no patient deaths
and no serious adverse events. The most common adverse events were gastrointestinal disorders, such as mild diarrhea and
nausea, consistent with the experience following treatment with other FGF21 investigational drug products in T2D and
NASH patients.
Seven of 52 subjects were observed to be positive for anti-EFX antibodies post-baseline. Antibodies from the 7
subjects were non-neutralizing and did not appear to affect the pharmacokinetics or safety profile of EFX. Three of seven
patients in the Phase 1b clinical trial who developed anti-EFX antibodies returned for follow-up approximately two months
after receiving the final dose of EFX. In all three of these patients, anti-EFX antibodies could no longer be detected.
Exclusive license agreement with Amgen Inc.
In June 2018, we entered into an exclusive license agreement with Amgen Inc., or Amgen, pursuant to which we
have been granted an exclusive, royalty-bearing license to certain intellectual property rights owned or controlled by
Amgen, to commercially develop, manufacture, use, distribute and sell therapeutic products, or Products. In particular, we
have been granted licenses under patents filed in both the United States and foreign jurisdictions that are owned or
controlled by Amgen, including an exclusive license under certain patents claiming polypeptides comprised of an FGF21
portion with certain point mutations, a linker, and an Fc domain. Our exclusively licensed patents include, but are not
limited to, the composition of EFX and methods of using the same. In connection with the license, Amgen also licensed
and transferred to us certain know-how related to the manufacture of EFX as well as certain quantities of EFX drug
substance manufactured to Good Manufacturing Practices, or GMP, for clinical use, master cell bank, not-for-human use
EFX drug product suitable for nonclinical studies and critical reagents.
Pursuant to the terms of the license agreement, we must use commercially reasonable efforts to develop and
commercialize a Product in each of several major market territories. In addition, Amgen provided us, at its expense,
consulting support in connection with the transfer of the licensed materials and the exploitation of the Products. We are
also entitled to sublicense the rights granted to us under the license agreement.
As initial consideration for the license, we paid Amgen an upfront payment of $5.0 million and also issued
2,653,333 shares of our Series A preferred stock to Amgen at the time of the initial closing in June 2018 with a subsequent
3,205,128 shares of our Series A preferred stock issued at the time of the second closing in November 2018, representing
10% of total shares outstanding at such times. In August 2019 we made an additional payment of $2.5 million in
connection with dosing the first patient in our Phase 2a clinical trial, which was the first development milestone under the
license agreement. As additional consideration for the license, we are required to pay Amgen $7.5 million in connection
with dosing the first patient in a Phase 3 clinical trial, up to $30.0 million in connection with marketing approvals, and
aggregate milestone payments of up to $75.0 million upon the achievement of specified commercial milestones for all
products licensed under the Amgen Agreement. No commercial milestones have been achieved to date under the license
agreement. We are also required to pay tiered royalties of low to high single-digit percentages on annual net sales of the
products covered by the license. The royalty rate with respect to the net sales is subject to customary reductions, including
in the event that the exploitation of a Product is not covered by a valid claim with the licensed patent rights. The royalty
term will terminate on a country-by-country basis on the later of (i) the
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expiration date of the last valid claim within the licensed patent rights, (ii) the loss of regulatory exclusivity in such
country, and (iii) the tenth anniversary of the first commercial sale of such product in such country.
The license agreement shall expire upon the expiration of the last-to-expire royalty term for the Products in the
territory. Upon expiration of the license agreement, the licenses granted to us shall be considered fully paid-up, irrevocable
and non-exclusive. Either we or Amgen may terminate the license agreement if the other party commits a material breach
of the agreement or defaults in the performance thereunder and fails to cure that breach within 90 days (or 30 days in the
case of failure to make any payment as and when due under the agreement) after written notice is provided or in the event
of bankruptcy, insolvency, dissolution or winding up. Amgen shall have the right to terminate the license agreement in full
upon written notice to us in the event we, our affiliates or sublicensees, directly challenge the patentability, enforceability
or validity of any licensed patents, unless, in the event of a sublicensee challenge, we terminate the sublicense within 60
days’ notice. We shall have the right to terminate the license agreement within 90 days written notice to Amgen if we
conclude, due to scientific, technical, regulatory or commercial reasons, that the exploitation of the Products is no longer
commercially practicable.
Intellectual property
Our success depends in part upon our ability to protect our core technology and intellectual property. To protect
our intellectual property rights, we rely on patents, trademarks, copyrights and trade secret laws, confidentiality procedures,
and employee disclosure and invention assignment agreements. Our intellectual property is critical to our business and we
strive to protect it through a variety of approaches, including by obtaining and maintaining patent protection in the United
States and internationally for our product candidates, novel biological discoveries, new targets and applications, and other
inventions that are important to our business. For our product candidates, we generally intend to pursue patent protection
covering compositions of matter, methods of making and methods of use, including combination therapies. As we continue
the development of our product candidates, we intend to identify additional means of obtaining patent protection that
would potentially enhance commercial success, including through claims covering additional methods of use and
biomarkers and complementary diagnostic and/or companion diagnostic related claims. As of February 26, 2021, we have
licensed from Amgen Inc. approximately 173 patents and pending patent applications in the U.S. and foreign jurisdictions,
including 148 granted U.S. and foreign patents and 25 pending U.S. and foreign patent applications. There are currently no
pending U.S. provisional patent applications.
As of February 26, 2021, our patent portfolio relating to EFX includes twelve issued U.S. patents, one pending
U.S. patent application, and issued and pending foreign counterpart patents in Europe, Asia, Canada, Australia, and
Mexico. Seven issued U.S. patents include claims directed to the EFX product, the FGF21 polypeptide component of the
EFX product, nucleic acids encoding the product and related polypeptides, polypeptide multimers, related compositions,
and methods of using EFX to, e.g., treat diabetes, lower blood glucose in patients suffering from a metabolic disorder,
improve glucose tolerance, lower body weight, or reduce triglyceride levels in patients. These issued U.S. patents are
expected to expire in 2029. The pending U.S. patent application and related foreign counterparts are directed to a method
of treating a patient with non-alcoholic steatohepatitis (NASH); if issued, the resulting U.S. patent is expected to expire in
2029. The portfolio further includes five issued U.S. patents that are directed to related polypeptides and methods of use.
In addition to patents, we rely upon unpatented trade secrets and know-how and continuing technological
innovation to develop and maintain our competitive position. However, trade secrets and know-how can be difficult to
protect. We seek to protect our proprietary information, in part, by executing confidentiality agreements with our
collaborators and scientific advisors, and non-solicitation, confidentiality, and invention assignment agreements with our
employees and consultants. We have also executed agreements requiring assignment of inventions with selected scientific
advisors and collaborators. The confidentiality agreements we enter into are designed to protect our proprietary information
and the agreements or clauses requiring assignment of inventions to us are designed to grant us ownership of technologies
that are developed through our relationship with the respective counterparty. We cannot guarantee, however, that we have
executed such agreements with all applicable counterparties, such agreements will not be breached, or that these
agreements will afford us adequate protection of our intellectual property and proprietary rights. For more information, see
"Risk factors—Risks related to our intellectual property."
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Manufacturing and supply
We manage several external commercial manufacturing organizations, or CMOs, to develop and manufacture
EFX.
EFX drug substance, or DS, is manufactured by fermentation of a recombinant strain of the bacterium E. coli.
Product accumulates as insoluble particles (inclusion bodies) within the cells and is recovered by cell disruption, followed
by solubilization of the inclusion bodies, protein refolding and several chromatographic separation steps to yield product
with target quality attributes. We have an agreement with Boehringer Ingelheim Biopharmaceuticals GmbH, or Boehringer
Ingelheim, to manufacture DS for clinical development and plan to enter into a future agreement for commercial supply at
the appropriate time. Whereas our recently concluded Phase 2a BALANCED study was supplied by DS acquired by
Amgen, our ongoing Phase 2b HARMONY study is being supplied by DS manufactured by Boehringer Ingelheim. Yield
of the Boehringer Ingelheim DS manufactured to Good Manufacturing Practice (GMP) was shown to be comparable to the
Amgen DS. Analysis of the Boehringer Ingelheim GMP DS confirmed it met the same release specification as previously
used for Amgen GMP DS.
We have an agreement with Vetter Pharma International GmbH, or Vetter, to manufacture EFX drug product, or
DP, for clinical development and plan to enter into a future agreement for commercial supply at the appropriate time. The
GMP DP being used for our ongoing HARMONY study is similar as was used for the BALANCED study, which is stored
as a frozen liquid until immediately before administration to trial subjects. Analysis of the Vetter GMP DP confirmed that it
met the same release specification as previously used for the DP manufactured from Amgen GMP DS.
We plan to use a newly developed freeze-dried, lyophilized DP for Phase 3 clinical trials and commercial launch,
if EFX is approved. This new DP formulation is currently in the process of scale-up at Vetter. The development of a
medical device is envisaged for convenient subcutaneous administration of the new formulation.
Sales and marketing
Successful marketing of a new drug for the treatment of NASH will require a targeted commercial infrastructure.
We expect to begin making plans for commercialization following in parallel with our ongoing HARMONY study. We
have contracted with a third-party manufacturer, Boehringer Ingelheim, to support clinical development and the potential
commercialization of EFX with commercial-scale manufacturing. We intend to develop the commercial infrastructure
required for bringing EFX to patients in the United States, if approved, in parallel with an anticipated Phase 3 clinical trial.
We also plan to evaluate options for delivering EFX, if approved, to patients in other key markets, such as Europe, Japan
and China, which may include strategic collaborations.
Competition
The biotechnology industry is intensely competitive and subject to rapid and significant technological change. Our
competitors include multinational pharmaceutical companies, specialized biotechnology companies and universities and
other research institutions. We understand that a number of pharmaceutical companies, including AbbVie, Inc.,
AstraZeneca PLC/MedImmune LLC, Boehringer Ingelheim AG, Bristol-Myers Squibb Company, Inc., Eisai, Inc., Eli Lilly
and Company, Johnson & Johnson, Merck & Co., Inc., Novartis Pharmaceuticals Corporation, Novo Nordisk A/S, Pfizer
Inc., Roche Holding AG, Sanofi and Takeda Pharmaceutical Company Limited, as well as large and small biotechnology
companies such as Albireo Pharma, Inc., Alnylam Pharmaceuticals, Inc., Altimmune, Inc., Boston Pharmaceuticals, Inc.,
Cirius Therapeutics, Inc., CymaBay Therapeutics, Inc., 89bio, Enanta Pharmaceuticals, Inc., Galectin Therapeutics Inc.,
Galmed Pharmaceuticals Ltd., Gilead Sciences, Inc., Hanmi Pharmaceutical Company, Ltd., Intercept Pharmaceuticals,
Inc., Inventiva Pharma SA, Madrigal Pharmaceuticals, Inc., MediciNova, Inc., Metacrine, Inc., NGM Biopharmaceuticals,
Inc., North Sea Pharmaceuticals, Poxel SA, Sagimet Biosciences, Inc., Terns Pharmaceuticals, Inc. and Viking
Therapeutics, Inc. are pursuing the development or marketing of pharmaceuticals that target NASH. It is also probable that
the number of companies seeking to develop products and therapies for the treatment of serious metabolic diseases, such as
NASH, will increase. Many of our competitors have substantially greater financial, technical, human and other resources
than we do and may be better equipped to develop, manufacture and market technologically superior products. In addition,
many of these competitors have significantly greater
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experience than we have in undertaking nonclinical studies and human clinical trials of new pharmaceutical products and
in obtaining regulatory approvals of human therapeutic products. Accordingly, our competitors may succeed in obtaining
FDA approval for superior products. Many of our competitors have established distribution channels for the
commercialization of their products, whereas we have no such channel or capabilities. In addition, many competitors have
greater name recognition and more extensive collaborative relationships. Smaller and earlier-stage companies may also
prove to be significant competitors, particularly through collaborative arrangements with large, established companies.
Our competitors may obtain regulatory approval of their products more rapidly than we do or may obtain patent
protection or other intellectual property rights that limit our ability to develop or commercialize our product candidate or
any future product candidates. Our competitors may also develop drugs that are more effective, more convenient, more
widely used and less costly or have a better safety profile than our products and these competitors may also be more
successful than we are in manufacturing and marketing their products. If we are unable to compete effectively against these
companies, then we may not be able to commercialize our product candidate or any future product candidates or achieve a
competitive position in the market. This would adversely affect our ability to generate revenue. Our competitors also
compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing
clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or
necessary for, our programs.
Government Regulation
The FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries,
extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export,
safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion,
marketing, post-approval monitoring, and post-approval reporting of biologics such as those we are developing. We, along
with third-party contractors, will be required to navigate the various nonclinical, clinical and commercial approval
requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or
licensure of our product candidates.
U.S. biological product development
In the United States, biological products are subject to regulation under the Federal Food, Drug, and Cosmetic
Act, or FD&C Act, and the Public Health Service Act, or PHS Act, and other federal, state, local and foreign statutes and
regulations. The process required by the FDA before a biological product may be marketed in the United States generally
involves the following:
● completion of nonclinical laboratory tests and animal studies performed in accordance with the FDA's Good
Laboratory Practice (GLP) regulation;
● submission to the FDA of an investigational new drug application, or IND, which must become effective before
clinical trials may begin and must be updated annually or when significant changes are made;
● approval of a clinical trial protocol and related documentation by an independent Institutional Review Board, or
IRB, or ethics committee at each clinical site before the trial may be initiated;
● performance of adequate and well-controlled human clinical trials according to FDA's regulations commonly
referred to as Good Clinical Practices, or GCPs, and any additional requirements for the protection of human
research subjects and their health information, to establish the safety, purity and potency of the proposed biologic
product candidate for its intended use;
● preparation of and submission to the FDA of a Biologics License Application, or BLA, for marketing
authorization that includes substantive evidence of safety, purity, and potency from results of nonclinical testing
and clinical trials;
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● satisfactory completion of an FDA Advisory Committee review, if applicable;
● a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;
● satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological
product is produced to assess compliance with current Good Manufacturing Practices, or cGMPs, and to assure
that the facilities, methods and controls are adequate to preserve the biological product's identity, strength, quality
and purity;
● potential FDA audit of the nonclinical and clinical trial sites that generated the data in support of the BLA in
accordance with any applicable expedited programs or designations;
● payment of user fees for FDA review of the BLA (unless a fee waiver applies); and
● FDA review and approval, or licensure, of the BLA to permit commercial marketing of the product for particular
indications for use in the United States.
Nonclinical and clinical development
Before testing any biological product candidate in humans, the product candidate enters the nonclinical testing
stage. Nonclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product biological
characteristics, chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of
the product candidate. The conduct of the nonclinical tests must comply with federal regulations and requirements
including GLPs.
Prior to beginning the first clinical trial with a product candidate, we must submit an IND to the FDA. An IND is
a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of
an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also includes
results of the nonclinical tests, including animal and in vitro studies assessing the toxicology, pharmacokinetics,
pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls (CMC)
information; and any available human data or literature to support the use of the investigational product. An IND must
become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by
the FDA, unless the FDA places the clinical trial on a clinical hold within the 30-day time period. In such a case, the IND
may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions
before the clinical trial can begin. The FDA also may impose clinical holds on a biological product candidate at any time
before or during clinical trials due to, among other considerations, unreasonable or significant safety concerns, inability to
assess safety concerns, lack of qualified investigators, a misleading or materially incomplete investigator brochure, study
design deficiencies, interference with the conduct or completion of a study designed to be adequate and well-controlled for
the same or another investigational drug, insufficient quantities of investigational product, lack of effectiveness, or non-
compliance. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing a clinical trial to
begin, or that, once begun, issues or circumstances will not arise that delay, suspend or terminate such studies.
Clinical trials involve the administration of the investigational product to healthy volunteers or patients under the
supervision of qualified investigators, generally physicians not employed by or under the study sponsor's control, in
accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their
participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the
objectives of the study, dosing procedures, subject selection and exclusion criteria, and the parameters to be used in
monitoring subject safety, including stopping rules that assure a clinical trial will be stopped if certain adverse events
should occur. A separate submission to the existing IND must be made for each successive clinical trial conducted during
product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site
proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its related documentation
before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or
the sponsor may suspend a clinical trial at any time on various grounds, including a finding that
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the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some
studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known
as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated
check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an
unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements
governing the reporting of ongoing clinical studies and clinical study results to public registries.
A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA
authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the
sponsor may submit data from the clinical trial to the FDA in support of a BLA. The FDA may accept a well-designed and
well-conducted foreign clinical study not conducted under an IND if the study was conducted in accordance with GCP
requirements, and the FDA is able to validate the data through an onsite inspection if deemed necessary.
Clinical trials typically are conducted in three sequential phases that may overlap or be combined:
Phase 1—The investigational product is initially introduced into healthy human subjects. These studies are
designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in
humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. In the
cases of some products for severe of life-threatening diseases, especially when the product may be too inherently toxic to
ethically administer to healthy volunteers, the initial human testing is often conducted in the targeted patient population.
Phase 2—The investigational product is administered to a limited patient population with a specified disease or
condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side
effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning Phase 3
clinical trials.
Phase 3—The investigational product is administered to an expanded patient population to further evaluate
dosage, to provide significant evidence of clinical efficacy and to further test for safety, generally at multiple
geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the
investigational product and to provide an adequate basis for product approval or licensure and product labeling.
In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a
product is approved to gain more information about the product. These so called Phase 4 studies may be made a condition
to approval of the BLA.
During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all
clinical activities, clinical data, and clinical trial investigators. Annual progress reports detailing the results of the clinical
trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA and the
investigators for serious and unexpected adverse events, any findings from other studies, tests in laboratory animals or in
vitro testing that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious
suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety
report within 15 calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also
must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after
the sponsor's initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed
successfully within any specified period, if at all. The FDA or the sponsor, acting on its own or based on a recommendation
from the sponsor's data safety monitoring board may suspend a clinical trial at any time on various grounds, including a
finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can
suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance
with the IRB's requirements or if the biological product has been associated with unexpected serious harm to patients.
Concurrent with clinical trials, companies may complete additional animal studies and develop additional
information about the biological characteristics of the product candidate, and must finalize a process for manufacturing
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the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable
of consistently producing quality batches of the product candidate and, among other things, must develop methods for
testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency.
Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that
the product candidate does not undergo unacceptable deterioration over its shelf life.
BLA submission and review
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements,
the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA
requesting approval to market the product for one or more indications. FDA approval of a BLA must be obtained before a
biologic may be marketed in the United States. The BLA must include all relevant data available from pertinent nonclinical
and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information
relating to the product's chemistry, manufacturing, controls, and proposed labeling, among other things. The submission of
a BLA requires payment of a substantial application user fee to FDA, unless a waiver or exemption applies.
Within 60 days following submission of the application, the FDA reviews a BLA submitted to determine if it is
substantially complete before the FDA accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete
or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must
be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA
accepts it for filing. Under the performance goals and policies implemented by the FDA under the Prescription Drug User
Fee Act, or PDUFA, for original BLAs, the FDA targets ten months from the filing date in which to complete its initial
review of a standard application and respond to the applicant, and six months from the filing date for an application with
priority review. In both standard and priority reviews, the FDA does not always meet its PDUFA goal dates, and the review
process is often significantly extended by FDA requests for additional information or clarification. This review typically
takes twelve months from the date the BLA is submitted to the FDA because the FDA has approximately two months to
make a "filing" decision. The review process and the PDUFA goal date may be extended by three months if the FDA
requests or the BLA sponsor otherwise provides additional information or clarification regarding information already
provided in the submission within the last three months before the PDUFA goal date.
Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA
reviews a BLA to determine, among other things, whether a proposed product is safe, pure and potent, for its intended use,
and the facility in which it is manufactured, processed, packed, or held meets standards designed to assure the product's
continued safety, purity and potency. Further, the FDA may convene an advisory committee to provide clinical insight on
application review questions. The FDA is not bound by the recommendations of an advisory committee, but it considers
such recommendations carefully when making decisions.
Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is
manufactured. The FDA will not approve a product unless it determines that the manufacturing processes and facilities are
in compliance with cGMP requirements and adequate to assure consistent production of the product within required
specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure
compliance with GCP requirements. If the FDA determines that the application, manufacturing process or manufacturing
facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or
information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that
the application does not satisfy the regulatory criteria for approval.
After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational
product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response letter.
An approval letter authorizes commercial marketing of the product with specific prescribing information for specific
indications. A Complete Response letter will describe all of the deficiencies that the FDA has identified in the BLA, except
that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may
issue the Complete Response letter without first conducting required inspections, testing submitted product
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lots, and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend actions that
the applicant might take to place the BLA in condition for approval, including requests for additional information or
clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require
additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a
product.
If regulatory approval of a product is granted, such approval will be granted for particular indications and may
entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the
BLA with a Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A
REMS is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to
have continued access to such medicines by managing their safe use, and could include medication guides, physician
communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other
risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the
development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if
compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the
marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor
the product's safety and effectiveness after commercialization, and may limit further marketing of the product based on the
results of these post-marketing studies.
Expedited development and review programs
The FDA has various programs, including Fast Track designation, breakthrough therapy designation, accelerated
approval and priority review, that are intended to expedite or simplify the process for the development and FDA review of
biologics that are intended for the treatment of serious or life-threatening diseases or conditions. These programs do not
change the standards for approval but may help expedite the development or approval process. To be eligible for Fast Track
designation, new biological products must be intended to treat a serious or life-threatening condition and demonstrate the
potential to address an unmet medical need for the condition. Fast Track designation applies to the combination of the
product and the specific indication for which it is being studied. The sponsor of a new biologic may request the FDA to
designate the biologic as a Fast Track product at any time during the clinical development of the product. One benefit of
Fast Track designation, for example, is that the FDA may consider for review sections of the marketing application for a
product that has received Fast Track designation on a rolling basis before the complete application is submitted.
Under the FDA's breakthrough therapy program, products intended to treat a serious or life-threatening disease or
condition may be eligible for the benefits of the Fast Track program when preliminary clinical evidence demonstrates that
such product may have substantial improvement on one or more clinically significant endpoints over existing therapies.
Additionally, the FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice and
interactive communications to help the sponsor design and conduct a development program as efficiently as possible.
Any product is eligible for priority review if it treats a serious or life-threatening disease or condition and has the
potential, if approved, to provide a significant improvement in safety and effectiveness. The FDA will attempt to direct
additional resources to the evaluation of an application for a new biological product designated for priority review in an
effort to facilitate the review. Under priority review, the FDA's goal is to review an application in six months once it is
filed, compared to ten months for a standard review.
Additionally, a product may be eligible for accelerated approval (also referred to as Subpart E approval).
Biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that
provide meaningful therapeutic benefit over existing treatments, as demonstrated by a surrogate or intermediate clinical
endpoint, may receive accelerated approval. Specifically, this means that they may be approved on the basis of clinical data
establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or
on the basis of an effect on an intermediate clinical endpoint other than survival or irreversible morbidity. As a condition of
approval, the FDA may require that a sponsor of a biological product receiving accelerated approval perform adequate and
well-controlled post-marketing confirmatory clinical trials. In addition, the FDA currently requires
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as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of
the commercial launch of the product.
Pediatric information
Under the Pediatric Research Equity Act, a BLA or supplement to a BLA must contain data to assess the safety
and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and
administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals
for submission of pediatric data or full or partial waivers. A sponsor who is planning to submit a marketing application for
a drug that includes a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of
administration must submit an initial Pediatric Study Plan, or PSP, within 60 days of an end-of-Phase 2 meeting or, if there
is no such meeting, as early as practicable before the initiation of the Phase 3 of Phase 2/3 study. The initial PSP must
include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design,
age groups, relevant endpoints, and statistical approach, or a justification for not including such detailed information, and
any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from
pediatric studies along with supporting information. The FDA and the sponsor must reach an agreement on the PSP. A
sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be
considered based on data collected from nonclinical studies, early phase clinical trials, and/or other clinical development
programs.
Post-Approval requirements
Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and
continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of
adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product.
After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject
to prior FDA review and approval. There also are continuing user fee requirements, under which FDA assesses an annual
program fee for each product identified in an approved BLA. Biologic manufacturers and their subcontractors are required
to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced
inspections by the FDA and certain state agencies for ongoing compliance with cGMP, which impose certain procedural
and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are
strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being
implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose
reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers
must continue to expend time, money and effort in the area of production and quality control to maintain compliance with
cGMP and other aspects of regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or
if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product,
including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with
regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-
market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions
under a REMS program. Other potential consequences include, among other things:
● restrictions on the marketing or manufacturing of a product, complete withdrawal of the product from the market
or product recalls;
● fines, warning letters or holds on post-approval clinical studies;
● refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or
revocation of existing product approvals;
● product seizure or detention, or refusal of the FDA to permit the import or export of products; or
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● injunctions or the imposition of civil or criminal penalties.
The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make
only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with
the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the
promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity,
warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available
products for uses that are not described in the product's labeling and that differ from those tested by us and approved by the
FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the
best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their
choice of treatments. The FDA does, however, restrict manufacturer's communications on the subject of off-label use of
their products.
U.S. patent term restoration and marketing exclusivity
Depending upon the timing, duration and specifics of the FDA approval of the use of our product candidates,
some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent
Term Restoration Act of 1984, or Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent
restoration term of up to five years as compensation for patent term lost during product development and the FDA
regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of
14 years from the product's approval date. The patent term restoration period is generally one-half the time between the
effective date of an IND and the submission date of a BLA plus the time between the submission data of a BLA and the
approval of that application. Only one patent applicable to an approved biological product is eligible for the extension and
the application for the extension must be submitted prior to the expiration of the patent. In addition, a patent can only be
extended once and only for a single product. The United States Patent and Trademark Office, or U.S. PTO, in consultation
with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may
intend to apply for restoration of patent term for one of our patents, if and as applicable, to add patent life beyond its
current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the
relevant BLA.
A biological product can obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted,
adds six months to existing exclusivity periods, including some regulatory exclusivity periods tied to patent terms. This
six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the
voluntary completion of a pediatric study in accordance with an FDA-issued "Written Request" for such a study.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act, or collectively, the Affordable Care Act, signed into law in 2010, includes a subtitle called the Biologics Price
Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological
products that are biosimilar to or interchangeable with an FDA-approved reference biological product. To date, a number of
biosimilars have been licensed under the BPCIA, and numerous biosimilars have been approved in Europe. The FDA has
issued several guidance documents outlining an approach to review and approval of biosimilars.
Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and
the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a
clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product
must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient
and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be
alternated or switched after one has been previously administered without increasing safety risks or risks of diminished
efficacy relative to exclusive use of the reference biologic. Complexities associated with the larger, and often more
complex, structures of biological products, as well as the processes by which such products are manufactured, pose
significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.
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Under the BPCIA, a reference biological product is granted four and 12 year exclusivity periods from the time of
first licensure of the product. FDA will not accept an application for a biosimilar or interchangeable product based on the
reference biological product until four years after the date of first licensure of the reference product, and FDA will not
approve an application for a biosimilar or interchangeable product based on the reference biological product until twelve
years after the date of first licensure of the reference product. "First licensure" typically means the initial date the particular
product at issue was licensed in the United States. Date of first licensure does not include the date of licensure of (and a
new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological
product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor,
predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological
product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery
device or strength, or for a modification to the structure of the biological product that does not result in a change in safety,
purity, or potency. Therefore, one must determine whether a new product includes a modification to the structure of a
previously licensed product that results in a change in safety, purity, or potency to assess whether the licensure of the new
product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved,
warrants exclusivity as the "first licensure" of a biological product is determined on a case-by-case basis with data
submitted by the sponsor.
The BPCIA is complex and continues to be interpreted and implemented by the FDA. In addition, recent
government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA,
some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result,
the ultimate impact, implementation, and impact of the BPCIA is subject to significant uncertainty.
Other U.S. healthcare and Data Privacy laws and compliance requirements
In the United States, our current and future operations are subject to regulation by various federal, state and local
authorities in addition to the FDA, including but not limited to, the Centers for Medicare and Medicaid Services, or CMS,
other divisions of the U.S. Department of Health and Human Services, or HHS (such as the Office of Inspector General,
Office for Civil Rights and the Health Resources and Service Administration), the U.S. Department of Justice, or DOJ, and
individual U.S. Attorney offices within the DOJ, and state and local governments. For example, our clinical research, sales,
marketing and scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the
Social Security Act, the false claims laws, the privacy and security provisions of the Health Insurance Portability and
Accountability Act, or HIPAA, and similar state laws, each as amended, as applicable.
The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and
willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in
kind, to induce or in return for purchasing, leasing, ordering, arranging for or recommending the purchase, lease or order of
any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The
term remuneration has been interpreted broadly to include anything of value. The federal Anti-Kickback Statute has been
interpreted to apply to arrangements between therapeutic product manufacturers on one hand and prescribers, purchasers,
and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting
some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve
remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to
scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular
applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-
Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative
review of all of its facts and circumstances. Our practices may not meet the criteria for protection under a statutory
exception or regulatory safe harbor.
Additionally, the intent standard under the federal Anti-Kickback Statute was amended by the Affordable Care
Act, such that a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in
order to have committed a violation. In addition, the Affordable Care Act codified case law that a claim including items or
services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes
of the federal False Claims Act, or FCA (discussed below).
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The federal false claims and civil monetary penalty laws, including the FCA, which can be enforced by private
citizens through civil qui tam actions, prohibit any person or entity from, among other things, knowingly presenting, or
causing to be presented, a false or fraudulent claim for payment to, or approval by, the federal government, including
federal healthcare programs, such as Medicare and Medicaid, knowingly making, using, or causing to be made or used a
false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false
statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government. A claim includes
"any request or demand" for money or property presented to the U.S. government. For instance, historically,
pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product
to customers with the expectation that the customers would bill federal programs for the product. Other companies have
been prosecuted for causing false claims to be submitted because of the companies' marketing of the product for
unapproved, off-label, and thus generally non-reimbursable, uses.
HIPAA created additional federal criminal statutes that prohibit, among other things, knowingly and willfully
executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses,
representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit
program, including private third-party payors, willfully obstructing a criminal investigation of a healthcare offense, and
knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any
materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits,
items or services. Like the federal Anti-Kickback Statute, the Affordable Care Act amended the intent standard for certain
healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute
or specific intent to violate it in order to have committed a violation.
Also, many states have similar, and typically more prohibitive, fraud and abuse statutes or regulations that apply
to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the
payor.
We may be subject to data privacy and security regulations by both the federal government and the states in which
we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health
Act, or HITECH, and their implementing regulations, as well as the California Consumer Privacy Act of 2018 (the
“CCPA”), impose requirements relating to the privacy, security and transmission of individually identifiable health
information. Among other things, HITECH makes HIPAA's privacy and security standards directly applicable to business
associates, independent contractors, or agents of covered entities, which include certain healthcare providers, health plans,
and healthcare clearinghouses, that receive or obtain protected health information in connection with providing a service on
behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil
and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil
actions for damages or injunctions in federal courts to enforce HIPAA and seek attorneys' fees and costs associated with
pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in
specified circumstances. For example, in California the CCPA establishes a new privacy framework for covered businesses
by creating an expanded definition of personal information, establishing new data privacy rights for consumers in the State
of California, imposing special rules on the collection of consumer data from minors, and creating a new and potentially
severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable
security procedures and practices to prevent data breaches. Many of the state laws differ from each other in significant
ways and are often not pre-empted by HIPAA, and may have a more prohibitive effect than HIPAA, thus complicating
compliance efforts.
We may develop products that, once approved, may be administered by a physician. Under currently applicable
U.S. law, certain products not usually self-administered (including injectable drugs) may be eligible for coverage under
Medicare through Medicare Part B. Medicare Part B is part of original Medicare, the federal health care program that
provides health care benefits to the aged and disabled, and covers outpatient services and supplies, including certain
pharmaceutical products, that are medically necessary to treat a beneficiary's health condition. As a condition of receiving
Medicare Part B reimbursement for a manufacturer's eligible drugs, the manufacturer is required to participate in other
government healthcare programs, including the Medicaid Drug Rebate Program and the 340B Drug Pricing Program. The
Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate
agreement with the Secretary of HHS as a condition for states to receive federal matching funds for the
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manufacturer's outpatient drugs furnished to Medicaid patients. Under the 340B Drug Pricing Program, the manufacturer
must extend discounts to entities that participate in the program.
In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the
government, such as average sales price, or ASP, and best price. Penalties may apply in some cases when such metrics are
not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates
required by government healthcare programs or private payors.
Additionally, the federal Physician Payments Sunshine Act, or the Sunshine Act, within the Affordable Care Act,
and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for
which payment is available under Medicare, Medicaid or the Children's Health Insurance Program (with certain
exceptions) report annually to CMS information related to certain payments or other transfers of value made or distributed
to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, or to
entities or individuals at the request of, or designated on behalf of, physicians and teaching hospitals and to report annually
certain ownership and investment interests held by physicians and their immediate family members. Effective January 1,
2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers such as
physician assistants and nurse practitioners. In addition, many states also govern the reporting of payments or other
transfers of value, many of which differ from each other in significant ways, are often not pre-empted, and may have a
more prohibitive effect than the Sunshine Act, thus further complicating compliance efforts.
In order to distribute products commercially, we must comply with state laws that require the registration of
manufacturers and wholesale distributors of drug and biological products in a state, including, in certain states,
manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of
business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree
of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology
capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation
requiring pharmaceutical and biotechnology companies to establish marketing compliance programs, file periodic reports
with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or
register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain
physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit
certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer
protection and unfair competition laws.
Ensuring business arrangements with third parties comply with applicable healthcare laws and regulations is a
costly endeavor. If our operations are found to be in violation of any of the federal and state healthcare laws described
above or any other current or future governmental regulations that apply to us, we may be subject to penalties, including
without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, individual imprisonment,
exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private "qui tam"
actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into
government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future
earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other
agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations,
any of which could adversely affect our ability to operate our business and our results of operations.
Coverage, pricing and reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we
may obtain regulatory approval. In the United States and in foreign markets, sales of any products for which we receive
regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors provide coverage
and establish adequate reimbursement levels for such products. In the United States, third-party payors include federal and
state healthcare programs, such as Medicare and Medicaid, private managed care providers, health insurers and other
organizations. Adequate coverage and reimbursement from third-party payors are critical to new product acceptance.
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Our ability to commercialize any products successfully also will depend in part on the extent to which coverage
and adequate reimbursement for these products and related treatments will be available from third-party payors. Third-
party payors decide which therapeutics they will pay for and establish reimbursement levels. Coverage and reimbursement
by a third-party payor may depend upon a number of factors, including the third-party payor's determination that use of a
therapeutic is:
● a covered benefit under its health plan;
● safe, effective and medically necessary;
● appropriate for the specific patient;
● cost-effective; and
● neither experimental nor investigational.
We cannot be sure that reimbursement will be available for any product that we commercialize and, if coverage
and reimbursement are available, what the level of reimbursement will be. Coverage may also be more limited than the
purposes for which the product is approved by the FDA or comparable foreign regulatory authorities. Reimbursement may
impact the demand for, or the price of, any product for which we obtain regulatory approval.
Third-party payors are increasingly challenging the price, examining the medical necessity, and reviewing the
cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy.
Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated with
branded drugs and drugs administered under the supervision of a physician. We may need to conduct expensive
pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition
to the costs required to obtain FDA approvals. Our product candidates may not be considered medically necessary or cost-
effective. Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a
time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-
effectiveness data for the use of our product on a payor-by-payor basis, with no assurance that coverage and adequate
reimbursement will be obtained. A third-party payor's decision to provide coverage for a product does not imply that an
adequate reimbursement rate will be approved. Further, in the United States, no uniform policy of coverage and
reimbursement for products exists among third-party payors. Private third-party payors tend to follow Medicare coverage
and reimbursement limitations to a substantial degree, but also have their own methods and approval process apart from
Medicare determinations. Therefore, one payor's determination to provide coverage for a product does not assure that other
payors will also provide coverage for the product. Adequate third-party reimbursement may not be available to enable us to
maintain price levels sufficient to realize an appropriate return on our investment in product development. If
reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize any
product candidate that we successfully develop.
Different pricing and reimbursement schemes exist in other countries. In the European Union, governments
influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health
care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and
negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain
reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the
cost effectiveness of a particular product candidate to currently available therapies. Other member states allow companies
to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care
costs has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition,
in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.
The marketability of any product candidates for which we receive regulatory approval for commercial sale may
suffer if third-party payors fail to provide coverage and adequate reimbursement. In addition, emphasis on managed care,
the increasing influence of health maintenance organizations, and additional legislative changes in the United States has
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increased, and we expect will continue to increase, the pressure on healthcare pricing. The downward pressure on the rise
in healthcare costs in general, particularly prescription medicines, medical devices and surgical procedures and other
treatments, has become very intense. Coverage policies and third-party reimbursement rates may change at any time. Even
if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory
approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Healthcare reform
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and
regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval
of product candidates, restrict or regulate post-approval activities, and affect the ability to profitably sell product candidates
for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, there is
significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs,
improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of
these efforts and has been significantly affected by major legislative initiatives.
For example, the Affordable Care Act has substantially changed healthcare financing and delivery by both
governmental and private insurers. Among the Affordable Care Act provisions of importance to the pharmaceutical and
biotechnology industries, in addition to those otherwise described above, are the following:
● an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription
drugs and biologic agents apportioned among these entities according to their market share in some government
healthcare programs that began in 2011;
● an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program,
retroactive to January 1, 2010, to 23.1% and 13% of the average manufacturer price for most branded and generic
drugs, respectively, and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer
Price, or AMP;
● a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%
(increased to 70%, the current discount owed as of January 1, 2019 pursuant to the Bipartisan Budget Act of 2018,
or BBA) point-of-sale discounts, off negotiated prices of applicable brand drugs to eligible beneficiaries during
their coverage gap period, as a condition for the manufacturers' outpatient drugs to be covered under Medicare
Part D;
● extension of manufacturers' Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled
in Medicaid managed care organizations;
● expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid
coverage to additional individuals beginning in 2014 and by adding new mandatory eligibility categories for
individuals with income at or below 133% of the federal poverty level, thereby potentially increasing
manufacturers' Medicaid rebate liability;
● expansion of the entities eligible for discounts under the 340B Drug Discount Program;
● a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative
clinical effectiveness research, along with funding for such research;
● expansion of healthcare fraud and abuse laws, including the FCA and the federal Anti-Kickback Statute, new
government investigative powers, and enhanced penalties for noncompliance;
● a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are
calculated for drugs that are inhaled, infused, instilled, implanted, or injected;
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● requirements to report certain financial arrangements with physicians and teaching hospitals;
● a requirement to annually report certain information regarding drug samples that manufacturers and distributors
provide to physicians;
● establishment of the Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service
delivery models to lower Medicare and Medicaid spending; and
● a licensure framework for follow on biologic products.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to
certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future.
For example, various portions of the ACA are currently undergoing legal and constitutional challenges in the Fifth Circuit
Court and the United States Supreme Court, and the Trump Administration has issued various Executive Orders which
eliminated cost sharing subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax,
penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or
medical devices. Additionally, Congress has introduced several pieces of legislation aimed at significantly revising or
repealing the ACA. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended. We cannot
predict what affect further changes to the ACA would have on our business, especially under the Biden administration.
Additionally, there has been increasing legislative and enforcement interest in the United States with respect to
specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and
enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the
cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and
reform government program reimbursement methodologies for drugs. At the federal level, the former Trump
administration’s budget proposal for fiscal year 2021 included a $135 billion allowance to support legislative proposals
seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access
to lower-cost generic and biosimilar drugs. On March 10, 2020, the former administration sent “principles” for drug pricing
to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket
pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place
limits on pharmaceutical price increases. Further, the former administration also previously released a "Blueprint", or plan,
to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug
manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers
to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. HHS has
already started the process of soliciting feedback on some of these measures and, at the same, is immediately implementing
others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans
the option of using step therapy, a type of prior authorization, for Part B drugs beginning January 1, 2020. This final rule
codified CMS’s policy change that was effective January 1, 2019. However, it is unclear whether the Biden administration
will challenge, reverse, revoke or otherwise modify these executive and administrative actions after January 20, 2021.
In addition, there have been several changes to the 340B drug pricing program, which imposes ceilings on prices
that certain drug and biologic manufacturers can charge for medications sold to certain health care facilities. It is unclear
how these developments could affect covered hospitals who might purchase our future products and affect the rates we may
charge such facilities for our approved products in the future, if any. On July 24, 2020 and September 13, 2020, former
President Trump announced several executive orders related to prescription drug pricing that seek to implement several of
the former administration's proposals. In response, the FDA released a final rule on September 24, 2020, which went into
effect on November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada.
Further, on November 20, 2020 CMS issued an Interim Final Rule implementing the Most Favored Nation, or MFN,
Model under which Medicare Part B reimbursement rates will be calculated for certain drugs and biologicals based on the
lowest price manufacturers receive in Organization for Economic Cooperation and Development countries with a similar
gross domestic product per capita. The MFN Model regulations mandate participation by identified Part B providers and
would have applied to all U.S. states and territories for a seven-year
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period beginning January 1, 2021 and ending December 31, 2027. However, in response to a lawsuit filed by several
industry groups, on December 28, the U.S. District Court for the Northern District of California issued a nationwide
preliminary injunction enjoining government defendants from implementing the MFN Rule pending completion of notice-
and-comment procedures under the Administrative Procedure Act. On January 13, 2021, in a separate lawsuit brought by
industry groups in the U.S. District of Maryland, the government defendants entered a joint motion to stay litigation on the
condition that the government would not appeal the preliminary injunction granted in the U.S. District Court for the
Northern District of California and that performance for any final regulation stemming from the MFN Interim Final Rule
shall not commence earlier than 60 days after publication of that regulation in the Federal Register. Further, authorities in
Canada have passed rules designed to safeguard the Canadian drug supply from shortages. If implemented, importation of
drugs from Canada and the MFN Model may materially and adversely affect the price we receive for any of our product
candidates. Additionally, on December 2, 2020, HHS published a regulation removing safe harbor protection for price
reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit
managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions
reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit
managers and manufacturers. Pursuant to an order entered by the U.S. District Court for the District of Columbia, the
portion of the rule eliminating safe harbor protection for certain rebates related to the sale or purchase of a pharmaceutical
product from a manufacturer to a plan sponsor under Medicare Part D has been delayed to January 1, 2023. Further,
implementation of this change and new safe harbors for point-of-sale reductions in price for prescription pharmaceutical
products and pharmacy benefit manager service fees are currently under review by the Biden administration and may be
amended or repealed. While a number of these and other proposed measures may require additional authorization to
become effective, and the Biden administration may reverse or otherwise change these measures, Congress has indicated
that it will continue to seek new legislative and/or administrative measures to control drug costs. Individual states in the
United States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical
product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and
marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other
countries and bulk purchasing.
Further, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to
Try Act of 2017, or the Right to Try Act, was signed into law. The law, among other things, provides a federal framework
for certain patients to request access to certain investigational new drug products that have completed a Phase I clinical
trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek
treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access
program. There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients
as a result of the Right to Try Act.
The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, or
authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or
candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business
in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to
comply with accounting provisions requiring us to maintain books and records that accurately and fairly reflect all
transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of
internal accounting controls for international operations.
Government regulations outside the United States
In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions
governing, among other things, research and development, clinical trials, testing, manufacturing, safety, efficacy, labeling,
packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving biological
products as well as authorization and approval of our products.
Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory
authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those
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countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical
trial application much like the IND prior to the commencement of human clinical trials. In the European Union, for
example, a Clinical Trial Application, or CTA, must be submitted for each clinical trial to each country's national
competent authority, or NCA, and an independent ethics committee, or EC, much like the FDA and an IRB, respectively.
Once the CTA is approved in accordance with a country's requirements, the corresponding clinical trial may proceed.
Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the
clinical trial have to be reported to the NCA and ECs of the Member State where they occurred.
The EU clinical trials legislation currently is undergoing a transition process mainly aimed at harmonizing and
streamlining clinical-trial authorization, simplifying adverse-event reporting procedures, improving the supervision of
clinical trials and increasing their transparency. In April 2014, the EU adopted a new Clinical Trials Regulation (EU) No
536/2014, which is set to replace the current Clinical Trials Directive 2001/20/EC. It is expected that the new Clinical
Trials Regulation (EU) No 536/2014 will apply following confirmation of full functionality of the Clinical Trials
Information System (CTIS), the centralized EU portal and database for clinical trials foreseen by the Regulation, through
an independent audit, currently expected to occur in December 2021. The new Regulation will be directly applicable in all
Member States (and so does not require national implementing legislation in each Member State), and aims at simplifying
and streamlining the approval of clinical studies in the EU, for instance by providing for a streamlined application
procedure via a single point and strictly defined deadlines for the assessment of clinical study applications.
The requirements and process governing the conduct of clinical trials, product licensing, pricing and
reimbursement vary from country to country. In all cases, the clinical trials must be conducted in accordance with GCP and
the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
Regulation in Europe
In the European Economic Area, or EEA (comprising the EU Member States plus Norway, Iceland and
Liechtenstein), medicinal products are subject to extensive pre- and post-market regulation by regulatory authorities at both
the EEA and national levels. To obtain regulatory approval of a medicinal product in the EEA, we must submit a marketing
authorization application. The application used to submit the BLA in the United States is similar to that required in the
EEA, with certain exceptions. There are two main types of marketing authorization, or MA, in the EEA:
● The centralized MA is issued by the European Commission through the centralized procedure, based on the
opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the EMA, and is valid throughout
the entire territory of the EEA. The centralized procedure is mandatory for certain types of products, such as
biotechnology medicinal products, orphan medicinal products, advanced-therapy medicinal products (i.e. gene-
therapy, somatic cell-therapy or tissue-engineered medicines) and medicinal products containing a new active
substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune
and other immune dysfunctions and viral diseases. The centralized procedure is optional for products containing a
new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic,
scientific or technical innovation or which are in the interest of public health in the European Union. Under the
centralized procedure the maximum timeframe for the evaluation of a MA application by the EMA is 210 days,
excluding clock stops, when additional written or oral information is to be provided by the applicant in response
to questions asked by the CHMP. Clock stops may extend the timeframe of evaluation of a MA application
considerably beyond 210 days. Where the CHMP gives a positive opinion, the EMA provides the opinion
together with supporting documentation to the European Commission, who make the final decision to grant a
marketing authorization, which is issued within 67 days of receipt of the EMA’s recommendation. Accelerated
assessment might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a
major public health interest, particularly from the point of view of therapeutic innovation. The timeframe for the
evaluation of a MA application under the accelerated assessment procedure is of 150 days, excluding stop-clocks,
but it is possible that the CHMP may revert to the standard time limit for the centralized procedure if it determines
that the application is no longer appropriate to conduct an accelerated assessment.
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● National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover
their respective territory, are available for products not falling within the mandatory scope of the centralized
procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this
national MA can be recognized in other Member States through the mutual recognition procedure. If the product
has not received a national MA in any Member State at the time of application, it can be approved simultaneously
in various Member States through the decentralized procedure. Under the decentralized procedure an identical
dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of
which is selected by the applicant as the Reference Member State, or RMS. The competent authority of the RMS
prepares a draft assessment report, a draft summary of the product characteristics, or SmPC, and a draft of the
labeling and package leaflet, which are sent to the other Member States (referred to as the Concerned Member
States, or CMSs) for their approval. If the CMSs raise no objections, based on a potential serious risk to public
health, to the assessment, SmPC, labeling, or packaging proposed by the RMS, the product is subsequently
granted a national MA in all the Member States (i.e., in the RMS and the CMSs).
Now that the UK (which comprises Great Britain and Northern Ireland) has left the EU, Great Britain will no
longer be covered by centralized MAs (under the Northern Irish Protocol, centralized MAs will continue to be recognized
in Northern Ireland). All medicinal products with a current centralized MA were automatically converted to Great Britain
MAs on January 1, 2021. For a period of two years from January 1, 2021, the Medicines and Healthcare products
Regulatory Agency, or MHRA, the UK medicines regulator, may rely on a decision taken by the European Commission on
the approval of a new marketing authorization in the centralized procedure, in order to more quickly grant a new Great
Britain MA. A separate application will, however, still be required.
The EEA also provides opportunities for exclusivity. For example, in the EEA, upon receiving marketing
authorization, innovative medicinal products generally receive eight years of data exclusivity and an additional two years
of market exclusivity. If granted, data exclusivity prevents generic or biosimilar applicants from referencing the innovator's
data to assess a generic or biosimilar application. During the additional two-year period of market exclusivity, a generic or
biosimilar marketing authorization can be submitted, and the innovator's pre-clinical or clinical trial data contained in the
dossier of the reference product when applying for a generic or biosimilar marketing authorization, for a period of eight
years from the date on which the reference product was first authorized in the EEA. During the additional two-year period
of market exclusivity, a generic or biosimilar marketing authorization can be submitted, and the innovator's data may be
referenced, but no generic or biosimilar product can be marketed until the expiration of the market exclusivity. The overall
ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing
authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific
evaluation prior to their authorization, are determined to bring a significant clinical benefit in comparison with currently
approved therapies. Even if an innovative medicinal product gains the prescribed period of data exclusivity, another
company may market another version of the product if such company obtained a marketing authorization based on an
application with a complete and independent data package of pharmaceutical tests, preclinical tests and clinical trials.
Pediatric development in Europe
In the EEA, companies developing a new medicinal product must agree upon a Pediatric Investigation Plan, or
PIP, with the EMA’s Pediatric Committee, or PDCO, and must conduct pediatric clinical trials in accordance with that PIP,
unless a waiver applies, (e.g., because the relevant disease or condition occurs only in adults). The PIP sets out the timing
and measures proposed to generate data to support a pediatric indication of the drug for which marketing authorization is
being sought. The PDCO can grant a deferral of the obligation to implement some or all of the measures of the PIP until
there are sufficient data to demonstrate the efficacy and safety of the product in adults. Further, the obligation to provide
pediatric clinical trial data can be waived by the PDCO when this data is not needed or appropriate because the product is
likely to be ineffective or unsafe in children, the disease or condition for which the product is intended occurs only in adult
populations, or when the product does not represent a significant therapeutic benefit over existing treatments for pediatric
patients. Products that are granted a marketing authorization on the basis of the pediatric clinical trials conducted in
accordance with the PIP are eligible for a six month extension of the protection under a supplementary protection
certificate (if any is in effect at the time of approval) or, in the case of orphan medicinal
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products, a two year extension of the orphan market exclusivity. This pediatric reward is subject to specific conditions and
is not automatically available when data in compliance with the PIP are developed and submitted.
PRIME designation
In March 2016, the EMA launched an initiative to facilitate development of product candidates in indications,
often rare, for which few or no therapies currently exist. The PRIority MEdicines, or PRIME, scheme is intended to
encourage drug development in areas of unmet medical need and provides accelerated assessment of products representing
substantial innovation, where the marketing authorization application will be made through the centralized procedure.
Eligible products must target conditions for which where is an unmet medical need (there is no satisfactory method of
diagnosis, prevention or treatment in the EEA or, if there is, the new medicine will bring a major therapeutic advantage)
and they must demonstrate the potential to address the unmet medical need by introducing new methods of therapy or
improving existing ones. Products from small- and medium-sized enterprises may qualify for earlier entry into the PRIME
scheme than larger companies. Many benefits accrue to sponsors of product candidates with PRIME designation, including
but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and
other development program elements, and accelerated marketing authorization application assessment once a dossier has
been submitted. Importantly, a dedicated contact and rapporteur from the EMA’s CHMP or Committee for Advanced
Therapies are appointed early in PRIME scheme facilitating increased understanding of the product at EMA’s Committee
level. A kick-off meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to
provide guidance on the overall development and regulatory strategies. Where, during the course of development, a
medicine no longer meets the eligibility criteria, support under the PRIME scheme may be withdrawn.
Post-approval controls in the European Union
The holder of a marketing authorization must establish and maintain a pharmacovigilance system and appoint an
individual qualified person for pharmacovigilance, who is responsible for oversight of that system. Key obligations include
expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs.
All new marketing authorization applications must include a risk management plan, or RMP, describing the risk
management system that the company will put in place and documenting measures to prevent or minimize the risks
associated with the product. The regulatory authorities may also impose specific obligations as a condition of the marketing
authorization. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring,
more frequent submission of PSURs, or the conduct of additional clinical trials or post-authorization safety studies. RMPs
and PSURs are routinely available to third parties requesting access, subject to limited redactions.
All advertising and promotional activities for the product must be consistent with the approved Summary of
Product Characteristics, or SmPC, and therefore all off-label promotion is prohibited. Direct-to-consumer advertising of
prescription medicines is also prohibited in the European Union. Although general requirements for advertising and
promotion of medicinal products are established under EU directives, the details are governed by regulations in each
European Union Member State and can differ from one country to another.
Brexit and the Regulatory Framework in the United Kingdom
In June 2016, the electorate in the UK voted in favor of leaving the EU (commonly referred to as “Brexit”).
Thereafter, in March 2017, the country formally notified the EU of its intention to withdraw pursuant to Article 50 of the
Lisbon Treaty and the UK formally left the EU on January 31, 2020. A transition period began on February 1, 2020, during
which EU pharmaceutical law remained applicable to the UK, which ended on December 31, 2020. Since the regulatory
framework in the UK covering the quality, safety and efficacy of medicinal products, clinical trials, marketing
authorization, commercial sales and distribution of medicinal products is derived from EU Directives and Regulations,
Brexit could materially impact the future regulatory regime which applies to products and the approval of product
candidates in the UK, as UK legislation now has the potential to diverge from EU legislation. It remains to be seen how
Brexit will impact regulatory requirements for product candidates and products in the UK in the long-term. The MHRA,
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the UK medicines and medical devices regulator, has recently published detailed guidance for industry and organizations to
follow from January 1, 2021 now the transition period is over, which will be updated as the UK’s regulatory position on
medicinal products evolves over time.
European data collection
The collection and use of personal health data in the European Union is governed by the provisions of the Data
Protection Directive, and as of May 2018 the General Data Protection Regulation, or GDPR. This directive imposes more
stringent requirements relating to the consent of the individuals to whom the personal data relates, the information provided
to the individuals, notification of data processing obligations to the competent national data protection authorities, and the
security and confidentiality of the personal data. The Data Protection Directive and GDPR also impose strict rules on the
transfer of personal data out of the European Union to the United States. Failure to comply with the requirements of the
Data Protection Directive, the GDPR, and the related national data protection laws of the European Union Member States
may result in fines and other administrative penalties. The GDPR introduces new data protection requirements in the
European Union and substantial fines for breaches of the data protection rules, specifically fines are increased to levels of
up to 4% total worldwide annual turnover or up to €20 million (whichever is higher). The GDPR regulations may impose
additional responsibility and liability in relation to personal data that we process and we may be required to put in place
additional mechanisms ensuring compliance with the new data protection rules. We are subject to the GDPR if we have a
presence or "establishment" in the European Union or E.U. (e.g. E.U. based subsidiary or operations), when conducting
clinical trials with E.U. based data subjects (whether the trials are conducted directly by us or through a clinical vendor or
partner) or offering approved products or services (if relevant) to E.U. based data subjects (regardless of whether involving
our E.U. based subsidiary or operations). The GDPR regulations may be onerous and adversely affect our business,
financial condition, results of operations, and prospects.
European Union drug marketing
Much like the Anti-Kickback Statute prohibition in the United States, the provision of benefits or advantages to
physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order, or use of
medicinal products is also prohibited in the European Union. The provision of benefits or advantages to induce or reward
improper performance generally is governed by the national anti-bribery laws of European Union Member States and the
Bribery Act of 2010 in the UK. Infringement of these laws could result in substantial fines and imprisonment. EU Directive
2001/83/EC, which is the EU Directive governing medicinal products for human use, further provides that, where
medicinal products are being promoted to persons qualified to prescribe or supply them, no gifts, pecuniary advantages or
benefits in kind may be supplied, offered or promised to such persons unless they are inexpensive and relevant to the
practice of medicine or pharmacy. This provision has been transposed into the Human Medicines Regulations 2012 and so
remains applicable in the UK despite its departure from the European Union.
Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover,
agreements with physicians often must be the subject of prior notification and approval by the physician's employer, his or
her competent professional organization, and/or the regulatory authorities of the individual European Union Member
States. These requirements are provided in the national laws, industry codes, or professional codes of conduct, applicable
in the European Union Member States. Failure to comply with these requirements could result in reputational risk, public
reprimands, administrative penalties, fines, or imprisonment.
Brexit and the Regulatory Framework in the United Kingdom
On June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union (commonly
referred to as “Brexit”). Thereafter, on March 29, 2017, the country formally notified the European Union of its intention to
withdraw pursuant to Article 50 of the Lisbon Treaty. The United Kingdom formally left the European Union on January
31, 2020. A transition period began on February 1, 2020 and continued until December 31, 2020, during which most laws
of the EU continued to apply to the United Kingdom, including the European Union’s pharmaceutical laws. The United
Kingdom and the EU have signed an EU-UK Trade and Cooperation Agreement, which became provisionally applicable
on January 1, 2021 and will become formally applicable once ratified by both the United Kingdom and the EU. This
agreement provides details on how some aspects of the United Kingdom’s and EU’s
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relationship will operate going forwards however there are still many uncertainties. Brexit could lead to legal uncertainty
and potentially divergent national laws and regulations in Europe, including those related to the pricing of prescription
pharmaceuticals, as the United Kingdom determines which EU laws to replicate or replace.
Rest of world regulation
For other countries outside the European Union and the United States, such as countries in Eastern Europe, Latin
America, Middle East, or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing, and
reimbursement vary from country to country. Additionally, the clinical trials must be conducted in accordance with GCP
requirements and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration
of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things,
fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, or
criminal prosecution.
Additional regulation
In addition to the foregoing, local, state and federal laws regarding such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control and hazardous substances, including the
Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act,
affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and
radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the
environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We
believe that we are in material compliance with applicable environmental laws and that continued compliance therewith
will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect
our future operations. We may incur significant costs to comply with such laws and regulations now or in the future.
Employees
As of March 10, 2021, we employed 21 full-time employees, including 13 in research and development and eight
in general and administrative and one part-time employee. Nine of our employees hold M.D. or Ph.D. degrees. We have
never had a work stoppage, and none of our employees is represented by a labor organization or under any collective-
bargaining arrangements. We consider our employee relations to be good.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and
integrating our existing and additional employees. The principal purposes of our equity incentive plans are to attract, retain
and motivate selected employees, consultants and directors through the granting of stock-based compensation awards.
Corporate Information
We were incorporated under the laws of the state of Delaware on in January 2017 as Pippin Pharmaceuticals, Inc.
On May 16, 2018, we changed our name to Akero Therapeutics, Inc. Our mailing address and executive offices are located
at 601 Gateway Boulevard, Suite 350, South San Francisco, California 94080 and our telephone number at that address is
(650) 487-6488. We maintain an Internet website at the following address: www.akerotx.com. The information on our
website is not incorporated by reference in this Annual Report on Form 10-K or in any other filings we make with the
Securities and Exchange Commission, or SEC.
Available Information
We make available on or through our website certain reports and amendments to those reports that we file with or
furnish to the SEC in accordance with the Securities Exchange Act of 1934, as amended. These include our annual
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reports on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make this information available on or
through our website free of charge as soon as reasonably practicable after we electronically file the information with, or
furnish it to, the SEC.
A copy of our Corporate Governance Guidelines, Code of Business Conduct and Ethics and the charters of the
Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are posted on our
website, www.akerotx.com, under “Investors – Corporate Governance.”
The SEC maintains an Internet website that contains reports, proxy and information statements, and other
information regarding us and other issuers that file electronically with the SEC. The SEC’s Internet website address is
http://www.sec.gov.
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Item 1A. Risk Factors.
In evaluating the Company and our business, careful consideration should be given to the following risk factors,
in addition to the other information set forth in this Annual Report on Form 10-K and in other documents that we file with
the SEC. Investing in our common stock involves a high degree of risk. If any such risks or uncertainties actually occur, our
business, financial condition or operating results could differ materially from the plans, projections and other forward-
looking statements included in this Annual Report, including in the foregoing Business section and later in the section titled
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report
and in our other public filings and public statements. The trading price of our common stock could decline due to any of
these risks, and as a result, our stockholders may lose all or part of their investment. The risks described below are not
intended to be exhaustive and are not the only risks facing the Company. New risk factors can emerge from time to time,
and it is not possible to predict the impact that any factor or combination of factors may have on our business, prospects,
financial condition or results of operations.
Risks Related to the Clinical Development and Manufacturing of our Product Candidate
Risks Related to Clinical Development
Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be
made more difficult or rendered impossible by multiple factors outside our control, including difficulties in identifying
patients with NASH and significant competition for recruiting such patients in clinical trials.
Identifying and qualifying patients to participate in clinical trials is critical to our success. We may encounter
delays in enrolling or be unable to retain a sufficient number of patients to complete the Phase 2b HARMONY study and
may encounter delays in enrolling or be unable to enroll or retain a sufficient number of patients in any of our future
clinical trials. In particular, as a result of the inherent difficulties in diagnosing NASH and the significant competition for
recruiting patients with NASH in clinical trials, there may be delays in enrolling the patients we need to complete clinical
trials on a timely basis, or at all. This risk may be more significant for us than other companies conducting clinical trials for
the treatment of patients with NASH because we are enrolling only patients with a biopsy-confirmed diagnosis of NASH in
the HARMONY study and subsequent clinical trials. Further, if patients are unwilling to enroll in our clinical trials because
of the COVID-19 pandemic and restrictions on travel or healthcare institution policies or other impacts of the COVID-19
pandemic, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of our product
candidate may be delayed.
Factors that may generally affect patient enrollment include:
● the size and nature of the patient population;
● the number and location of clinical sites we enroll;
● competition with other companies for clinical sites or patients;
● the eligibility and exclusion criteria for the trial;
● the design of the clinical trial;
● inability to obtain and maintain patient consents;
● risk that enrolled participants will drop out before completion; and
● competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug
being studied in relation to other available therapies, including any new drugs that may be approved for the
indications we are investigating.
In addition, if any significant adverse events or other side effects are observed in any of our future clinical trials, it
may make it more difficult for us to recruit patients to our clinical trials and patients may drop out of our trials, or we may
be required to abandon the trials or our development efforts of one or more product candidates altogether. Our inability to
enroll a sufficient number of patients for our clinical trials could result in significant delays, which would increase our
costs and have an adverse effect on our company.
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We face substantial competition, which may result in others discovering, developing or commercializing
products before or more successfully than us.
The biotechnology industry is intensely competitive and subject to rapid and significant technological change. Our
competitors include multinational pharmaceutical companies, specialized biotechnology companies and universities and
other research institutions. We understand that a number of pharmaceutical companies, including AbbVie, Inc.,
AstraZeneca PLC/MedImmune LLC, Boehringer Ingelheim AG, Bristol-Myers Squibb Company, Inc., Eisai, Inc., Eli Lilly
and Company, Johnson & Johnson, Merck & Co., Inc., Novartis Pharmaceuticals Corporation, Novo Nordisk A/S, Pfizer
Inc., Roche Holding AG, Sanofi and Takeda Pharmaceutical Company Limited, as well as large and small biotechnology
companies such as Albireo Pharma, Inc., Alnylam Pharmaceuticals, Inc., Altimmune, Inc., Boston Pharmaceuticals, Inc.,
Cirius Therapeutics, Inc., CymaBay Therapeutics, Inc., 89bio, Enanta Pharmaceuticals, Inc., Galectin Therapeutics Inc.,
Galmed Pharmaceuticals Ltd., Gilead Sciences, Inc., Hanmi Pharmaceutical Company, Ltd., Intercept
Pharmaceuticals, Inc., Inventiva Pharma SA, Madrigal Pharmaceuticals, Inc., MediciNova, Inc., Metacrine, Inc., NGM
Biopharmaceuticals, Inc., North Sea Pharmaceuticals, Poxel SA, Sagimet Biosciences, Inc., Terns Pharmaceuticals, Inc.
and Viking Therapeutics, Inc. are pursuing the development or marketing of pharmaceuticals that target NASH. It is also
probable that the number of companies seeking to develop products and therapies for the treatment of serious metabolic
diseases, such as NASH, will increase. Many of our competitors have substantially greater financial, technical, human and
other resources than we do and may be better equipped to develop, manufacture and market technologically superior
products. In addition, many of these competitors have significantly greater experience than we have in undertaking
nonclinical studies and human clinical trials of new pharmaceutical products and in obtaining regulatory approvals of
human therapeutic products. Accordingly, our competitors may succeed in obtaining FDA approval for superior products.
In addition, many competitors have greater name recognition and more extensive collaborative relationships.
Smaller and earlier-stage companies may also prove to be significant competitors, particularly through
collaborative arrangements with large, established companies.
Our competitors may obtain regulatory approval of their products more rapidly than we do or may obtain patent
protection or other intellectual property rights that limit our ability to develop or commercialize our product candidate or
any future product candidates. Our competitors may also develop drugs that are more effective, more convenient, more
widely used and less costly or have a better safety profile than our products and these competitors may also be more
successful than we are in manufacturing and marketing their products. If we are unable to compete effectively against these
companies, then we may not be able to commercialize our product candidate or any future product candidates or achieve a
competitive position in the market. This would adversely affect our ability to generate revenue. Our competitors also
compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing
clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or
necessary for, our programs.
Failures or delays in the commencement or completion of, or ambiguous or negative results from, our planned
clinical trials of our product candidates could result in increased costs to us and could delay, prevent, or limit our ability
to generate revenue and continue our business.
We do not know whether the HARMONY study will be completed or any future clinical trials will begin or be
completed on schedule, if at all, as the commencement and completion of clinical trials can be delayed or prevented for a
number of reasons, including, among others:
● the FDA or comparable foreign regulatory authorities may not authorize us or our investigators to commence
our planned clinical trials or any other clinical trials we may initiate, or may suspend our clinical trials, for
example, through imposition of a clinical hold, and may request additional data to permit allowance of our
investigational new drug, or IND;
● delays in filing or receiving allowance of additional IND applications that may be required;
● lack of adequate funding to continue our clinical trials and nonclinical studies;
● negative results from our ongoing nonclinical studies;
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● delays in reaching or failing to reach agreement on acceptable terms with prospective clinical research
organizations, or CROs, and clinical study sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different CROs and study sites;
● inadequate quantity or quality of a product candidate or other materials necessary to conduct clinical trials,
for example delays in the manufacturing of sufficient supply of finished drug product;
● difficulties obtaining ethics committee or Institutional Review Board, or IRB, approval to conduct a clinical
study at a prospective site or sites;
● challenges in recruiting and enrolling subjects to participate in clinical trials, the proximity of subjects to
study sites, eligibility criteria for the clinical study, the nature of the clinical study protocol, the availability of
approved effective treatments for the relevant disease, and competition from other clinical study programs for
similar indications;
● severe or unexpected drug-related side effects experienced by subjects in a clinical trial;
● we may decide, or regulatory authorities may require us, to conduct additional nonclinical or clinical trials or
abandon product development programs;
● delays in validating, or inability to validate, any endpoints utilized in a clinical trial;
● the FDA or comparable foreign regulatory authorities may disagree with our clinical study design and our
interpretation of data from clinical trials, or may change the requirements for approval even after it has
reviewed and commented on the design for our clinical trials;
● difficulties retaining subjects who have enrolled in a clinical trial but may be prone to withdraw due to rigors
of the clinical trials, lack of efficacy, side effects, personal issues, or loss of interest; and
● the impact of COVID-19 on the initiation or completion of preclinical studies or clinical trials or the reporting
of results of our clinical trial and the supply of our product candidate.
Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim results. In addition, a
clinical study may be suspended or terminated by us, the FDA or comparable foreign regulatory authorities, the IRBs at the
sites where the IRBs are overseeing a clinical study, a data and safety monitoring board, or DSMB, overseeing the clinical
study at issue or other regulatory authorities due to a number of factors, including, among others;
● failure to conduct the clinical study in accordance with regulatory requirements or our clinical protocols;
● inspection of the clinical study operations or study sites by the FDA or other regulatory authorities that
reveals deficiencies or violations that require us to undertake corrective action, including in response to the
imposition of a clinical hold;
● unforeseen safety issues or safety signals, including any that could be identified in our ongoing nonclinical
studies or clinical trials, adverse side effects or lack of effectiveness;
● changes in government regulations or administrative actions;
● problems with clinical supply materials; and
● lack of adequate funding to continue clinical trials.
Any inability to successfully complete nonclinical and clinical development could result in additional costs to us
or impair our ability to generate revenue. In addition, if we make changes to a product candidate, such as developing the
lyophilized formulation that we plan to employ, we may need to conduct additional nonclinical studies or clinical trials to
bridge or demonstrate the comparability of our modified product candidate to earlier versions, which could delay our
clinical development plan or marketing approval for our current product candidate and any future product candidates.
Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our
product candidates or allow our competitors to bring products to market before we do, which could impair our ability to
successfully commercialize our product candidates and may harm our business and results of operations.
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Clinical development is uncertain and our clinical trials for EFX and any future product candidates may
experience delays, which would adversely affect our ability to obtain regulatory approvals or commercialize these
programs on a timely basis or at all, which would have an adverse effect on our business.
We cannot be sure that we will be able to continue development of EFX or submit INDs or similar applications for
any future product candidates, on the timelines we expect, if at all. To proceed with our development plans and ultimately
commercialization, we may need to conduct and meet regulatory requirements for additional preclinical studies and clinical
trials. We cannot be certain of the timely completion or outcomes of our preclinical testing and studies and cannot predict if
the FDA or other regulatory authorities will accept our proposed clinical programs or if the outcomes of our preclinical
studies and clinical trials will enable any future clinical trials to begin under a proposed protocol.
We rely and will continue to rely on third parties to conduct our clinical trials. If these third parties do not
successfully carry out their contractual duties or meet expected deadlines or comply with regulatory requirements, we
may not be able to obtain regulatory approval of or commercialize any potential product candidates.
We depend and will continue to depend upon third parties, including independent investigators, to conduct our
clinical trials under agreements with universities, medical institutions, CROs, strategic partners and others. We expect to
have to negotiate budgets and contracts with CROs and trial sites, which may result in delays to our development timelines
and increased costs.
We rely heavily on third parties over the course of our clinical trials, and, as a result, have limited control over the
clinical investigators and limited visibility into their day-to-day activities, including with respect to their compliance with
the approved clinical protocol. Nevertheless, our reliance on third parties does not relieve us of our regulatory
responsibilities and we are responsible for ensuring that each of our trials is conducted in accordance with the applicable
protocol, legal and regulatory requirements and scientific standards. We and these third parties are required to comply with
good clinical practice, or GCP, requirements, which are regulations and guidelines enforced by the FDA and comparable
foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these GCP
requirements through periodic inspections of trial sponsors, clinical investigators and trial sites. If we or any of these third
parties fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed
unreliable and the FDA or comparable foreign regulatory authorities may require us to suspend or terminate these trials or
perform additional nonclinical studies or clinical trials before approving our marketing applications. We cannot be certain
that, upon inspection, regulatory authorities will determine that any of our clinical trials comply with the GCP
requirements. In addition, our clinical trials must be conducted with products produced under current good manufacturing
practice, or cGMP, requirements and may require a large number of patients. Our failure or any failure by these third
parties to comply with these applicable regulations or to recruit a sufficient number of patients may require us to repeat
clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of
these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and
security laws.
The third parties who conduct our future clinical trials are not our employees and, except for remedies that may be
available to us under our agreements with those third parties, we cannot control whether or not they devote sufficient time
and resources to our ongoing nonclinical and clinical programs. These third parties may also have relationships with other
commercial entities, including our competitors, for whom they may also be conducting clinical trials or other product
development activities, which could affect their performance on our behalf. If these third parties do not successfully carry
out their contractual duties or obligations or meet expected deadlines, such as due to the impacts of COVID-19, if they
need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere
to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or
terminated and we may not be able to complete development of, obtain regulatory approval of or successfully
commercialize our product candidates in a timely manner or at all. As a result, our financial results and the commercial
prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could
be delayed.
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If any of our relationships with these third-party CROs or others terminate, we may not be able to enter into
arrangements with alternative CROs or other third parties or to do so on commercially reasonable terms. Switching or
adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural
transition period when a new CRO begins work. As a result, delays may occur, which can materially impact our ability to
meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can
be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will
not have a material adverse impact on our business, financial condition and prospects.
If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines due to the
impact of COVID-19 or for other reasons or if the quality or accuracy of the clinical data they obtain is compromised due
to the failure (including by clinical sites or investigators) to adhere to our clinical protocols, regulatory requirements or for
other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory
approval for or successfully commercialize our product candidates. As a result, our results of operations and the
commercial prospects for our product candidates would be harmed, our costs could increase substantially and our ability to
generate revenues could be delayed significantly.
Risks Related to the Manufacturing of our Product Candidate
We are subject to many manufacturing risks, any of which could substantially increase our costs, delay clinical
programs and limit supply of our products.
We have contracted with a third-party manufacturer, Boehringer Ingelheim Pharmaceuticals GmbH, to make EFX
drug substance (active pharmaceutical ingredient, or API) to supply the HARMONY study and future clinical trials and for
commercial sale, if approved. We have successfully manufactured API under GMP conditions, which has been released for
clinical use. The process of manufacturing our product is complex, highly regulated and subject to several risks, including:
● the manufacturing process is susceptible to product loss due to contamination by adventitious
microorganisms, equipment failure, improper installation or operation of equipment, vendor or operator error
and improper storage conditions. Even minor deviations from normal manufacturing processes could result in
reduced production yields and quality as well as other supply disruptions. If microbial, viral, including
COVID-19, or other contaminations are discovered in our products or in the manufacturing facilities in which
our products are made, the manufacturing facilities may need to be closed for an extended period of time to
investigate and eliminate the contamination;
● the manufacturing facilities in which our products are made could be adversely affected by equipment
failures, labor and raw material shortages, pandemics, epidemics, or outbreaks of infectious disease, financial
difficulties of our contract manufacturers, natural disasters, power failures, local political unrest and
numerous other factors; and
● any adverse developments affecting manufacturing operations for our products may result in shipment delays,
inventory shortages, lot failures, product withdrawals or recalls or other interruptions in the supply of our
products. We may also have to record inventory write-offs and incur other charges and expenses for products
that fail to meet specifications, undertake costly remediation efforts or seek more expensive manufacturing
alternatives.
The manufacture of EFX requires significant expertise and capital investment, including the development of
advanced manufacturing techniques and in-process controls. Manufacturers of these products sometimes encounter
difficulties in production, especially during scale-up from the manufacturing process used for early clinical trials to a
validated and qualified process needed for pivotal clinical trials and commercial launch. These problems include failure to
meet target production costs and yields, failure to meet product release specifications, including stability of the product,
quality assurance system failures, operator error and shortages of qualified personnel, as well as compliance with strictly
enforced federal, state and foreign regulations. We cannot assure you that any product quality issues relating to the
manufacture of our product candidate or any future product candidates will not occur in the future.
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We do not have, and we do not currently plan to acquire or build the facilities or internal capabilities to
manufacture bulk drug substance or finished drug product for use in clinical trials or commercialization. To a large extent,
that makes us dependent on the goodwill of our contract manufacturing partners to quickly fix deviations that will
inevitably occur during the manufacturing of our product. Any delay or interruption in the supply of clinical trial materials,
including on account of the impact of the COVID-19 pandemic on our contract manufacturing partners, could delay the
completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the
period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials altogether. Two
vaccines for COVID-19 were granted Emergency Use Authorization by the FDA in late 2020, and more are likely to be
authorized in the coming months. The resultant demand for vaccines and potential for manufacturing facilities and
materials to be commandeered under the Defense Production Act of 1950, or equivalent foreign legislation, may make it
more difficult to obtain materials or manufacturing slots for the products needed for our clinical trials, which could lead to
delays in these trials.
We have developed a new freeze-dried, or lyophilized, drug product formulation for use in Phase 3 clinical trials
and commercialization. This formulation was developed under contract with a specialist formulation development
company, Coriolis Pharma Research GmbH. Scale-up of manufacturing for this new drug product formulation began
during the third quarter of 2020 and is expected to be completed in 2022, with release of finished drug product for use in
Phase 3 clinical trials anticipated in the first half of 2023. We also plan to begin development of a delivery device for ease
of use and convenient administration. There is no assurance that we will be successful in completing development of our
new drug product formulation with a preferred device on a timely basis, including accounting for any impact of the
COVID-19 pandemic, or at all, which could impede our development and commercialization strategy for EFX. Further, the
FDA or other similar foreign regulatory bodies could require nonclinical studies or clinical trials to support introduction of
any new formulation and device, which could increase our development costs and delay or prevent us from proceeding
with future clinical trials or commercialization of EFX, if approved.
We contract with third parties for the manufacture of our product candidate or any future product candidates
for nonclinical testing and expect to continue to do so for clinical trials and for commercialization. This reliance on
third parties increases the risk that we will not have sufficient quantities of our product candidate or any future product
candidates or medicines or that such supply will not be available to us at an acceptable cost, which could delay, prevent
or impair our development or commercialization efforts.
We do not have any manufacturing facilities. We currently rely, and expect to continue to rely, on third-party
manufacturers for the manufacture of our product candidate or any future product candidates for nonclinical and clinical
testing and for commercial supply of any of these product candidates for which we obtain marketing approval. Reliance on
third-party manufacturers may expose us to different risks than if we were to manufacture product candidates ourselves. To
the extent any issues arise with our third-party manufacturers, we may be unable to establish any agreements with any
other third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-
party manufacturers, reliance on third-party manufacturers entails additional risks, including:
● the possible breach of the manufacturing agreement by the third party;
● the possible termination or nonrenewal of the agreement by the third party at a time that is costly or
inconvenient for us; and
● reliance on the third party for regulatory compliance, quality assurance and safety and pharmacovigilance
reporting.
Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements
outside the United States. Our failure, or the failure of third-party manufacturers, to comply with applicable regulations
could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal
of approvals, license revocation, seizures or recalls of product candidates or medicines, operating restrictions and criminal
prosecutions, any of which could significantly and adversely affect supplies of our medicines and harm our business and
results of operations.
If any CMO with whom we contract fails to perform its obligations, we may be forced to manufacture the
materials ourselves, for which we may not have the capabilities or resources, or enter into an agreement with a different
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CMO, which we may not be able to do on reasonable terms, if at all. In either scenario, our clinical trials supply could be
delayed significantly as we establish alternative supply sources. In some cases, the technical skills required to manufacture
our products or product candidates may be unique or proprietary to the original CMO and we may have difficulty, or there
may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be
unable to transfer such skills at all. In addition, if we are required to change CMOs for any reason, we will be required to
verify that the new CMO maintains facilities and procedures that comply with quality standards and with all applicable
regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing
process will produce our product candidate according to the specifications previously submitted to the FDA or another
regulatory authority. The delays associated with the verification of a new CMO could negatively affect our ability to
develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a CMO may
possess technology related to the manufacture of our product candidate that such CMO owns independently. This would
increase our reliance on such CMO or require us to obtain a license from such CMO in order to have another CMO
manufacture our product candidates. In addition, changes in manufacturers often involve changes in manufacturing
procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in
our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical
supplies which could require the conduct of additional clinical trials. Any medicines that we may develop may compete
with other product candidates and products for access to manufacturing facilities. There are a limited number of
manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.
Any performance failure on the part of our existing or future manufacturers, such as delays in performance due to
COVID-19, could delay clinical development or marketing approval. We do not currently have arrangements in place for
redundant supply for bulk drug substances. If any one of our current contract manufacturers cannot perform as agreed, we
may be required to replace that manufacturer. Although we believe that there are several potential alternative manufacturers
who could manufacture our product candidate or any future product candidates, we may incur added costs and delays in
identifying and qualifying any such replacement.
Our current and anticipated future dependence upon others for the manufacture of our product candidate or any
future product candidates or medicines may adversely affect our future profit margins and our ability to commercialize any
medicines that receive marketing approval on a timely and competitive basis.
The manufacture of our product candidates is complex and we may encounter difficulties in production. If we
or any of our third-party manufacturers encounter such difficulties, or fail to meet rigorously enforced regulatory
standards, our ability to provide supply of our product candidates for clinical trials or our products for patients, if
approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.
The processes involved in manufacturing our drug product candidates are complex, expensive, highly regulated,
and subject to multiple risks. Further, as product candidates are developed through nonclinical studies to late-stage clinical
trials towards approval and commercialization, it is common that various aspects of the development program, such as
manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the
risk that they will not achieve these intended objectives, and any of these changes could cause our product candidates to
perform differently and affect the results of planned clinical trials or other future clinical trials.
In addition, the manufacturing process for any products that we may develop is subject to FDA and other
comparable foreign regulatory authority approval processes and continuous oversight, and we will need to contract with
manufacturers who can meet all applicable FDA and foreign regulatory authority requirements, including, for example,
complying with cGMPs, on an ongoing basis. If we or our third-party manufacturers are unable to reliably produce
products to specifications acceptable to the FDA or other regulatory authorities, we may not obtain or maintain the
approvals we need to commercialize such products. Even if we obtain regulatory approval for any of our product
candidates, there is no assurance that either we or our contract manufacturers will be able to manufacture the approved
product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet
the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges could
delay completion of clinical trials, require bridging or comparability nonclinical or clinical trials or the repetition of one or
more clinical trials, increase clinical study costs, delay approval of our product candidate, impair
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commercialization efforts, increase our cost of goods, and have an adverse effect on our business, financial condition,
results of operations, and growth prospects.
If any CMO with whom we contract fails to perform its obligations, we may be forced to manufacture the
materials ourselves, for which we may not have the capabilities or resources, or enter into an agreement with a different
CMO, which we may not be able to do on reasonable terms, if at all. In either scenario, our clinical trials supply could be
delayed significantly as we establish alternative supply sources. In some cases, the technical skills required to manufacture
our products or product candidates may be unique or proprietary to the original CMO and we may have difficulty, or there
may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be
unable to transfer such skills at all. In addition, if we are required to change CMOs for any reason, we will be required to
verify that the new CMO maintains facilities and procedures that comply with quality standards and with all applicable
regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing
process will produce our product candidate according to the specifications previously submitted to the FDA or another
regulatory authority. The delays associated with the verification of a new CMO could negatively affect our ability to
develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a CMO may
possess technology related to the manufacture of our product candidate that such CMO owns independently. This would
increase our reliance on such CMO or require us to obtain a license from such CMO in order to have another CMO
manufacture our product candidates. In addition, changes in manufacturers often involve changes in manufacturing
procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in
our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical
supplies which could require the conduct of additional clinical trials.
Since March 2020, foreign and domestic inspections by FDA have largely been on hold with FDA announcing
plans in July 2020 to resume prioritized domestic inspections. Should FDA determine that an inspection is necessary for
approval of a marketing application and an inspection cannot be completed during the review cycle due to restrictions on
travel, FDA has stated that it generally intends to issue a complete response letter. Further, if there is inadequate
information to make a determination on the acceptability of a facility, FDA may defer action on the application until an
inspection can be completed. In 2020, several companies announced receipt of complete response letters due to the FDA's
inability to complete required inspections for their applications. Regulatory authorities outside the U.S. may adopt similar
restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory
activities.
Risks Related to Our Business, Industry and Intellectual Property
Risks Related to Business Development
We are heavily dependent on the success of EFX, our only product candidate.
We currently have no products that are approved for commercial sale and may never be able to develop
marketable products. We expect that a substantial portion of our efforts and expenditures over the next several years will be
devoted to EFX, which is currently our only product candidate. Accordingly, our business currently depends heavily on the
successful development, regulatory approval, and commercialization of EFX. We cannot be certain that EFX will receive
regulatory approval or be successfully commercialized even if we receive regulatory approval. If we were required to
discontinue development of EFX or if EFX does not receive regulatory approval or fails to achieve significant market
acceptance, we would be delayed by many years in our ability to achieve profitability, if ever.
The research, testing, manufacturing, safety, efficacy, labeling, approval, sale, marketing, and distribution of EFX
is, and will remain, subject to comprehensive regulation by the FDA and foreign regulatory authorities. Failure to obtain
regulatory approval for EFX in the United States, Europe, Japan or other jurisdictions will prevent us from
commercializing and marketing EFX in such jurisdictions.
Clinical development of EFX prior to the BALANCED study was conducted by Amgen in patients with type 2
diabetes mellitus, or T2D. We did not conduct any of the development of EFX related to clinical trials in patients with
T2D, and we have relied on Amgen to have conducted such research and development in accordance with the applicable
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protocol, legal, regulatory, and scientific standards, have accurately reported the results of all nonclinical studies and
clinical trials conducted prior to our license of EFX, and have correctly collected and interpreted the data from these
studies and trials. To the extent any of the foregoing has not occurred, our expected development time and development
costs for EFX may be increased.
Even if we were to successfully obtain approval from the FDA and foreign regulatory authorities for EFX, any
approval might contain significant limitations related to use, including limitations on the stage of disease EFX is approved
to treat, as well as restrictions for specified age groups, warnings, precautions or contraindications. Furthermore, even if we
obtain regulatory approval for EFX, we will still need to develop a commercial infrastructure or develop relationships with
collaborators to commercialize, establish a commercially viable pricing structure and obtain coverage and adequate
reimbursement from third-party payors, including government healthcare programs otherwise. If we, or any future
collaborators, are unable to successfully commercialize EFX, we may not be able to generate sufficient revenue to continue
our business.
If we fail to develop and successfully commercialize other product candidates, our business and future
prospects may be harmed and our business will be more vulnerable to any problems that we encounter in developing
and commercializing our product candidate.
Our product candidate and any future product candidates must undergo rigorous clinical trials and regulatory
approvals, and success in nonclinical studies or earlier-stage clinical trials may not be indicative of results in future clinical
trials. EFX and any future product candidates will be subject to rigorous and extensive clinical trials and extensive
regulatory approval processes implemented by the FDA and similar regulatory bodies in other jurisdictions. The approval
process is typically lengthy and expensive, and approval is never certain. As a company, our only experience with clinical
trials is our recently completed BALANCED study and our recently initiated HARMONY study, and we have not yet
completed the clinical trials required to obtain regulatory approval. We may not be able to conduct clinical trials at
preferred sites, enlist clinical investigators, enroll sufficient numbers of participants or begin or successfully complete
clinical trials in a timely fashion, such as on account of the COVID-19 pandemic, if at all. Our anticipated clinical trials
may be insufficient to demonstrate that our potential products will be active, safe or effective. Additional clinical trials may
be required if clinical trial results are negative or inconclusive, which will require us to incur additional costs and
significant delays.
Success in nonclinical studies and earlier-stage clinical trials does not ensure that later clinical trials will generate
the same results or otherwise provide adequate data to demonstrate the effectiveness and safety of a product candidate. In
addition, the design of a clinical trial can determine whether its results will support approval of a product, and flaws in the
design of a clinical trial may not become apparent until the clinical trial is well advanced. We may be unable to design and
execute a clinical trial to support regulatory approval for a NASH therapy. In addition, there is a high failure rate for drugs
and products proceeding through clinical trials. In fact, many companies in the pharmaceutical and biotechnology
industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in nonclinical
studies and earlier-stage clinical trials. Similarly, the outcome of nonclinical studies may not predict the success of clinical
trials. Moreover, data obtained from nonclinical and clinical activities are subject to varying interpretations, which may
delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of
many factors, including due to changes in regulatory policy during the period of our product candidate development. Any
such delays could negatively impact our business, financial condition, results of operations and prospects. From time to
time, we may publish interim ‘‘top-line’’ or preliminary data from our clinical trials. Preliminary or interim data from
clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change
as patient enrollment continues and more patient data become available. Preliminary or interim data also remain subject to
audit and verification procedures that may result in the final data being materially different from the preliminary data we
previously published. As a result, interim and preliminary data should be viewed with caution until the final data are
available. Adverse differences between preliminary or interim data and final data could significantly harm our business and
financial prospects.
In addition, certain of our hypotheses regarding the potential clinical and therapeutic benefit of EFX compared to
other candidates in development for NASH are based on cross-trial comparisons of results that were not derived from head-
to-head preclinical studies or clinical trials. These observations, which do not reflect robust comparative analyses,
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may suggest misleading similarities or differences due to differences in study protocols, conditions and patient populations,
and may not be reliable predictors of the relative efficacy or other benefits of EFX compared to other product candidates
that are in development for the treatment of NASH.
We may develop EFX, and potentially future product candidates, in combination with other therapies, which
exposes us to additional risks.
We may develop EFX and future product candidates in combination with one or more approved therapies. Even if
any product candidate we develop were to receive marketing approval or be commercialized for use in combination with
other existing therapies, we would continue to be subject to the risks that the FDA or similar regulatory authorities outside
of the United States could revoke approval of the therapy used in combination with our product candidate or that safety,
efficacy, manufacturing or supply issues could arise with these existing therapies. This could result in our own products
being removed from the market or being less successful commercially.
We may also evaluate EFX or any other future product candidates in combination with one or more other
therapies that have not yet been approved for marketing by the FDA or similar regulatory authorities outside of the United
States. We will not be able to market and sell EFX or any product candidate we develop in combination with any such
unapproved therapies that do not ultimately obtain marketing approval. If the FDA or similar regulatory authorities outside
of the United States do not approve these other drugs or revoke their approval of, or if safety, efficacy, manufacturing, or
supply issues arise with, the drugs we choose to evaluate in combination with EFX or any other product candidate we
develop, we may be unable to obtain approval of or market EFX or any other product candidate we develop.
If we are not successful in discovering, developing, receiving regulatory approval for and commercializing
EFX and any future product candidates, our ability to expand our business and achieve our strategic objectives would
be impaired.
Although we plan to devote a majority of our resources to the continued nonclinical and clinical testing and
potential approval of EFX for the treatment of patients with NASH, another key element of our strategy is to discover,
develop and commercialize a portfolio of products. We are seeking to do so through the identification and potential
development of additional pipeline programs, but our resources are limited, and those that we have are geared towards
nonclinical and clinical testing and seeking regulatory approval of EFX for the treatment of patients with NASH. We may
also explore strategic collaborations for the development or acquisition of new product candidates, but we may not be
successful in entering into such relationships. EFX is our only product candidate in clinical stages of development.
Research programs to identify product candidates require substantial technical, financial and human resources, regardless
of whether any product candidates are ultimately identified. Our research programs may initially show promise in
identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons,
including:
● the research methodology used may not be successful in identifying potential product candidates;
● competitors may develop alternatives that render our product candidates obsolete;
● product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive
rights;
● a product candidate may, on further study, be shown to have harmful side effects or other characteristics that
indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;
● a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or
at all;
● an approved product may not be accepted as safe and effective by trial participants, the medical community
or third-party payors; and
● intellectual property or other proprietary rights of third parties for product candidates we develop may
potentially block our entry into certain markets or make such entry economically impracticable.
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Risks Related to our License and Third-Parties
We may be required to make significant payments under our license agreement for EFX.
We acquired worldwide, exclusive rights to EFX pursuant to our license agreement with Amgen, which we refer
to as the Amgen Agreement. Under the Amgen Agreement, in consideration for the license, we made an upfront payment
of $5.0 million to Amgen and also issued 2,653,333 shares of our Series A convertible preferred stock to Amgen at the time
of the initial closing of our Series A Preferred Stock financing in June 2018, with a subsequent 3,205,128 shares of our
Series A convertible preferred stock issued at the time of the second closing of the Series A Preferred Stock financing in
November 2018. On July 2, 2019, we announced the dosing of the first patient in the BALANCED study of EFX, which
resulted in a $2.5 million milestone obligation under the Amgen Agreement. As additional consideration for the license, we
are required to pay Amgen $7.5 million in connection with dosing the first patient in a Phase 3 clinical trial, up to $30.0
million in connection with marketing approvals and aggregate milestone payments of up to $75.0 million upon the
achievement of specified commercial milestones. Commencing on the first commercial sale of licensed products, we are
obligated to pay tiered royalties of low to high single-digit percentages on annual net sales of the products covered by the
license. If milestone or other non-royalty obligations become due, we may not have sufficient funds available to meet our
obligations, which will materially adversely affect our business operations and financial condition.
If we breach our license agreement with Amgen related to EFX, we could lose the ability to continue the
development and commercialization of EFX.
We are dependent on patents, know-how and proprietary technology in-licensed from Amgen. Our commercial
success depends upon our ability to develop, manufacture, market and sell our product candidate or any future product
candidates and use our and our licensor’s proprietary technologies without infringing the proprietary rights of third parties.
Amgen may have the right to terminate the license agreement in full in the event we materially breach or default in the
performance of any of the obligations under the license agreement. A termination of the license agreement with Amgen
could result in the loss of significant rights and could harm our ability to commercialize our product candidates.
Disputes may also arise between us and Amgen, as well as any future potential licensors, regarding intellectual
property subject to a license agreement, including:
● the scope of rights granted under the license agreement and other interpretation-related issues;
● whether and the extent to which our technology and processes infringe on intellectual property of the licensor
that is not subject to the licensing agreement;
● our right to sublicense patent and other rights to third parties under collaborative development relationships;
● our diligence obligations with respect to the use of the licensed technology in relation to our development and
commercialization of our product candidate and what activities satisfy those diligence obligations; and
● the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by
our licensors and us and our partners.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current
licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected
product candidates.
In addition, the Amgen Agreement under which we currently license intellectual property is complex, and certain
provisions may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that
may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property, or increase what
we believe to be our financial or other obligations under the Amgen Agreement, either of which could have a material
adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over
intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangement on
commercially acceptable terms, we may be unable to successfully develop and
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commercialize the affected product candidates, which could have a material adverse effect on our business, financial
conditions, results of operations, and prospects.
We are generally also subject to all of the same risks with respect to protection of intellectual property that we
license, as we are for intellectual property that we own, which are described below. If we or our licensors fail to adequately
protect this intellectual property, our ability to commercialize products could suffer.
We may seek to establish collaborations, and, if we are not able to establish them on commercially reasonable
terms, we may have to alter our development and commercialization plans.
We may pursue collaborations in order to develop and commercialize EFX and any future product candidates. We
face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a
collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms
and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those
factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory
authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of
manufacturing and delivering such product candidate to patients, the potential of competing products and the existence of
uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without
regard to the merits of the challenge and industry and market conditions generally. The collaborators may also consider
alternative product candidates or technologies for similar indications that may be available to collaborate on and whether
such a collaboration could be more attractive than the one with us for our product candidate.
Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a
significant number of business combinations among large pharmaceutical companies that have resulted in a reduced
number of potential future collaborators.
We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to
do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or
delay its development program or one or more of our other development programs, delay its potential commercialization or
reduce the scope of any sales or marketing activities or increase our expenditures and undertake development or
commercialization activities at our own expense. If we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on
acceptable terms, or at all. If we do not have sufficient funds, we may not be able to further develop our product candidate
or any future product candidates or bring them to market and generate product revenue.
Risks Related to Employee Matters and Growth
We must attract and retain highly skilled employees in order to succeed. If we are not able to retain our current
senior management team and our scientific advisors or continue to attract and retain qualified scientific, technical and
business personnel, our business will suffer.
To succeed, we must recruit, retain, manage and motivate qualified clinical, scientific, technical and management
personnel and we face significant competition for experienced personnel. If we do not succeed in attracting and retaining
qualified personnel, particularly at the management level, it could adversely affect our ability to execute our business plan
and harm our operating results. We are dependent on the members of our management team and our scientific advisors for
our business success. We do not maintain “key person” insurance for any of our key personnel. An important element of
our strategy is to take advantage of the research and development expertise of our current management and to utilize the
expertise of our scientific advisors in the NASH field. We currently have employment agreements with all of our executive
officers. Our employment agreements with our executive officers are terminable by them without notice and some provide
for severance and change in control benefits. The loss of any one of our executive officers or key scientific consultants
could result in a significant loss in the knowledge and experience that we, as an organization, possess and could cause
significant delays, or outright failure, in the development and further commercialization of our product candidate or any
future product candidates.
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There is intense competition for qualified personnel, including management, in the technical fields in which we
operate, and we may not be able to attract and retain qualified personnel necessary for the successful research, development
and commercialization of our product candidate or any future product candidates. In particular, we have experienced a very
competitive hiring environment in the San Francisco Bay Area, where we are headquartered. Many of the other
pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources,
different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities
and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates
than what we have to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success
with which we can discover and develop product candidates and our business will be limited.
Our employees, independent contractors, consultants, commercial partners and vendors may engage in
misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We cannot ensure that our compliance controls, policies, and procedures will in every instance protect us from
acts committed by our employees, agents, contractors, or collaborators that would violate the law or regulation, including,
without limitation, healthcare, employment, foreign corrupt practices, environmental, competition, and patient privacy and
other privacy laws and regulations. Such improper actions could subject us to civil or criminal investigations, and monetary
and injunctive penalties, and could adversely impact our ability to conduct business, operating results, and reputation.
We are exposed to the risk of employee fraud or other illegal activity by our employees, independent contractors,
consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and/or
negligent conduct that fails to comply with the laws enforced by the FDA and other similar foreign regulatory bodies, fails
to provide true, complete and accurate information to the FDA and other similar foreign regulatory bodies, fails to comply
with manufacturing standards we have established, fails to comply with healthcare fraud and abuse laws in the United
States and similar foreign laws, or fails to report financial information or data accurately or to disclose unauthorized
activities to us. If we obtain FDA approval of any of our product candidates and begin commercializing those products in
the United States, our potential exposure under these laws will increase significantly, and our costs associated with
compliance with these laws are also likely to increase. Additionally, we are subject to the risk that a person could allege
such fraud or other misconduct, even if none occurred. These laws may impact, among other things, our current activities
with principal investigators and research patients, as well as proposed and future sales, marketing and education programs.
If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those
actions could have a significant impact on our business, including the imposition of civil, criminal and administrative
penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal
healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of
our operations, any of which could adversely affect our ability to operate our business and our results of operations. It is
not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this
activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government
investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such
actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could
result in significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion
from government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting
obligations, and the curtailment or restructuring of our operations.
We may encounter difficulties in managing our growth, which could adversely affect our operations.
As of December 31, 2020, we had 19 full-time employees and one part-time employee. As we continue
development and pursue the potential commercialization of our product candidate, as well as function as a public company,
we will need to expand our financial, development, regulatory, manufacturing, marketing and sales capabilities or contract
with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage
additional relationships with various strategic collaborators, suppliers and other third parties. Our future financial
performance and our ability to develop and commercialize our product candidate and to compete effectively will depend, in
part, on our ability to manage any future growth effectively.
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We may acquire additional technology and complementary businesses in the future. Acquisitions involve many
risks, any of which could materially harm our business, including the diversion of management’s attention from core
business concerns, failure to effectively exploit acquired technologies, failure to successfully integrate the acquired
business or realize expected synergies or the loss of key employees from either our business or the acquired businesses.
Risks Related to Protecting Our Intellectual Property
Our success depends upon our ability to obtain and maintain intellectual property protection for our products
and technologies. It is difficult and costly to protect our proprietary rights and technology, and we may not be able to
ensure their protection.
Our success will depend in significant part on our and our current or future licensors’, licensees’ or collaborators’
ability to establish and maintain adequate protection of our intellectual property covering the product candidates we plan to
develop, and the ability to develop these product candidates and commercialize the products resulting therefrom, without
infringing the intellectual property rights of others. We strive to protect and enhance the proprietary technologies that we
believe are important to our business, including seeking patents intended to cover our products and compositions, their
methods of use, and any other inventions that are important to the development of our business. In addition to taking other
steps to protect our intellectual property, we have applied for, and intend to continue to apply for, patents with claims
covering our technologies, processes and product candidates when and where we deem it appropriate to do so. Our in-
licensed patents and patent applications in both United States and certain foreign jurisdictions relate to EFX and related Fc-
fusion polypeptides. There can be no assurance that the claims of our patents or any patent application that issues as a
patent, will exclude others from making, using or selling our product candidate or any future product candidates or
products that are substantially similar to our product candidate or any future product candidates. We also rely on trade
secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent
protection. In countries where we have not and do not seek patent protection, third parties may be able to manufacture and
sell our product candidate or any future product candidates without our permission, and we may not be able to stop them
from doing so.
With respect to patent rights, we do not know whether any of the pending patent applications for our product
candidate or any future product candidates will result in the issuance of patents that effectively protect our technologies,
processes and product candidates, or if any of our issued patents or our current or future licensors’, licensees’ or
collaborators’ issued patents will effectively prevent others from commercializing competitive technologies, processes and
products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent
applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some
cases not at all, until they are issued as a patent. Therefore, we cannot be certain that we or our current or future licensors,
licensees or collaborators were the first to make or file on the inventions claimed in our owned or licensed patents or
pending patent applications, or that we or our current or future licensors, licensees or collaborators were the first to file for
patent protection of such inventions. There is also no assurance that all of the potentially relevant prior art relating to our
patents and patent applications has been found, which could be used by a third party to challenge the validity of our
patents, should they issue, or prevent a patent from issuing from a pending patent application. Any of the foregoing could
harm our competitive position, business, financial condition, results of operations, and prospects.
Any changes we make to our product candidate or any future product candidates, including formulations that may
be required for commercialization, or that cause them to have what we view as more advantageous properties may not be
covered by our existing patents and patent applications, and we may be required to file new applications and/or seek other
forms of protection for any such altered product candidates. The patent landscape surrounding the technology underlying
our product candidate or any future product candidates is crowded, and there can be no assurance that we would be able to
secure patent protection that would adequately cover an alternative to our product candidate or any future product
candidates.
The patent prosecution process is expensive and time-consuming, and we and our current or future licensors,
licensees or collaborators may not be able to prepare, file and prosecute all necessary or desirable patent applications at a
reasonable cost or in a timely manner. It is also possible that we or our current or future licensors, licensees or collaborators
will fail to identify patentable aspects of inventions made in the course of development and
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commercialization activities before it is too late to obtain patent protection for them. Moreover, in some circumstances, we
may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain or enforce the
patents, covering technology that we license from or license to third parties and may be reliant on our current or future
licensors, licensees or collaborators to perform these activities, which means that these patent applications may not be
prosecuted, and these patents enforced, in a manner consistent with the best interests of our business. If our current or
future licensors, licensees or collaborators fail to establish, maintain, protect or enforce such patents and other intellectual
property rights, such rights may be reduced or eliminated. If our current or future licensors, licensees or collaborators are
not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such
patent rights could be compromised.
The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve
complex legal and factual questions, which in recent years have been the subject of much litigation, and, therefore, the
issuance, scope, validity, enforceability, and commercial value of any patent claims that we have rights or may obtain
cannot be predicted with certainty. No consistent policy regarding the breadth of claims allowed in biotechnology and
pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. Changes in either the
patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our
patents or narrow the scope of our patent protection. As a result, the issuance, scope, validity, enforceability and
commercial value of our and our current or future licensors’, licensees’ or collaborators’ patent rights are highly uncertain.
Our and our current or future licensors’, licensees’ or collaborators’ pending and future patent applications may not result
in patents being issued that protect our technology or product candidates, or products resulting therefrom, in whole or in
part, or that effectively prevent others from commercializing competitive technologies and products. The patent
examination process may require us or our current or future licensors, licensees or collaborators to narrow the scope of the
claims of pending and future patent applications, which would limit the scope of patent protection that is obtained, if any.
Our and our current or future licensors’, licensees’ or collaborators’ patent applications cannot be enforced against third
parties practicing the technology that is currently claimed in such applications unless and until a patent issues from such
applications, and then only to the extent the claims that issue are broad enough to cover the technology being practiced by
third parties.
Furthermore, given the amount of time required for the development, testing and regulatory review of new
product candidates, patents protecting such candidates might expire before or shortly after the resulting products are
commercialized. As a result, our owned and in-licensed patents may not provide us with sufficient rights to exclude others
from commercializing products similar or identical to ours. We expect to seek extensions of patent terms for our issued
patents, where available. This includes in the United States under the Hatch-Waxman Act, which permits a patent term
extension of up to five years beyond the original expiration date of the patent as compensation for regulatory delays.
However, such a patent term extension cannot lengthen the remaining term of a patent beyond a total of 14 years from the
product’s approval date. Only one patent applicable to an approved drug is eligible for the extension and the application for
the extension must be submitted prior to the expiration of the patent and within 60 days of product approval. During the
period of patent term extension, the claims of a patent are not enforceable for their full scope but are instead limited to the
scope of the approved product. In addition, the applicable authorities, including the FDA in the United States, and any
equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are
available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. In
addition, we may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing
to apply prior to the expiration of relevant patents or otherwise failing to satisfy applicable requirements. If this occurs, any
period during which we have the right to exclusively market our product will be shorter than we would otherwise expect,
and our competitors may obtain approval of and launch products earlier than might otherwise be the case.
Patent terms may be inadequate to protect our competitive position on our product candidate or any future
product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration
of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but
the life of a patent, and the protection it affords, is limited. A number of U.S. patents directed to various aspects of EFX
will expire in 2029; we currently anticipate that a composition of matter patent will be eligible for patent
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term extension to 2034. Even if patents covering our product candidate or any future product candidate are obtained, once
the patent life has expired, we may be open to competition from competitive products. Given the amount of time required
for the development, testing and regulatory review of new product candidates, patents protecting our product candidate or
any future product candidate might expire before or shortly after we or our partners commercialize those candidates. As a
result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from
commercializing products similar or identical to ours.
We may not be able to protect our intellectual property rights throughout the world.
The legal protection afforded to inventors and owners of intellectual property in countries outside of the United
States may not be as protective or effective as that in the United States and we may, therefore, be unable to acquire and
enforce intellectual property rights outside the United States to the same extent as in the United States. Whether filed in the
United States or abroad, our patent applications may be challenged or may fail to result in issued patents.
In addition, our existing patents and any future patents we obtain may not be sufficiently broad to prevent others
from practicing our technologies or from developing or commercializing competing products. Furthermore, others may
independently develop or commercialize similar or alternative technologies or drugs, or design around our patents. Our
patents may be challenged, invalidated, circumvented or narrowed, or fail to provide us with any competitive advantages.
In many foreign countries, patent applications and/or issued patents, or parts thereof, must be translated into the native
language. If our patent applications or issued patents are translated incorrectly, they may not adequately cover our
technologies; in some countries, it may not be possible to rectify an incorrect translation, which may result in patent
protection that does not adequately cover our technologies in those countries.
Filing, prosecuting, enforcing and defending patents on product candidates in all countries throughout the world
would be prohibitively expensive, and our intellectual property rights in some countries outside the United States are less
extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual
property rights to the same extent as federal and certain state laws in the United States. Consequently, we and our licensor
may not be able to prevent third parties from practicing our and our licensor’s inventions in all countries outside the United
States, or from selling or importing products made using our and our licensor’s inventions in and into the United States or
other jurisdictions. Competitors may use our and our licensor’s technologies in jurisdictions where we have not obtained
patent protection to develop their own products and, further, may export otherwise infringing products to territories where
we and our licensor have patent protection, but enforcement is not as strong as that in the United States. These products
may compete with our product candidate or any future product candidates and our and our licensor’s patents or other
intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in
foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the
enforcement of patents and other intellectual property protection, particularly those relating to biotechnology. This could
make it difficult for us and our licensor to stop the infringement of our and our licensor’s patents or the marketing of
competing products in violation of our and our licensor’s proprietary rights, generally. Proceedings to enforce our and our
licensor’s patent rights in foreign jurisdictions could result in substantial costs and divert our and our licensor’s efforts and
attention from other aspects of our business, could put our and our licensor’s patents at risk of being invalidated or
interpreted narrowly, could place our and our licensor’s patent applications at risk of not issuing and could provoke third
parties to assert claims against us or our licensor. We or our licensor may not prevail in any lawsuits that we or our licensor
initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.
The requirements for patentability differ in certain countries, particularly developing countries. For example,
China has a heightened requirement for patentability and, specifically, requires a detailed description of medical uses of a
claimed drug. In addition, India, certain countries in Europe and certain developing countries, including Thailand, have
compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those
countries, we and our licensor may have limited remedies if patents are infringed or if we or our licensor are compelled to
grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential
revenue opportunities. In addition, many countries limit the enforceability of patents against government agencies or
government contractors. In these countries, the patent owner may have limited remedies, which could
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materially diminish the value of such patent. Accordingly, our and our licensor’s efforts to enforce intellectual property
rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that
we own or license.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection
could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance and annuity fees on issued United States patents and most foreign patent applications and
patents must be paid to the U.S. Patent and Trademark Office, or USPTO, and foreign patent agencies, respectively, in
order to maintain such patents and patent applications. The USPTO and various foreign governmental patent agencies
require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent
application, examination and issuance processes. While an inadvertent lapse can, in some cases, be cured by payment of a
late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in
abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant
jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include
failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and
submit formal documents. If we or our licensor fail to maintain the patents and patent applications covering our product
candidate or any future product candidates, our competitors might be able to enter the market with similar or identical
products or technology, which would have a material adverse effect on our business, financial condition and results of
operations.
We may be unable to obtain intellectual property rights or technology necessary to develop and commercialize
our product candidate or any future product candidates.
Several third parties are actively researching and seeking and obtaining patent protection in the NASH field, and
there are issued third-party patents and published third-party patent applications in these fields. However, we may not be
aware of all third-party intellectual property rights potentially relating to our product candidate or any future product
candidates and technologies.
Depending on what patent claims ultimately issue and how courts construe the issued patent claims, as well as
depending on the ultimate formulation and method of use of our product candidate or any future product candidates, we
may need to obtain a license under such patents. There can be no assurance that such licenses will be available on
commercially reasonable terms, or at all. If a third party does not offer us a necessary license or offers a license only on
terms that are unattractive or unacceptable to us, we might be unable to develop and commercialize one or more of our
product candidate or any future product candidates, which would have a material adverse effect on our business, financial
condition and results of operations. Moreover, even if we obtain licenses to such intellectual property, but subsequently fail
to meet our obligations under our license agreements, or such license agreements are terminated for any other reasons, we
may lose our rights to in-licensed technologies.
The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more
established companies may pursue strategies to license or acquire third-party intellectual property rights that we may
consider attractive or necessary. These established companies may have a competitive advantage over us due to their size,
capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive
us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-
party intellectual property rights on terms that would allow us to make an appropriate return on our investment, or at all. If
we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing
intellectual property rights we have, we may have to abandon development of the relevant program or product candidate,
which could have a material adverse effect on our business, financial condition, results of operations and prospects.
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Our inability to protect our confidential information and trade secrets would harm our business and
competitive position.
In addition to seeking patents for some of our technology and products, in our activities we also rely substantially
on trade secrets, including unpatented know-how, technology and other proprietary materials and information, to maintain
our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality
agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific
collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and
invention or patent assignment agreements with our employees and consultants. However, these steps may be inadequate,
we may fail to enter into agreements with all such parties or any of these parties may breach the agreements and disclose
our proprietary information and there may be no adequate remedy available for such breach of an agreement. We cannot
assure you that our proprietary information will not be disclosed or that we can meaningfully protect our trade secrets.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-
consuming, and the outcome is unpredictable. In addition, some courts both within and outside the United States may be
less willing, or unwilling, to protect trade secrets. If a competitor lawfully obtained or independently developed any of our
trade secrets, we would have no right to prevent such competitor from using that technology or information to compete
with us, which could harm our competitive position.
Risks Related to Intellectual Property Litigation
We may become involved in lawsuits or other proceedings to protect or enforce our intellectual property, which
could be expensive, time-consuming and unsuccessful and have a material adverse effect on the success of our
business.
Third parties may infringe our or our licensor’s patents or misappropriate or otherwise violate our or our licensor’s
intellectual property rights. In the future, we or our licensor may initiate legal proceedings to enforce or defend our or our
licensor’s intellectual property rights, to protect our or our licensor’s trade secrets or to determine the validity or scope of
intellectual property rights we own or control. Also, third parties may initiate legal proceedings against us or our licensor to
challenge the validity or scope of intellectual property rights we own, control or to which we have rights. For example,
generic or biosimilar drug manufacturers or other competitors or third parties may challenge the scope, validity or
enforceability of our or our licensor’s patents, requiring us or our licensor to engage in complex, lengthy and costly
litigation or other proceedings. These proceedings can be expensive and time-consuming and many of our or our licensor’s
adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal
actions than we can. Moreover, the outcome following legal assertions of invalidity and unenforceability is unpredictable.
Accordingly, despite our or our licensor’s efforts, we or our licensor may not be able to prevent third parties from
infringing upon or misappropriating intellectual property rights we own, control or have rights to, particularly in countries
where the laws may not protect those rights as fully as in the United States. Litigation could result in substantial costs and
diversion of management resources, which could harm our business and financial results. In addition, if we or our licensor
initiated legal proceedings against a third party to enforce a patent covering a product candidate, the defendant could
counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims
alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to
meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an
unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant
information from the USPTO, or made a misleading statement, during prosecution. In an infringement or declaratory
judgment proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may
refuse to stop the other party from using the technology at issue on the grounds that our or our licensor’s patents do not
cover the technology in question. An adverse result in any litigation proceeding could put one or more of our or our
licensor’s patents at risk of being invalidated, narrowed, held unenforceable or interpreted in such a manner that would not
preclude third parties from entering the market with competing products.
Third-party pre-issuance submission of prior art to the USPTO, or opposition, derivation, revocation,
reexamination, inter partes review or interference proceedings, or other pre-issuance or post-grant proceedings or other
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patent office proceedings or litigation in the United States or other jurisdictions provoked by third parties or brought by us
or our licensor, may be necessary to determine the inventorship, priority, patentability or validity of inventions with respect
to our or our licensor’s patents or patent applications. An unfavorable outcome could leave our technology or product
candidates without patent protection, allow third parties to commercialize our technology or product candidates and
compete directly with us, without payment to us, or could require us or our licensor to obtain license rights from the
prevailing party in order to be able to manufacture or commercialize our product candidate or any future product
candidates without infringing third-party patent rights. Our business could be harmed if the prevailing party does not offer
us or our licensor a license on commercially reasonable terms, or at all. Even if we or our licensor obtain a license, it may
be non-exclusive, thereby giving our competitors access to the same technologies licensed to us or our licensor. In addition,
if the breadth or strength of protection provided by our or our licensor’s patents and patent applications is threatened, it
could dissuade companies from collaborating with us to license, develop or commercialize current or any future product
candidates. Even if we successfully defend such litigation or proceeding, we may incur substantial costs and it may distract
our management and other employees. In addition, the uncertainties associated with litigation could have a material
adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs,
license necessary technology from third parties, or enter into collaborations.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property
litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of
litigation. In addition, many foreign jurisdictions have rules of discovery that are different than those in the United States
and which may make defending or enforcing our or our licensor’s patents extremely difficult. There could also be public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or
investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common
stock.
Third parties may initiate legal proceedings against us alleging that we infringe their intellectual property
rights or we may initiate legal proceedings against third parties to challenge the validity or scope of intellectual property
rights controlled by third parties, the outcome of which would be uncertain and could have a material adverse effect on
the success of our business.
Our commercial success depends upon our ability to develop, manufacture, market and sell any product
candidates that we may develop and use our proprietary technologies without infringing, misappropriating or otherwise
violating the intellectual property and proprietary rights of third parties. The biotechnology and pharmaceutical industries
are characterized by extensive litigation regarding patents and other intellectual property rights. Third parties may initiate
legal proceedings against us or our licensor alleging that we or our licensor infringe their intellectual property rights or we
or our licensor may initiate legal proceedings against third parties to challenge the validity or scope of intellectual property
rights controlled by third parties, including in oppositions, interferences, revocations, reexaminations, inter partes review
or derivation proceedings before the USPTO or its counterparts in other jurisdictions. These proceedings can be expensive
and time-consuming and many of our or our licensor’s adversaries in these proceedings may have the ability to dedicate
substantially greater resources to prosecuting these legal actions than we or our licensor can.
An unfavorable outcome in any such proceeding could require us or our licensor to cease using the related
technology or developing or commercializing our product candidate or any future product candidates, or to attempt to
license rights to it from the prevailing party, which may not be available on commercially reasonable terms, or at all.
We could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to
have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidate
or any future product candidates or force us to cease some of our business operations, which could materially harm our
business.
We perform searches of patent and scientific databases in order to identify documents that may be of potential
relevance to the freedom-to-operate and/or patentability of our product candidate or any future product candidates. In
general, such searches are conducted based on keywords, sequences, inventors/authors and assignees/entities to capture
U.S. and European patents and patent applications, PCT publications and scientific journal articles.
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The patent landscape around our EFX product candidate is complex, and we may not be aware of all third-party
intellectual property rights potentially relating to our product candidate or any future product candidates and technologies.
Moreover, it is possible that we are or may become aware of patents or pending patent applications that we think do not
relate to our product candidate or any future product candidates or that we believe are invalid or unenforceable, but that
may nevertheless be interpreted to encompass our product candidate or any future product candidates and to be valid and
enforceable. As to pending third-party applications, we cannot predict with any certainty which claims will issue, if any, or
the scope of such issued claims. If any third-party intellectual property claims are asserted against us, even if we believe
the claims are without merit, there is no assurance that a court would find in our favor, e.g., on questions of infringement,
validity, enforceability or priority. A court of competent jurisdiction could hold that these third-party patents are valid,
enforceable and infringed, which could materially and adversely affect our ability and the ability of our licensor to
commercialize any product candidates we may develop, and any other product candidates or technologies covered by the
asserted third-party patents. In order to successfully challenge the validity of any such U.S. patent in federal court, we
would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and
convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent
jurisdiction would invalidate the claims of any such U.S. patent. If any such third-party patents (including those that may
issue from such applications) were successfully asserted against us or our licensor or other commercialization partners and
we were unable to successfully challenge the validity or enforceability of any such asserted patents, then we or our licensor
and other commercialization partners may be prevented from commercializing our product candidate or any future product
candidates, or may be required to pay significant damages, including treble damages and attorneys’ fees if we are found to
willfully infringe the asserted patents, or obtain a license to such patents, which may not be available on commercially
reasonable terms, or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our
competitors and other third parties access to the same technologies licensed to us, and it could require us to make
substantial licensing and royalty payments. Defense of these claims, regardless of their merit, would involve substantial
litigation expense and would be a substantial diversion of employee resources from our business. Furthermore, because of
the substantial amount of discovery required in connection with intellectual property litigation or administrative
proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any
uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on our
ability to raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial
condition and prospects. Any of the foregoing would have a material adverse effect on our business, financial condition
and operating results.
We may be subject to claims by third parties asserting that our employees or we have misappropriated a third
party’s intellectual property, or claiming ownership of what we regard as our own intellectual property.
Many of our employees, including our senior management, were previously employed at other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Some of these employees executed
proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. We may
be subject to claims that we or these employees have used or disclosed confidential information or intellectual property,
including trade secrets or other proprietary information, of any such employee’s former employer, or that third parties have
an interest in our patents as an inventor or co-inventor. Litigation may be necessary to defend against these claims. If we
fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable
intellectual property rights or personnel or sustain other damages. Such intellectual property rights could be awarded to a
third party, and we could be required to obtain a license from such third party to commercialize our technology or products.
Such a license may not be available on commercially reasonable terms, or at all. Even if we successfully prosecute or
defend against such claims, litigation could result in substantial costs and distract management.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception
or development of intellectual property to execute agreements assigning such intellectual property to us, we may be
unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that
we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment
agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may
bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a
material adverse effect on our business, financial condition, results of operations and prospects.
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Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual
property rights have limitations and may not adequately protect our business or permit us to maintain our competitive
advantage. For example:
● others may be able to make products that are similar to any product candidates we may develop or utilize
similar technology but that are not covered by the claims of the patents that we license or may own in the
future;
● we, or our current or future collaborators, might not have been the first to make the inventions covered by the
issued patents and pending patent applications that we license or may own in the future;
● we, or our current or future collaborators, might not have been the first to file patent applications covering
certain of our or their inventions;
● others may independently develop similar or alternative technologies or duplicate any of our technologies
without infringing our owned or licensed intellectual property rights;
● it is possible that our pending patent applications or those that we may own in the future will not lead to
issued patents;
● issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal
challenges by our competitors;
● our competitors might conduct research and development activities in countries where we do not have patent
rights and then use the information learned from such activities to develop competitive products for sale in
our major commercial markets;
● we may not develop additional proprietary technologies that are patentable;
● the patents of others may harm our business; and
● we may choose not to file a patent application in order to maintain certain trade secrets or know-how, and a
third party may subsequently file a patent covering such intellectual property.
Should any of these events occur, they could have a material adverse effect on our business, financial condition,
results of operations and prospects.
Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court
or the USPTO.
If we or our licensing partner initiate legal proceedings against a third party to enforce a patent covering our
product candidate or any future product candidates, the defendant could counterclaim that the patent covering our product
candidate, as applicable, is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims
alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can
assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before administrative bodies in
the United States or abroad, even outside the context of litigation. These types of mechanisms include inter partes review,
post grant review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). These types of
proceedings could result in revocation or amendment to our patents such that they no longer cover our product candidates.
The outcome for any particular patent following legal assertions of invalidity and unenforceability is unpredictable. With
respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we, our
patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion
of invalidity and/or unenforceability, or if we are otherwise unable to adequately protect our rights, we would lose at least
part, and perhaps all, of the patent protection on our product candidates. A loss of patent protection for our product
candidates could have a material adverse impact on our ability to commercialize or license our technology and product
candidates and, resultantly, on our business, financial condition, prospects and results of operations.
Likewise, patents directed to our proprietary technologies and our product candidates may expire before or soon
after our first product achieves marketing approval in the United States or foreign jurisdictions. Upon the expiration of our
current patents, we may lose the right to exclude others from practicing these inventions. The expiration of these
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patents could also have a similar material adverse effect on our business, financial condition, prospects and results of
operations. A number of U.S. patents directed to various aspects of EFX will expire in 2029; we currently anticipate that a
composition of matter patent will be eligible for patent term extension to 2034.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect
our product candidate or any future product candidates.
As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on
intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involves
technological and legal complexity, and obtaining and enforcing biotechnology patents is costly, time-consuming and
inherently uncertain. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope
of patent protection available in certain circumstances, weakening the rights of patent owners in certain situations or ruling
that certain subject matter is not eligible for patent protection. In addition to increasing uncertainty with regard to our and
our licensor’s ability to obtain patents in the future, this combination of events has created uncertainty with respect to the
value of patents, once obtained. Depending on decisions by Congress, the federal courts, the USPTO and equivalent bodies
in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken
our and our licensor’s ability to obtain new patents or to enforce existing patents and patents we and our licensor may
obtain in the future.
Patent reform laws, such as the Leahy-Smith America Invents Act, or the Leahy-Smith Act, as well as changes in
how patent laws are interpreted, could increase the uncertainties and costs surrounding the prosecution of our and our
licensor’s patent applications and the enforcement or defense of our or our licensor’s issued patents, all of which could
have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Government Regulation
Risks Related to Obtaining Regulatory Approval
We have no experience in conducting clinical trials and have never obtained approval for any product
candidates, and may be unable to do so successfully.
As a company, other than the recently completed BALANCED study and the recently initiated HARMONY study,
we have no experience in designing, conducting or completing clinical trials and have never progressed a product candidate
through to regulatory approval. In part because of this lack of experience, our clinical trials may require more time and
incur greater costs than we anticipate. We cannot be certain that the planned clinical trials will begin or conclude on time, if
at all. Large-scale trials will require significant additional financial and management resources. Any performance failure on
the part of such third parties could delay the clinical development of our product candidate or any future product candidates
or delay or prevent us from obtaining regulatory approval or commercializing our current or any future product candidates,
depriving us of potential product revenue and resulting in additional losses.
The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time-
consuming and inherently unpredictable. Our inability to obtain regulatory approval for EFX or any future product
candidate would substantially harm our business.
The time required to obtain approval from the FDA and comparable foreign regulatory authorities is unpredictable
but typically takes many years following the commencement of nonclinical studies and clinical trials and depends upon
numerous factors, including the substantial discretion of regulatory authorities. In addition, approval policies, regulations
or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s
development and may vary among jurisdictions. For example, in December 2018, the FDA published draft guidance
regarding NASH clinical development on which we relied, in part, in designing our Phase 2a clinical trial of EFX in that
indication. However, this guidance is not yet final and is subject to change, and the FDA or comparable foreign regulatory
authorities may adopt new or contradictory guidance in the future.
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EFX or our future product candidates could fail to receive regulatory approval from the FDA or a comparable
foreign regulatory authority for many reasons, including:
● disagreement with the design or implementation of our clinical trials;
● failure to demonstrate that a product candidate is safe and effective for its proposed indication;
● failure of clinical trials to meet the level of statistical significance required for approval;
● failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
● disagreement with our interpretation of data from nonclinical studies or clinical trials;
● the insufficiency of data collected from clinical trials of our product candidate or any future product
candidates to obtain regulatory approval;
● failure to obtain approval of the manufacturing processes or facilities of third-party manufacturers with whom
we contract for clinical and commercial supplies; or
● changes in the approval policies or regulations that render our nonclinical and clinical data insufficient for
approval.
The FDA or a comparable foreign regulatory authority may require more information, including additional
nonclinical or clinical data to support approval, which may delay or prevent approval and our commercialization plans, or
we may decide to abandon the development program for other reasons. If we were to obtain approval, regulatory
authorities may approve any of our product candidate or any future product candidates for fewer or more limited
indications than we request, may require labeling or a Risk Evaluation Mitigation Strategy, or REMS, that includes
significant use or distribution restrictions or safety warnings, precautions, or contraindications, may grant approval
contingent on the performance of costly post-marketing clinical trials or may approve a product candidate with a label that
does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate.
Additionally, as of June 23, 2020, the FDA noted it is continuing to ensure timely reviews of applications for
medical products during the COVID-19 pandemic in line with its user fee performance goals; however, FDA may not be
able to continue its current pace and approval timelines could be extended, including where a pre-approval inspection or an
inspection of clinical sites is required and due to the COVID-19 pandemic and travel restrictions FDA is unable to
complete such required inspections during the review period. In 2020, several companies announced receipt of complete
response letters due to the FDA's inability to complete required inspections for their applications.
Our failure to obtain regulatory approval in international jurisdictions would prevent us from marketing our
product candidate or any future product candidates outside the United States.
We intend to market any approved products in the United States, the European Union, Japan and other foreign
jurisdictions. Even if our products are approved for marketing in the United States, in order to market and sell our products
in other jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory
requirements. The approval procedure varies among countries and can involve additional testing. The time required to
obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process
outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many
countries outside the United States, we must secure product reimbursement approvals before regulatory authorities will
approve the product for sale in that country. Obtaining foreign regulatory approvals and compliance with foreign regulatory
requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of
our products in certain countries. Further, clinical trials conducted in one country may not be accepted by regulatory
authorities in other countries and regulatory approval in one country does not ensure approval in any other country, while a
failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval
process in others.
Also, regulatory approval for our product candidate or any future product candidates may be withdrawn if we fail
to comply with regulatory requirements, if problems occur after the product candidate reaches the market or for other
reasons. If we fail to comply with the regulatory requirements in international markets and fail to receive applicable
marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product
candidate or any future product candidates will be harmed and our business will be adversely affected. We may not
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obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by
regulatory authorities in other countries or jurisdictions. Approval by one regulatory authority outside the United States
does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. If we fail to obtain
approval of our product candidate or any future product candidates by regulatory authorities in another country, we will be
unable to commercialize our product in that country, and the commercial prospects of that product candidate and our
business prospects could decline.
Risks Related to Ongoing Regulatory Obligations
Even if we are able to obtain regulatory approvals for our product candidate or any future product candidates,
if they exhibit harmful side effects after approval, our regulatory approvals could be revoked or otherwise negatively
impacted, and we could be subject to costly and damaging product liability claims.
Clinical trials are conducted in representative samples of the potential patient population which may have
significant variability. Even if we receive regulatory approval for EFX or any of our future product candidates, we will
have tested them in only a small number of patients during our clinical trials. Clinical trials are by design based on a
limited number of subjects and of limited duration for exposure to the product used to determine whether, on a potentially
statistically significant basis, the planned safety and efficacy of any product candidate can be achieved. As with the results
of any statistical sampling, we cannot be sure that all side effects of our product candidates may be uncovered, and it may
be the case that only with a significantly larger number of patients exposed to the product candidate for a longer duration,
may a more complete safety profile be identified. Further, even larger clinical trials may not identify rare serious adverse
effects or the duration of such studies may not be sufficient to identify when those events may occur. If our applications for
marketing are approved and more patients begin to use our product, new risks and side effects associated with our products
may be discovered. There have been other products that have been approved by the regulatory authorities but for which
safety concerns have been uncovered following approval. Such safety concerns have led to labelling changes or withdrawal
of products from the market, and any of our product candidates may be subject to similar risks. Additionally, we may be
required to conduct additional nonclinical and clinical trials, require additional warnings on the label of our product,
reformulate our product or make changes, create a medication guide outlining the risks of such side effects for distribution
to patients and obtain new approvals for our and our suppliers’ manufacturing facilities for EFX and any future product
candidates. We might have to withdraw or recall our products from the marketplace. We may also experience a significant
drop in the potential sales of our product if and when regulatory approvals for such product are obtained, experience harm
to our reputation in the marketplace or become subject to lawsuits, including class actions. Any of these results could
decrease or prevent any sales of our approved product or substantially increase the costs and expenses of commercializing
and marketing our product.
Even if our current product candidate or any future product candidates receive regulatory approval, they will
remain subject to extensive regulatory scrutiny and may still face future development and regulatory difficulties.
Even if we obtained regulatory approval for a product candidate, regulatory authorities may still impose
significant restrictions on our product candidates, including their indicated uses or marketing, or impose ongoing
requirements for potentially costly post-approval studies. For example, if EFX is approved by the FDA based on a
surrogate endpoint pursuant to accelerated approval regulations (also referred to as Subpart E regulations), we will be
required to conduct additional confirmatory clinical trials demonstrating the clinical benefit on the ultimate outcome of
NASH. Further, even if we obtained regulatory approval for a product candidate, it would be subject to ongoing
requirements by the FDA and comparable foreign regulatory authorities governing the manufacture, quality control, further
development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion,
recordkeeping and reporting of safety and other post-market information.
The FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any
product even after approval. If the FDA or comparable foreign regulatory authorities become aware of new safety
information after approval of our product candidate or any future product candidates, they may require labeling changes or
establishment of a risk evaluation and mitigation strategy or similar strategy, impose significant restrictions on a product’s
indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies or post-market
surveillance.
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In addition, manufacturers of drug products and their facilities are subject to continual review and periodic
inspections by the FDA and other regulatory authorities for compliance with cGMP, regulations and standards. If we or a
regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity
or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions
on that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or
suspension of manufacturing. If we, our product candidate or any future product candidates or the manufacturing facilities
for our product candidate or any future product candidates fail to comply with applicable regulatory requirements, or
undesirable side effects caused by such products are identified, a regulatory agency may:
● issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing
warnings about such product;
● mandate modifications to promotional materials or require us to provide corrective information to healthcare
practitioners;
● require that we conduct post-marketing studies;
● require us to enter into a consent decree, which can include imposition of various fines, reimbursements for
inspection costs, required due dates for specific actions and penalties for noncompliance;
● seek an injunction or impose civil or criminal penalties or monetary fines;
● suspend marketing of, withdraw regulatory approval of or recall such product;
● suspend any ongoing clinical trials;
● refuse to approve pending applications or supplements to applications filed by us;
● suspend or impose restrictions on operations, including costly new manufacturing requirements; or
● seize or detain products, refuse to permit the import or export of products or require us to initiate a product
recall.
The occurrence of any event or penalty described above may inhibit our ability to commercialize our product and
generate revenue.
Advertising and promotion of any product candidate that obtains approval in the United States will be heavily
scrutinized by the FDA, the Department of Justice, the Department of Health and Human Services’ Office of Inspector
General, state attorneys general, members of Congress and the public. Violations, including promotion of our products for
unapproved (or off-label) uses, are subject to enforcement letters, inquiries and investigations, and civil and criminal
sanctions by the government. Additionally, comparable foreign regulatory authorities will heavily scrutinize advertising
and promotion of any product candidate that obtains approval outside of the United States.
In the United States, engaging in the impermissible promotion of our products for off-label uses can also subject
us to false claims litigation under federal and state statutes, which can lead to civil and criminal penalties and fines and
agreements that materially restrict the manner in which a company promotes or distributes drug products. These false
claims statutes include the federal False Claims Act, which allows any individual to bring a lawsuit against a
pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims, or causing
to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the
government prevails in the lawsuit, the individual will share in any fines or settlement funds. Since 2004, these federal
False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to
several substantial civil and criminal settlements regarding certain sales practices promoting off-label drug uses involving
fines in excess of $1 billion. This growth in litigation has increased the risk that a pharmaceutical company will have to
defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance
obligations and be excluded from Medicare, Medicaid and other federal and state healthcare programs. If we do not
lawfully promote our approved products, we may become subject to such litigation and, if we do not successfully defend
against such actions, those actions may have a material adverse effect on our business, financial condition and results of
operations.
The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or
delay regulatory approval of our product candidate or any future product candidates. If we are slow or unable to adapt to
changes in existing requirements or the adoption of new requirements or policies, or if we are not able to
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maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely
affect our business, prospects and ability to achieve or sustain profitability.
Risks Related to Healthcare Regulation
The advancement of healthcare reform may negatively impact our ability to profitably sell our product
candidate or any future product candidates, if approved.
The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes
affecting the healthcare system that could prevent or delay marketing approval of our product candidate or any future
product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product for
which we obtain marketing approval. Changes in regulations, statutes or the interpretation of existing regulations could
impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions
or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping
requirements.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010, or collectively, the Affordable Care Act or ACA, was enacted, which includes measures that
have significantly changed the way health care is financed by both governmental and private insurers. Since its enactment,
there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and
we expect there will be additional challenges and amendments to the ACA in the future. For example, various portions of
the ACA are currently undergoing legal and constitutional challenges in the Fifth Circuit Court and the United States
Supreme Court, and the Trump Administration has issued various Executive Orders which eliminated cost sharing
subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden
on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Additionally,
Congress has introduced several pieces of legislation aimed at significantly revising or repealing the ACA. It is unclear
whether the ACA will be overturned, repealed, replaced, or further amended. We cannot predict what affect further changes
to the ACA would have on our business, especially under the Biden Administration.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.
In August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the
Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select
Committee on Deficit Reduction did not achieve a targeted deficit reduction, which triggered the legislation’s automatic
reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of, on
average, 2% per fiscal year through 2025 unless Congress takes additional action. These reductions were extended through
2030. Coronavirus Aid, Relief and Economic Security Act, or CARES Act, and subsequent legislation, the 2% Medicare
sequester reductions have been suspended from May 1, 2020 through March 31, 2021. Proposed legislation, if passed,
would extend this suspension until the end of the pandemic. In January 2013, the American Taxpayer Relief Act of 2012,
among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment
centers, and increased the statute of limitations period for the government to recover overpayments to providers from three
to five years.
Recently, there has been increasing legislative and enforcement interest in the United States with respect to
specialty drug pricing practices. Specifically, there have been several recent U.S. congressional inquiries and proposed and
enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the
cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs and
reform government program reimbursement methodologies for drugs. The former Trump administration’s budget proposal
for fiscal year 2021 included a $135 billion allowance to support legislative proposals seeking to reduce drug prices,
increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and
biosimilar drugs. On March 10, 2020, the former administration sent “principles” for drug pricing to Congress, calling for
legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an
option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price
increases. Additionally, the former administration also previously released a “Blueprint” to lower drug prices and reduce
out of pocket costs of drugs that contains additional proposals to increase manufacturer
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competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the
list price of their products and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of
Health and Human Services, or HHS, has already started the process of soliciting feedback on some of these measures and,
at the same time, is immediately implementing others under its existing authority. For example, in May 2019, CMS issued
a final rule to allow Medicare Advantage Plans the option of using step therapy, a type of prior authorization, for Part B
drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019.
However, it is unclear whether the Biden administration will challenge, reverse, revoke or otherwise modify these
executive and administrative actions after January 20, 2021.
In addition, there have been several changes to the 340B drug pricing program, which imposes ceilings on prices
that certain drug and biologic manufacturers can charge for medications sold to certain health care facilities. It is unclear
how these developments could affect covered hospitals who might purchase our future products and affect the rates we may
charge such facilities for our approved products in the future, if any. On July 24, 2020 and September 13, 2020, former
President Trump announced several executive orders related to prescription drug pricing that seek to implement several of
the former administration's proposals. In response, the FDA released a final rule on September 24, 2020, which went into
effect on November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada.
Further, on November 20, 2020 CMS issued an Interim Final Rule implementing the Most Favored Nation, or MFN,
Model under which Medicare Part B reimbursement rates will be calculated for certain drugs and biologicals based on the
lowest price manufacturers receive in Organization for Economic Cooperation and Development countries with a similar
gross domestic product per capita. The MFN Model regulations mandate participation by identified Part B providers and
would have applied to all U.S. states and territories for a seven-year period beginning January 1, 2021 and ending
December 31, 2027. However, in response to a lawsuit filed by several industry groups, on December 28, the U.S. District
Court for the Northern District of California issued a nationwide preliminary injunction enjoining government defendants
from implementing the MFN Rule pending completion of notice-and-comment procedures under the Administrative
Procedure Act. On January 13, 2021, in a separate lawsuit brought by industry groups in the U.S. District of Maryland, the
government defendants entered a joint motion to stay litigation on the condition that the government would not appeal the
preliminary injunction granted in the U.S. District Court for the Northern District of California and that performance for
any final regulation stemming from the MFN Interim Final Rule shall not commence earlier than 60 days after publication
of that regulation in the Federal Register. Further, authorities in Canada have passed rules designed to safeguard the
Canadian drug supply from shortages. If implemented, importation of drugs from Canada and the MFN Model may
materially and adversely affect the price we receive for any of our product candidates. Additionally, on December 2, 2020,
HHS published a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to
plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by
law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for
certain fixed fee arrangements between pharmacy benefit managers and manufacturers. Pursuant to an order entered by the
U.S. District Court for the District of Columbia, the portion of the rule eliminating safe harbor protection for certain rebates
related to the sale or purchase of a pharmaceutical product from a manufacturer to a plan sponsor under Medicare Part D
has been delayed to January 1, 2023. Further, implementation of this change and new safe harbors for point-of-sale
reductions in price for prescription pharmaceutical products and pharmacy benefit manager service fees are currently under
review by the Biden administration and may be amended or repealed.
Although a number of these, and other proposed measures may require additional authorization to become
effective, and the Biden administration may reverse or otherwise change these measures, Congress has indicated that it will
continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have
increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product
pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and
marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other
countries and bulk purchasing.
We expect that the healthcare reform measures that have been adopted and may be adopted in the future, may
result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved
product and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other
government programs may result in a similar reduction in payments from private third-party payors.
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Additionally, in September 2020, the FDA issued a final guidance document outlining a pathway for
manufacturers to obtain an additional National Drug Code, or NDC, for an FDA-approved drug that was originally
intended to be marketed in a foreign country and that was authorized for sale in that foreign country. The regulatory and
market implications of the draft guidance are unknown at this time. Proponents of drug reimportation may attempt to pass
legislation that would directly allow reimportation under certain circumstances. Legislation or regulations allowing the
reimportation of drugs, if enacted, could decrease the price we receive for any products that we may develop and adversely
affect our future revenues and prospects for profitability.
Further, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to
Try Act of 2017, or the Right to Try Act, was signed into law. The law, among other things, provides a federal framework
for certain patients to request access to certain investigational new drug products that have completed a Phase I clinical
trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek
treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access
program. There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients
as a result of the Right to Try Act.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and
state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. The
implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate
revenue, attain profitability, or commercialize our product. Such reforms could have an adverse effect on anticipated
revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and
may affect our overall financial condition and ability to develop product candidates.
Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and
abuse, transparency and other healthcare laws and regulations, which, if violated, could expose us to criminal
sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and
future earnings.
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and
prescription of any product candidates for which we obtain marketing approval. Our current and future arrangements with
healthcare providers, third-party payors and customers may expose us to broadly applicable fraud and abuse and other
healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which
we research, and if approved, market, sell and distribute our products. Restrictions under applicable federal and state
healthcare laws and regulations, include the following:
● the federal Anti-Kickback Statute prohibits persons from, among other things, knowingly and willfully
soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or
reward, or in return for, the referral of an individual for the furnishing or arranging for the furnishing, or the
purchase, lease or order, or arranging for or recommending purchase, lease or order, of any good or service
for which payment may be made under a federal healthcare program, such as Medicare and Medicaid. On
December 2, 2020, the Office of Inspector General, or OIG, published further modifications to the federal
Anti-Kickback Statute. Under the final rules, OIG added safe harbor protections under the Anti-Kickback
Statute for certain coordinated care and value-based arrangements among clinicians, providers, and others.
This rule (with exceptions) became effective January 19, 2021. Implementation of this change and new safe
harbors for point-of-sale reductions in price for prescription pharmaceutical products and pharmacy benefit
manager service fees are currently under review by the Biden administration and may be amended or
repealed. We continue to evaluate what effect, if any, the rule will have on our business;
● federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False
Claims Act, which can be enforced through civil whistleblower or qui tam actions, prohibit individuals or
entities from, among other things knowingly presenting, or causing to be presented, to the federal government
or a government contractor, grantee, or other recipient of federal funds, claims for payment that are false or
fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal
government;
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● the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal liability
for knowingly and willfully executing a scheme to defraud any healthcare benefit program, knowingly and
willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal
investigation of a healthcare offense or knowingly and willfully making false statements relating to healthcare
matters;
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009,
and their implementing regulations, imposes obligations on certain healthcare providers, health plans and
healthcare clearinghouses, known as covered entities, as well as their business associates, which are
individuals and entities that perform certain services involving the use or disclosure of individually
identifiable health information, including mandatory contractual terms, with respect to safeguarding the
privacy, security and transmission of individually identifiable health information;
● the federal Open Payments program, created under Section 6002 of the Affordable Care Act and its
implementing regulations, requires manufacturers of drugs, devices, biologics and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain
exceptions) to report annually to CMS information related to “payments or other transfers of value” made to
physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching
hospitals, as well as ownership and investment interests held by physicians (as defined above) and their
immediate family members. Effective January 1, 2022, these reporting obligations will extend to include
transfers of value made to certain non-physician providers such as physician assistants and nurse
practitioners; and
● analogous state, local, and foreign laws and regulations, such as state anti-kickback and false claims laws,
which may apply to sales or marketing arrangements and claims involving healthcare items or services
reimbursed by non-governmental third-party payors, including private insurers; state and foreign laws that
require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance
guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict
payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to
report information related to payments and other transfers of value to physicians and other healthcare
providers, marketing expenditures or drug prices; state and local laws that require the registration of
pharmaceutical sales representatives; and state and foreign laws that govern the privacy and security of health
information in certain circumstances, many of which differ from each other in significant ways and often are
not preempted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and
regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business
practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or
other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative
penalties, damages, fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as
Medicare and Medicaid, integrity oversight and reporting obligations, and the curtailment or restructuring of our
operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found
not to be in compliance with applicable laws, that person or entity may be subject to criminal, civil or administrative
sanctions, including exclusions from government funded healthcare programs.
Failure to comply with health and data protection laws and regulations could lead to government enforcement
actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively
affect our operating results and business.
We and any potential collaborators may be subject to federal, state, and foreign data protection laws and
regulations (i.e., laws and regulations that address privacy and data security). In the United States, numerous federal and
state laws and regulations, including federal health information privacy laws, state data breach notification laws, state
health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade
Commission Act and California Consumer Privacy Act of 2018 (“CCPA”)), that govern the collection, use, disclosure and
protection of health-related and other personal information could apply to our operations or the operations of our
collaborators. The state of California, for example, recently adopted the CCPA, which went into effect beginning in
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January 2020. The CCPA has been characterized as the first “GDPR-like” privacy statute to be enacted in the United States
because it mirrors a number of the key provisions of the European Union General Data Protection Regulation, or GDPR
(discussed below in the European Data Collection subsection). The CCPA establishes a new privacy framework for
covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for
consumers in the State of California, imposing special rules on the collection of consumer data from minors, and creating a
new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to
implement reasonable security procedures and practices to prevent data breaches. In addition, we may obtain health
information from third parties (including research institutions from which we obtain clinical trial data) that are subject to
privacy and security requirements under HIPAA, as amended by HITECH. While there is currently an exception for
protected health information that is subject to HIPAA and clinical trial regulations, as currently written, the CCPA may
impact some of our business activities. Depending on the facts and circumstances, we could be subject to civil, criminal,
and administrative penalties if we knowingly obtain, use, or disclose individually identifiable health information
maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.
Compliance with U.S. and international data protection laws and regulations, including the EU GDPR and other
EU data protection laws could require us to take on more onerous obligations in our contracts, restrict our ability to collect,
use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Failure to comply with these
laws and regulations could result in government enforcement actions (which could include civil, criminal and
administrative penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and
business. Moreover, clinical trial subjects, employees and other individuals about whom we or our potential collaborators
obtain personal information, as well as the providers who share this information with us, may limit our ability to collect,
use and disclose the information. Claims that we have violated individuals’ privacy rights, failed to comply with data
protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-
consuming to defend and could result in adverse publicity that could harm our business.
In the event we decide to conduct clinical trials or continue to enroll subjects in our ongoing or future clinical
trials, we may be subject to additional privacy restrictions. The collection, use, storage, disclosure, transfer, or other
processing of personal data regarding individuals in the EU, including personal health data, is subject to the EU General
Data Protection Regulation, which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes
numerous requirements on companies that process personal data, including requirements relating to processing health and
other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to
individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of
personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors.
The GDPR also imposes strict rules on the transfer of personal data to countries outside the EU, including the United
States, and permits data protection authorities to impose large penalties for violations of the GDPR, including potential
fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of
action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies,
and obtain compensation for damages resulting from violations of the GDPR. In addition, the GDPR includes restrictions
on cross-border data transfers. The GDPR may increase our responsibility and liability in relation to personal data that we
process where such processing is subject to the GDPR, and we may be required to put in place additional mechanisms to
ensure compliance with the GDPR, including as implemented by individual countries. Compliance with the GDPR will be
a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business
practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational
harm in connection with our European activities. Further, the United Kingdom’s exit from the EU, often referred to as
Brexit, has created uncertainty with regard to data protection regulation in the United Kingdom. In particular, it is unclear
how data transfers to and from the United Kingdom will be regulated now that the United Kingdom has officially left the
EU.
Governments outside the United States tend to impose strict price controls, which may adversely affect our
revenue, if any.
In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is
subject to governmental control. In these countries, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a drug. In addition, there can be considerable pressure by
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governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures.
Political, economic and regulatory developments may further complicate pricing negotiations. To obtain coverage and
reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-
effectiveness of our drug candidate to other available procedures. If reimbursement of our drugs is unavailable or limited in
scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
Healthcare insurance coverage and reimbursement may be limited or unavailable for our product candidate, if
approved, which could make it difficult for us to sell our product candidate or other therapies profitably.
The success of our product candidate, if approved, depends on the availability of coverage and adequate
reimbursement from third-party payors including governmental healthcare programs, such as Medicare and Medicaid,
commercial payors, and health maintenance organizations. We cannot be sure that coverage and reimbursement will be
available for, or accurately estimate the potential revenue from, our product candidates or assure that coverage and
reimbursement will be available for any product that we may develop.
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse
all or part of the costs associated with their treatment. Coverage and adequate reimbursement from third-party payors is
critical to new product acceptance.
Third-party payors decide which drugs and treatments they will cover and the amount of reimbursement.
Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party
payor’s determination that use of a product is:
● a covered benefit under its health plan;
● safe, effective and medically necessary;
● appropriate for the specific patient;
● cost-effective; and
● neither experimental nor investigational.
In the United States, no uniform policy of coverage and reimbursement for products exists among third-party
payors. As a result, obtaining coverage and reimbursement approval of a product from a third-party payor is a time
consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost
effectiveness data for the use of our products on a payor-by-payor basis, with no assurance that coverage and adequate
reimbursement will be obtained. There is significant uncertainty related to the insurance coverage and reimbursement of
newly approved products. In the United States, the principal decisions about reimbursement for new medicines are
typically made by CMS, an agency within HHS, as CMS decides whether and to what extent a new medicine will be
covered and reimbursed under Medicare. Private third-party payors tend to follow Medicare coverage and reimbursement
limitations to a substantial degree, but also have their own methods and approval process apart from Medicare
determinations. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be
adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high.
Our activities in the United States subject us to various laws relating to foreign investment and the export of
certain technologies, and our failure to comply with these laws or adequately monitor the compliance of our suppliers
and others we do business with could subject us to substantial fines, penalties and even injunctions, the imposition of
which on us could have a material adverse effect on the success of our business.
Because we have substantial operations in the United States, we are subject to U.S. laws that regulate foreign
investments in U.S. businesses and access by foreign persons to technology developed and produced in the United States.
These laws include Section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment Risk
Review Modernization Act of 2018, and the regulations at 31 C.F.R. Parts 800 and 801, as amended, administered by the
Committee on Foreign Investment in the United States; and the Export Control Reform Act of 2018, which is being
implemented in part through Commerce Department rulemakings to impose new export control restrictions on “emerging
and foundational technologies” yet to be fully identified. Application of these laws, including as they are
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implemented through regulations being developed, may negatively impact our business in various ways, including by
restricting our access to capital and markets; limiting the collaborations we may pursue; regulating the export our products,
services, and technology from the United States and abroad; increasing our costs and the time necessary to obtain required
authorizations and to ensure compliance; and threatening monetary fines and other penalties if we do not.
We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption
laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability
to compete in domestic and international markets. We can face criminal liability and other serious consequences for
violations, which can harm our business.
We are subject to export control and import laws and regulations, including the U.S. Export Administration
Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S.
Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, or
FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and
other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-
corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other
collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else
of value to recipients in the public or private sector. We may engage third parties to sell our products sell our products
outside the United States, to conduct clinical trials, and/or to obtain necessary permits, licenses, patent registrations, and
other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or
government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal
activities of our employees, agents, contractors, and other collaborators, even if we do not explicitly authorize or have
actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial
civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments,
breach of contract and fraud litigation, reputational harm, and other consequences.
Changes in funding for the FDA, the SEC and other government agencies could hinder their ability to hire and
retain key leadership and other personnel, prevent new or existing product candidates from being developed or
commercialized in a timely manner or otherwise prevent those agencies from performing normal functions on which the
operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including
government budget and funding levels, ability to hire and retain key personnel and accept payment of user fees, and
statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In
addition, government funding of the SEC and other government agencies on which our operations may rely, including
those that fund research and development activities is subject to the political process, which is inherently fluid and
unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or
approved by necessary government agencies, which would adversely affect our business. For example, over the last several
years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC,
have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged
government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our
regulatory submissions, which could have a material adverse effect on our business. Further, in our operations as a public
company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital
in order to properly capitalize and continue our operations.
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Risks Related to Our Financial Condition and Need for Additional Capital
We have incurred significant losses since our inception and we expect to incur losses for the foreseeable future.
We have no products approved for commercial sale and have not generated any revenue to date, and we continue
to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not
profitable and have incurred significant losses in each period since our inception in January 2017. For the years ended
December 31, 2020 and 2019, we reported net losses of $79.2 million and $43.8 million, respectively. As of December 31,
2020, we had an accumulated deficit of $209.5 million. We expect to continue to incur significant losses for the foreseeable
future, and we expect these losses to increase as we continue our research and development of, and seek regulatory
approvals for, our product candidate. We anticipate that our expenses will increase substantially if, and as, we:
● conduct larger scale clinical trials for our product candidate, EFX, and any future product candidates;
● discover and develop new product candidates, and conduct nonclinical studies and clinical trials;
● incur setbacks or delays to the initiation or completion of preclinical and non-clinical studies, product
development and/or clinical trials due to the COVID-19 pandemic;
● incur any disruption or delays to the supply of our product candidate due to the COVID-19 pandemic;
● manufacture, or have manufactured, clinical and commercial supplies of our product candidates;
● seek regulatory approvals for our product candidate or any future product candidates;
● commercialize EFX or any future product candidates, if approved;
● attempt to transition from a company with a development focus to a company capable of supporting
commercial activities, including establishing sales, marketing and distribution infrastructure;
● hire additional clinical, scientific, and management personnel;
● add operational, financial, and management information systems and personnel;
● identify additional compounds or product candidates and acquire rights from third parties to those compounds
or product candidates through licenses; and
● incur additional costs associated with operating as a public company.
Even if we succeed in commercializing EFX or any future product candidates, we may continue to incur
substantial research and development and other expenditures to develop and market additional product candidates. We may
encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our
business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability
to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on
our stockholders’ equity and working capital.
We currently have a limited operating history, have not generated any revenue to date, and may never become
profitable.
We are a clinical-stage biotechnology company with a limited operating history. Our operations to date have been
limited to organizing and staffing our company, acquiring, developing and securing our technology and product candidate,
EFX, and conducting nonclinical studies and clinical trials of EFX. We have not yet demonstrated our ability to complete
late-stage clinical trials, obtain regulatory approval, formulate and manufacture a commercial-scale product, or conduct
sales and marketing activities necessary for successful product commercialization. Investment in biotechnology product
development is highly speculative because it entails substantial upfront expenditures in clinical research organizations and
contract manufacturing organizations and significant risk that any potential product candidate will fail to demonstrate
adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. Consequently,
any predictions you may make about our future success or viability may not be as accurate as they could be if we had a
longer operating history.
Though EFX is currently in Phase 2 clinical development, we do not expect to receive revenue from EFX for a
number of years, if ever. To date, we have not generated any revenue and we will not be able to generate product
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revenue unless and until EFX, or any future product candidate, successfully completes clinical trials, receives regulatory
approval, and is commercialized. We may seek to obtain revenue from collaboration or licensing agreements with third
parties. Our ability to generate future product revenue from EFX or any future product candidates also depends on a
number of additional factors, including our, or our current and future contractors’ and collaborators’, ability to:
● successfully complete nonclinical studies and clinical trials for EFX and any future product candidates;
● seek and obtain marketing approvals for any product candidates that complete clinical development;
● establish and maintain supply and manufacturing relationships with third parties, and ensure adequate and
legally compliant manufacturing of bulk drug substances and drug products to maintain that supply;
● launch and commercialize any product candidates for which we obtain marketing approval, and, if launched
independently, successfully establish a sales, marketing and distribution infrastructure;
● demonstrate the necessary safety data post-approval to ensure continued regulatory approval;
● obtain coverage and adequate product reimbursement from third-party payors, including government payors;
● achieve market acceptance for any approved products;
● address any competing technological and market developments;
● maintain our rights under our existing license agreement with Amgen Inc., or Amgen, and any similar
agreements we may enter into in the future;
● negotiate favorable terms in any collaboration, licensing or other arrangements into which we may enter in
the future and performing our obligations in such collaborations;
● establish, maintain, protect and enforce our intellectual property rights; and
● attract, hire and retain qualified personnel.
In addition, because of the numerous risks and uncertainties associated with biotechnology product development,
including that our product candidate may not advance through development or achieve the endpoints of applicable clinical
trials, we are unable to predict the timing or amount of increased expenses, or if or when we will achieve or maintain
profitability. In addition, our expenses could increase beyond expectations if we decide, or are required by the U.S. Food
and Drug Administration, or FDA, or foreign regulatory authorities, to perform nonclinical studies or clinical trials in
addition to those that we currently anticipate. Even if we complete the development and regulatory processes described
above, we anticipate incurring significant costs associated with launching and commercializing any approved product.
If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise
capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the
value of our company also could cause you to lose all or part of your investment.
We will require additional capital to finance our operations, which may not be available to us on acceptable
terms, or at all. As a result, we may not complete the development and commercialization of our product candidate or
develop any future product candidates.
As a research and development company, our operations have consumed substantial amounts of cash since
inception. We expect our research and development expenses to increase substantially in connection with our ongoing
activities, particularly as we advance EFX into later-stage clinical development.
As of December 31, 2020, we had $268.4 million of cash, cash equivalents and short-term marketable securities.
We raised $95.5 million from our initial public offering in June 2019 and $202.6 million from our follow-on public
offering in July 2020. Any forecast of the period of time through which our financial resources will adequately 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, including the factors discussed elsewhere in this ‘‘Risk factors’’ section. The assumptions underlying
any estimate may prove to be wrong, and we could utilize our available capital resources sooner
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than we currently expect. Our future funding requirements, both short and long-term, will depend on many factors,
including, but not limited to:
● the initiation, progress, timing, costs and results of nonclinical studies and clinical trials for our product
candidate or any future product candidates we may develop, including on account of any setbacks or delays
due to the COVID-19 pandemic;
● the cost and timing of manufacturing our product candidate for use in clinical trials or, if approved by the
FDA, for commercial use, including on account of any disruption or delays to the supply of our product
candidate due to the COVID-19 pandemic;
● 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 that had previously been agreed to;
● 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 candidates, 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 do not have any committed external source of funds or other support for our development efforts and we
cannot be certain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient
revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a
combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing
arrangements, and other marketing or distribution arrangements. If we raise additional funds through public or private
equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect our
stockholders’ rights. Further, to the extent that we raise additional capital through the sale of common stock or securities
convertible or exchangeable into common stock, your ownership interest will be diluted. If we raise additional capital
through debt financing, we could be subject to fixed payment obligations and may be subject to covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring
dividends. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic
alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product
candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable
to us. We also could be required to seek collaborators for one or more of our current or any future product candidates at an
earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we
otherwise would seek to develop or commercialize ourselves. 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 products or product candidates or one or more of our other research and
development initiatives. Any of the above events could significantly harm our business, prospects, financial condition and
results of operations and cause the price of our common stock to decline.
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Risks Related to Commercialization and Market Acceptance
Risks Related to Commercialization
Even if we commercialize our product candidate or any future product candidates, these products may become
subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which
could harm our business.
The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely
from country to country. Current and future legislation may significantly change the approval requirements in ways that
could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of
a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing
approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing
governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product
in a particular country, but then be subject to price regulations that delay or limit our commercial launch of the product,
possibly for lengthy time periods, which could negatively impact the revenue we generate from the sale of the product in
that particular country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product
candidates, even if our product candidate or any future product candidates obtain marketing approval.
Our ability to commercialize any products successfully also will depend in part on the extent to which coverage
and adequate reimbursement for these products and related treatments will be available from third-party payors such as
government health administration authorities, private health insurers and other organizations. Third-party payors determine
which medications they will cover and establish reimbursement levels. Third-party payors have attempted to control costs
by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are
requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices
charged for medical products. We cannot be sure that coverage and reimbursement will be available for any product that we
commercialize and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement
may impact the demand for, or the price of, any product candidate for which we obtain marketing approval, if any. If
coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not be able to
successfully commercialize any product candidate for which marketing approval is obtained, if any.
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and
coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign
regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in
all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim
reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary.
Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on
reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services.
Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or
private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may
be sold at lower prices than in the United States. Our inability to promptly obtain coverage and profitable reimbursement
rates third-party payors for any approved products that we develop could have a material adverse effect on our operating
results, our ability to raise capital needed to commercialize products and our overall financial condition.
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit
commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the testing of our product candidate or any future
product candidates in human clinical trials and will face an even greater risk if we commercialize any resulting products.
Product liability claims may be brought against us by subjects enrolled in our clinical trials, patients, their family members,
healthcare providers or others using, administering or selling our products. If we cannot successfully defend ourselves
against claims that our product candidate or any future product candidates or products that we may
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develop caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims
may result in:
● decreased demand for any product candidates or products that we may develop;
● termination of clinical trial sites or entire trial programs;
● injury to our reputation and significant negative media attention;
● withdrawal of clinical trial participants;
● significant costs to defend the related litigation;
● substantial monetary awards to trial subjects or patients;
● loss of revenue;
● diversion of management and scientific resources from our business operations;
● the inability to commercialize any products that we may develop; and
● a decline in our stock price.
Our clinical trial liability insurance coverage may not adequately cover all liabilities that we may incur. We may
not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may
arise. Our inability to obtain product liability insurance at an acceptable cost or to otherwise protect against potential
product liability claims could prevent or delay the commercialization of any products or product candidates that we
develop. We intend to expand our insurance coverage for products to include the sale of commercial products if we obtain
marketing approval for our product candidate or any future product candidates in development, but we may be unable to
obtain commercially reasonable product liability insurance for any products approved for marketing. Large judgments have
been awarded in lawsuits based on drugs that had unanticipated side effects. If we are sued for any injury caused by our
products, product candidates or processes, our liability could exceed our product liability insurance coverage and our total
assets. Claims against us, regardless of their merit or potential outcome, may also generate negative publicity or hurt our
ability to obtain physician adoption of our product or expand our business.
Risks Related to Market Acceptance
If, in the future, we are unable to establish sales and marketing capabilities or enter into agreements with third
parties to sell and market any product candidates we may develop, we may not be successful in commercializing those
product candidates if and when they are approved.
We do not currently have an infrastructure for the sales, marketing, and distribution of pharmaceutical products. In
order to market our product candidates, if approved by the FDA or any other regulatory body, we must build our sales,
marketing, managerial, and other non-technical capabilities, or make arrangements with third parties to perform these
services. There are risks involved with both establishing our own commercial capabilities and entering into arrangements
with third parties to perform these services. For example, recruiting and training a sales force or reimbursement specialists
is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for
which we recruit a sales force and establish marketing and other commercialization capabilities is delayed or does not
occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be
costly, and our investment would be lost if we cannot retain or reposition our commercialization personnel.
If we enter into arrangements with third parties to perform sales, marketing, commercial support, and distribution
services, our product revenue or the profitability of product revenue may be lower than if we were to market and sell any
products we may develop ourselves. In addition, we may not be successful in entering into arrangements with third parties
to commercialize our product candidates or may be unable to do so on terms that are favorable to us. We may have little
control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market
our products effectively and they could expose our company to regulatory enforcement and legal risk in the execution of
their sales and commercialization activities. If we do not establish commercialization capabilities successfully, either on
our own or in collaboration with third parties, we will not be successful in commercializing our product candidates if
approved.
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If we are unable to establish adequate sales, marketing, and distribution capabilities, whether independently or
with third parties, or if we are unable to do so on commercially reasonable terms, our business, results of operations,
financial condition, and prospects will be materially adversely affected.
Our product candidate or any future product candidates may not achieve adequate market acceptance among
physicians, patients, third-party payors and others in the medical community necessary for commercial success.
Even if our product candidate or any future product candidates receive regulatory approval, they may not gain
adequate market acceptance among physicians, patients, third-party payors, pharmaceutical companies and others in the
medical community. Demonstrating the safety and efficacy of our product candidate or any future product candidates and
obtaining regulatory approvals will not guarantee future revenue. Our commercial success also depends on coverage and
adequate reimbursement of our product candidate or any future product candidates by third-party payors, including
government payors and private insurers, which may be difficult or time-consuming to obtain, may be limited in scope and
may not be obtained in all jurisdictions in which we may seek to market our products. Third-party payors closely examine
medical products to determine whether they should be covered by reimbursement and, if so, the level of reimbursement
that will apply. We cannot be certain that third-party payors will sufficiently reimburse sales of our product or enable us to
sell our product at a profitable price. Similar concerns could also limit the reimbursement amounts that health insurers or
government agencies in other countries are prepared to pay for our products. In many regions, including Europe, Japan and
Canada, where we may market our products, the pricing of prescription drugs is controlled by the government or regulatory
agencies. Regulatory agencies in these countries could determine that the pricing for our products should be based on
prices of other commercially available drugs for the same disease, rather than allowing us to market our products at a
premium as new drugs. The degree of market acceptance of any of our approved product candidates will depend on a
number of factors, including:
● the efficacy and safety profile of the product candidate as demonstrated in clinical trials;
● the timing of market introduction of the product candidate as well as competitive products;
● any impact to market health as a result of COVID-19;
● the clinical indications for which the product candidate is approved;
● acceptance of the product candidate as a safe and effective treatment by clinics and patients;
● the potential and perceived advantages of the product candidate over alternative treatments, including any
similar generic treatments;
● the cost of treatment in relation to alternative treatments;
● the availability of coverage and adequate reimbursement and pricing by third-party payors;
● the relative convenience and ease of administration;
● the frequency and severity of adverse events;
● the effectiveness of sales and marketing efforts; and
● unfavorable publicity relating to our product candidate or any future product candidates.
Sales of medical products also depend on the willingness of physicians to prescribe the treatment, which is likely
to be based on a determination by these physicians that the products are safe, therapeutically effective and cost effective. In
addition, the inclusion or exclusion of products from treatment guidelines established by various physician groups and the
viewpoints of influential physicians can affect the willingness of other physicians to prescribe the treatment. We cannot
predict whether physicians, physicians’ organizations, hospitals, other healthcare providers, government agencies or private
insurers will determine that our product is safe, therapeutically effective and cost effective as compared with competing
treatments. If any product candidate is approved but does not achieve an adequate level of acceptance by such parties, we
may not generate or derive sufficient revenue from that product candidate and may not become or remain profitable.
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Risks Related to Our Operations
We incur significant costs and expend significant time and effort, as a result of operating as a public company,
and our management is required to devote substantial time to compliance initiatives and corporate governance
practices.
We incur significant legal, accounting and other expenses, and expend significant time and effort by management
and other personnel, to comply with the rules applicable to us as a public company. We are subject to the reporting
requirements of Nasdaq and of the Securities Exchange Act of 1934, as amended, which require, among other things, that
we file with the Securities and Exchange Commission (SEC), annual, quarterly, and current reports with respect to our
business and financial condition and that we establish and maintain effective disclosure controls, procedures and corporate
governance practices. We must also comply with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and
specifically Section 404 of the Sarbanes-Oxley Act, which requires that we establish and maintain effective internal
controls over financial reporting. In order to maintain compliance with the SEC’s rules that implement Section 404 of the
Sarbanes-Oxley Act, we are required to make a formal assessment of the effectiveness of our internal control over financial
reporting, to certify financial and other information in our quarterly and annual reports and to provide an annual
management report on the effectiveness of our internal control over financial reporting, which includes the disclosure of
any material weaknesses and associated remediation activities. When we are no longer an emerging growth company, we
will incur additional costs to meet the requirement to provide an attestation report on our internal control over financial
reporting from our independent registered public accounting firm. We will need to continue to dedicate significant internal
resources and outside consultants in order to complete management’s annual assessment and to prepare for when we are no
longer an emerging growth company. Despite these efforts, there is no guarantee that we will be able to conclude that our
internal controls over financial reporting are effective.
Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act)
was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank
Act that require the SEC to adopt additional rules and regulations in these areas, such as “say on pay” and proxy access.
Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and
up to five years from the pricing of our IPO. We intend to take advantage of this new legislation but cannot guarantee that
we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected
expenses. Stockholder activism, the current political environment, and the current high level of government intervention
and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional
compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.
We expect the rules and regulations applicable to public companies to substantially increase our legal and
financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the
attention of our management and personnel from other business concerns, they could have a material adverse effect on our
business, financial condition, and results of operations. The increased costs will decrease our net income or increase our net
loss and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For
example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and
officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We
cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The
impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our
board of directors, our board committees, or as executive officers.
When we lose our status as an ‘‘emerging growth company,’’ as defined in the Jumpstart Our Business Startups
Act of 2012, as amended, or the JOBS Act, our independent registered public accounting firm will be required to attest to
the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an ‘‘emerging
growth company’’ for up to five years from the closing of our initial public offering. An independent assessment of the
effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected
material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the
expense of remediation.
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If we fail to comply with these rules, including maintaining proper and effective systems of internal controls
over financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected, and we could
be subject to sanctions or other penalties that would harm our business.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can
produce accurate consolidated financial statements on a timely basis is a costly and time-consuming effort that needs to be
re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with
generally accepted accounting principles. If we identify any material weakness or significant deficiency, the accuracy and
timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law
requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements,
investors may lose confidence in our financial reporting, and our stock price may decline as a result. We also could become
subject to investigations by Nasdaq, the Securities and Exchange Commission, or SEC, or other regulatory authorities.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other
effective control systems required of public companies, could also restrict our future access to the capital markets. In
addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate
consolidated financial statements on a timely basis may harm our stock price and make it more difficult for us to effectively
market and sell our products to new and existing customers.
Our business and operations would suffer in the event of computer system failures, cyber-attacks or
deficiencies in our or related parties’ cyber security.
Given our limited operating history, we are still in the process of implementing our internal security measures.
Our internal computer systems and those of current and future third parties on which we rely may fail and are vulnerable to
damage from computer viruses and unauthorized access. Our information technology and other internal infrastructure
systems, including corporate firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure
that could disrupt our operations. While we have not, to our knowledge, experienced any such material system failure or
security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material
disruption of our development programs and our business operations. For example, the loss of clinical trial data from
completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our
costs to recover or reproduce the data. Likewise, we currently rely, and expect to continue to rely, on third parties for the
manufacture of our product candidate or any future product candidates and to conduct clinical trials, and similar events
relating to their computer systems could also have a material adverse effect on our business. To the extent that any
disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure
of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the
further development and commercialization of our product candidate or any future product candidates could be hindered or
delayed.
We use and generate materials that may expose us to material liability.
Our research programs involve the use of hazardous materials and chemicals, which are currently only handled by
third parties. We are subject to foreign, federal, state and local environmental and health and safety laws and regulations
governing, among other matters, the use, manufacture, handling, storage and disposal of hazardous materials and waste
products. We may incur significant costs to comply with these current or future environmental and health and safety laws
and regulations. In addition, we cannot completely eliminate the risk of contamination or injury from hazardous materials
and may incur material liability as a result of such contamination or injury. In the event of an accident, an injured party
may seek to hold us liable for any damages that result. Any liability could exceed the limits or fall outside the coverage of
our workers’ compensation, property and business interruption insurance and we may not be able to maintain insurance on
acceptable terms, if at all. We currently carry no insurance specifically covering environmental claims.
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Risks Related to the COVID-19 Pandemic
Our business could be adversely affected by the effects of health epidemics, including the recent COVID-19
pandemic, in regions where we, or third parties on which we rely, have significant manufacturing, analytical laboratory
and transportation facilities, concentrations of clinical trial sites or other business operations. The COVID-19 pandemic
could materially affect our operations, including at our headquarters in the San Francisco Bay Area, and at our clinical
trial sites, as well as the business or operations of our manufacturers, CROs or other third parties with whom we
conduct business.
Our business could be adversely affected by health epidemics in regions where we have concentrations of clinical
trial sites or other business operations, and could cause significant disruption in the operations of third-party manufacturers
and CROs upon whom we rely. For example, in December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a
disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to
multiple countries, including the United States and several European countries. In March 2020, the World Health
Organization declared COVID-19 a pandemic, and the U.S. government-imposed travel restrictions on travel between the
United States, Europe and certain other countries. Further, the President of the United States declared the COVID-19
pandemic a national emergency, invoking powers under the Stafford Act, the legislation that directs federal emergency
disaster response. Similarly, the State of California declared a state of emergency related to the spread of COVID-19. We
have instituted work-from-home policies for all of our employees. The effects of our work-from-home policies may
negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which
will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our
business in the ordinary course. The extent to which the coronavirus impacts our operations or those of our third-party
partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence,
including the duration of the outbreak, new information that will emerge concerning the severity of the coronavirus and the
actions to contain the coronavirus or treat its impact, among others.
Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or
other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could
impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost
of materials, which would disrupt our supply chain.
Additionally, timely enrollment in planned clinical trials is dependent upon clinical trial sites which will be
adversely affected by global health matters, such as pandemics. We are conducting clinical trials for our product candidates
in geographies which are currently being affected by the coronavirus. Some factors from the coronavirus outbreak that will
delay or otherwise adversely affect enrollment in the clinical trials of our product candidates, as well as our business
generally, include:
● the diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns,
including the attention of physicians serving as our clinical trial investigators, hospitals serving as our clinical
trial sites and hospital staff supporting the conduct of our prospective clinical trials;
● limitations on travel that could interrupt key trial and business activities, such as clinical trial site initiations
and monitoring, domestic and international travel by employees, contractors or patients to clinical trial sites,
including any government-imposed travel restrictions or quarantines that will impact the ability or
willingness of patients, employees or contractors to travel to our clinical trial sites or secure visas or entry
permissions, a loss of face-to-face meetings and other interactions with potential partners, any of which could
delay or adversely impact the conduct or progress of our prospective clinical trials;
● interruption in global shipping affecting the transport of clinical trial materials, such as patient samples,
investigational drug product and conditioning drugs and other supplies used in our prospective clinical trials;
● business disruptions caused by potential workplace, laboratory and office closures and an increased reliance
on employees working from home, disruptions to or delays in ongoing laboratory experiments and
operations, product manufacturing and supply, staffing shortages, travel limitations or mass transit
disruptions, any of which could adversely impact our business operations or delay necessary interactions
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with local regulators, ethics committees and other important agencies and contractors that enrolled
participants will drop out before completion; and
● the FDA and other regulators have made COVID-19 a primary priority, which can result in delays for trials
unrelated to the pandemic.
Moreover, COVID-19 may also severely affect employees of third-party CROs located in affected geographies
that we rely upon to carry out such enrollments and trials. Such events could cause costly delays to our clinical trial
activities, which could adversely affect our ability to obtain regulatory approval for and to commercialize our product
candidates, increase our operating expenses, and have a material adverse effect on our financial results.
Additionally, as of June 23, 2020, the FDA noted it is continuing to ensure timely reviews of applications for
medical products during the COVID-19 pandemic in line with its user fee performance goals; however, FDA may not be
able to continue its current pace and approval timelines could be extended, including where a pre-approval inspection or an
inspection of clinical sites is required and due to the COVID-19 pandemic and travel restrictions FDA is unable to
complete such required inspections during the review period. In 2020, several companies announced receipt of complete
response letters due to the FDA's inability to complete required inspections for their applications. Regulatory authorities
outside the U.S. may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may
experience delays in their regulatory activities. If the FDA becomes unable to continue its current level of performance, we
could experience delays and setbacks for our product candidates and for any approvals we may seek which could adversely
affect our business.
These and other factors arising from the coronavirus could worsen in countries that are already afflicted with the
coronavirus or could continue to spread to additional countries. Any of these factors, and other factors related to any such
disruptions that are unforeseen, could have a material adverse effect on our business and our results of operation and
financial condition. Further, uncertainty around these and related issues has severely harmed and is expected to continue to
severely harm the economy of the United States, which could impact our ability to raise the necessary capital needed to
develop and commercialize our product candidates.
General Risk Factors
Risks Related to an Investment in Our Securities
The market price of our stock may be volatile, and you could lose all or part of your investment.
The trading price of our common stock is likely to be volatile and subject to wide fluctuations in response to
various factors, some of which we cannot control. In addition to the factors discussed in this “Risk Factors” section and
elsewhere in this Annual Report on Form 10-K, these factors include:
● developments associated with our license with Amgen, including any termination or other change in our
relationship with Amgen;
● the success of competitive products or technologies;
● regulatory actions with respect to our product candidate or any future product candidates or our competitors’
product candidates or products;
● results of clinical trials of our product candidate or any future product candidates or those of our competitors;
● actual or anticipated changes in our growth rate relative to our competitors;
● announcements by us or our competitors or collaborators of significant acquisitions, strategic collaborations,
joint ventures, collaborations or capital commitments;
● regulatory, legal or payor developments in the United States and other countries;
● developments or disputes concerning patent applications, issued patents or other proprietary rights;
● the recruitment or departure of key personnel;
● the level of expenses related to any of our product candidate or any future product candidates or clinical
development programs;
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● the results of our efforts to in-license or acquire additional product candidates or products;
● actual or anticipated changes in estimates as to financial results, development timelines or recommendations
by securities analysts;
● variations in our financial results or those of companies that are perceived to be similar to us;
● fluctuations in the valuation of companies perceived by investors to be comparable to us;
● share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
● announcement or expectation of additional financing efforts;
● sales of our common stock by us, our insiders or our other stockholders;
● changes in the structure of healthcare payment systems;
● general economic, industry and market conditions, including the ongoing COVID-19 pandemic;
● market conditions in the pharmaceutical and biotechnology sectors; and
● general economic, industry and market conditions.
In addition, the stock market in general, and the market for biotechnology companies in particular, have
experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of these companies, including very recently in connection with the ongoing COVID-19 pandemic, which has
resulted in decreased stock prices for many companies notwithstanding the lack of a fundamental change in their
underlying business models or prospects. Broad market and industry factors, including potentially worsening economic
conditions and other adverse effects or developments relating to the ongoing COVID-19 pandemic, may significantly
reduce the market price of our common stock, regardless of our actual operating performance. The realization of any of the
above risks or any of a broad range of other risks, including those described in this “Risk Factors” section, could have a
dramatic and material adverse impact on the market price of our common stock.
Because of potential volatility in our trading price and trading volume, we may incur significant costs from
class action securities litigation.
Holders of stock in companies that have a volatile stock price frequently bring securities class action litigation
against the company that issued the stock. We may be the target of this type of litigation in the future. If any of our
stockholders were to bring a lawsuit of this type against us, even if the lawsuit is without merit, we could incur substantial
costs defending the lawsuit. A stockholder lawsuit could also divert the time and attention of our management. Securities
litigation against us could result in substantial costs and divert our management’s attention from other business concerns,
which could seriously harm our business.
We are an “emerging growth company” as defined in the JOBS Act and a “smaller reporting company” as
defined in the Exchange Act and will be able to avail ourselves of reduced disclosure requirements applicable to
emerging growth companies and smaller reporting companies, which could make our common stock less attractive to
investors and adversely affect the market price of our common stock.
For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of
certain exemptions from various requirements applicable to public companies that are not “emerging growth companies”
including:
● the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that our independent registered public
accounting firm provide an attestation report on the effectiveness of our internal control over financial
reporting;
● the “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain
executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to
approve golden parachute arrangements for certain executive officers in connection with mergers and certain
other business combinations) of the Dodd-Frank Act and some of the disclosure requirements of the Dodd-
Frank Act relating to compensation of our executive officers; and
● the requirement to provide detailed compensation discussion and analysis in proxy statements and reports
filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive
compensation.
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We may take advantage of these reporting exemptions until we are no longer an emerging growth company, which
in certain circumstances could be for up to five years. We will remain an emerging growth company until the earlier of
(1) the last day of the fiscal year (a) following the fifth anniversary of the completion of the IPO (b) in which we have total
annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which requires
the market value of our common stock that is held by non-affiliates to exceed $700.0 million as of the prior June 30th, and
(2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We
cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some
investors find our common stock less attractive as a result, there may be a less active trading market for our common stock
and our stock price may be more volatile.
We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller
reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the
scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting
and non-voting common stock held by non-affiliates is more than $250.0 million measured on the last business day of our
second fiscal quarter, or our annual revenues are more than $100.0 million during the most recently completed fiscal year
and our voting and non-voting common stock held by non-affiliates is more than $700.0 million measured on the last
business day of our second fiscal quarter.
Although we are still evaluating the JOBS Act, we currently intend to take advantage of some, but not all, of the
reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth
company” and “smaller reporting company.” We have elected to avail ourselves of this exemption and, therefore, we are
not subject to the same new or revised accounting standards as other public companies that are not emerging growth
companies or smaller reporting companies. As a result, changes in rules of U.S. generally accepted accounting principles or
their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could
significantly affect our financial position and results of operations. In addition, our independent registered public
accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over
financial reporting so long as we qualify as an “emerging growth company,” which may increase the risk that material
weaknesses or significant deficiencies in our internal control over financial reporting go undetected. Likewise, so long as
we qualify as a “smaller reporting company” or an “emerging growth company,” we may elect not to provide you with
certain information, including certain financial information and certain information regarding compensation of our
executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may
make it more difficult for investors and securities analysts to evaluate our company. We cannot predict if investors will find
our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less
attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more
volatile and may decline.
We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.
We currently anticipate that we will retain future earnings for the development, operation and expansion of our
business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders
will therefore be limited to the appreciation of their stock.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We designed our disclosure controls and procedures to reasonably assure that information we must disclose in
reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that
any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual
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acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly,
because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be
detected.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about
our business, our stock price and trading volume could decline.
The trading market for our common stock will depend, in part, on the research and reports that securities or
industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish
research on our company. If no securities or industry analysts commence coverage of our company or if they cease to cover
our company, the trading price for our stock would likely be negatively impacted. In the event that securities or industry
analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or
unfavorable research about our business, our stock price would likely decline. In addition, if our operating results fail to
meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of our
company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price
and trading volume to decline.
Risks Related to Our Charter and Bylaws
Anti-takeover provisions under our organizational documents and Delaware law could delay or prevent a
change of control, which could limit the market price of our common stock and may prevent or frustrate attempts by our
stockholders to replace or remove our current management.
Our fourth amended and restated certificate of incorporation and second amended and restated bylaws contain
provisions that could delay or prevent a change of control of our company or changes in our board of directors that our
stockholders might consider favorable. Some of these provisions include:
● a board of directors divided into three classes serving staggered three-year terms, such that not all members of
the board will be elected at one time;
● a prohibition on stockholder action through written consent, which requires that all stockholder actions be
taken at a meeting of our stockholders;
● a requirement that special meetings of the stockholders may be called only by the board of directors acting
pursuant to a resolution approved by the affirmative vote of a majority of the directors then in office, and
special meetings of stockholders may not be called by any other person or persons;
● advance notice requirements for stockholder proposals and nominations for election to our board of directors;
● a requirement that no member of our board of directors may be removed from office by our stockholders
except for cause and, in addition to any other vote required by law, upon the approval of not less than two-
thirds (2/3) of all outstanding shares of our voting stock then entitled to vote in the election of directors;
● a requirement of approval of not less than a majority of all outstanding shares of our voting stock to amend
any bylaws by stockholder action and not less than two-thirds (2/3) of all outstanding shares of our voting
stock to amend specific provisions of our certificate of incorporation; and
● the authority of the board of directors to issue preferred stock on terms determined by the board of directors
without stockholder approval, which preferred stock may include rights superior to the rights of the holders of
common stock.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the
Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or
more of our outstanding voting stock. These anti-takeover provisions and other provisions in our fourth amended and
restated certificate of incorporation and second amended and restated bylaws could make it more difficult for stockholders
or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current
board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These
provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors
of your choosing or cause us to take other corporate actions you desire. Any delay or
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prevention of a change of control transaction or changes in our board of directors could cause the market price of our
common stock to decline.
Our second amended and restated bylaws which became effective upon the effectiveness of our registration
statement designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of
actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us or our directors, officers, or employees.
Our second amended and restated bylaws that became effective upon the effectiveness of our registration
statement provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of
Delaware will be the sole and exclusive forum for state law claims for (i) any derivative action or proceeding brought on
our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers, and
employees to us or our stockholders, (iii) any action asserting a claim against us or any of our current or former directors,
officers, or other employees or stockholders, arising out of or pursuant to any provision of the Delaware General
Corporation Law, our amended and restated certificate of incorporation or our second amended and restated bylaws or
(iv) any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of
Chancery having personal jurisdiction over the indispensable parties named as defendants therein. This exclusive forum
provision will not apply to any causes of action arising under the Exchange Act or any other claim for which the federal
courts have exclusive jurisdiction. In addition, our second amended and restated bylaws will provide that any person or
entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and
consented to the foregoing provisions. Additionally, the forum selection clause in our second amended and restated bylaws
may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
We have chosen the Court of Chancery of the State of Delaware as the exclusive forum for such causes of action
because we are incorporated in the State of Delaware and we are familiar with the procedures and rules applicable in such
forum.
Risks Related to Income Taxes
Changes in tax laws could adversely affect our business and financial condition.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons
involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax
laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent
years, many such changes have been made and changes are likely to continue to occur in the future. For example, on March
27, 2020, the “Coronavirus Aid, Relief, and Economic Security Act” or the CARES Act was enacted, which included
certain changes in tax law intended to stimulate the U.S. economy in light of the COVID-19 coronavirus outbreak,
including temporary beneficial changes to the treatment of net operating losses, interest deductibility limitations and
payroll tax matters. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial
condition or results of operations.
We might not be able to utilize a significant portion of our net operating loss carryforwards and research and
development tax credit carryforwards.
As of December 31, 2020, we had U.S. federal and state net operating loss, or NOL, carryforwards of $127.4
million and $47.2 million, respectively and federal and state research and development tax credit carryforwards of $2.4
million and $0.4 million, respectively. If not utilized, such NOL carryforwards (other than any federal NOL carryforwards
arising in taxable years beginning after December 31, 2017) and research and development credits will expire at various
dates beginning in 2037 and 2032, respectively. We do not anticipate generating revenue from sales of products for the
foreseeable future, if ever, and we may never achieve profitability. These NOL and tax credit carryforwards could expire
unused and be unavailable to offset future income tax liabilities. Under the current law, federal NOL carryforwards
generated in tax years beginning after December 31, 2017 are not subject to expiration. However, utilization of NOL
carryforwards generated in tax years beginning after December 31, 2017 are limited to a maximum of 80% of the taxable
income for such year determined without regard to such NOL carryforwards. In
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addition, under Section 382 of the Code, the amount of benefits from our NOL carryforwards may be impaired or limited if
we incur a cumulative ownership change of more than 50%, as interpreted by the U.S. Internal Revenue Service, over a
three-year period. We experienced ownership changes on March 24, 2017, June 7, 2018 and July 8, 2020. We may
experience ownership changes again in the future, some of which may be outside our control. As a result, our use of federal
NOL carryforwards could be limited. State NOL carryforwards may be similarly limited. Any such disallowances may
result in greater tax liabilities than we would incur in the absence of such a limitation and any increased liabilities could
adversely affect our business, results of operations, financial position and cash flows.
Item 1B. Unresolved Staff Comments.
None
Item 2. Properties.
We lease office space where our corporate headquarters are located, which consists of 6,647 square feet located at
601 Gateway Boulevard, South San Francisco, California. We believe our current office space is sufficient to meet our
office needs until the expiration of the lease in July 2027.
Item 3. Legal Proceedings.
From time to time, we may be involved in lawsuits, claims, investigations and proceedings, consisting of
intellectual property, commercial, employment and other matters which arise in the ordinary course of business. While the
outcome of any such proceedings cannot be predicted with certainty, as of December 31, 2020, we were not party to any
legal proceedings that we would expect to have a material adverse impact on our financial position, results of operations or
cash flow.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
On June 20, 2019 our common stock began trading on the Nasdaq Global Select Market under the symbol “AKRO”. Prior
to that time, there was no public market for our common stock.
Stockholders
As of March 10, 2021, there were five stockholders of record of our common stock. The actual number of holders of
our common stock is greater than this number of record holders, and includes stockholders who are beneficial owners, but
whose shares are held in street name by brokers or held by other nominees. This number of holders of record also does not
include stockholders whose shares may be held in trust by other entities.
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Dividend Policy
We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash
dividends on our common stock in the foreseeable future. We intend to retain all available funds and any future earnings to
fund the development and expansion of our business. Any future determination to pay dividends will be at the discretion of
our board of directors and will depend upon a number of factors, including our results of operations, financial condition,
future prospects, contractual restrictions, restrictions imposed by applicable law and other factors that our board of
directors deems relevant.
Equity Compensation Plans
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by
reference to Item 12 of Part III of this Annual Report.
Issuer Purchases of Equity Securities
We did not purchase any of our registered equity securities during the period covered by this Annual Report.
Item 6. Reserved.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our financial statements and accompanying footnotes
appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and
analysis or set forth elsewhere in this Annual Report on Form 10-K, 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
Part 1, Item 1A, “Risk Factors” in this Annual Report on Form 10-K, 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.
Overview
We are a cardio-metabolic nonalcoholic steatohepatitis, or NASH, company dedicated to developing pioneering
medicines designed to restore metabolic balance and improve overall health. 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, formerly known as AKR-001, 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. We conducted a Phase 2a clinical trial,
the BALANCED study, to evaluate EFX in the treatment of biopsy-confirmed NASH patients. The main portion of this
study in NASH patients with F1-F3 fibrosis showed EFX’s potential to reduce liver fat, improve liver health, reverse
fibrosis, improve glycemic control and reduce risks of cardiovascular disease. In February 2021 we began screening for a
Phase 2b clinical trial, the HARMONY study, to evaluate EFX in the treatment of NASH patients with F2/F3 fibrosis.
Preliminary results of the HARMONY study, expected in the second half of 2022, will inform dose selection for a
registrational Phase 3 clinical trial. An expansion cohort of the BALANCED study in cirrhotic NASH patients, Cohort C,
is currently undergoing data analysis and we expect to report top-line results in the first half of 2021, which will include the
results of paired biopsies from a subset of patients (18/30) who consented to post-treatment biopsies after a protocol
amendment. Results from Cohort C will inform next steps in our development plans for EFX in cirrhotic NASH patients.
Based on clinical data to date, we believe EFX has the potential to be a foundational NASH monotherapy.
EFX has been administered to a total of 162 patients with either NASH (n=79) or T2D (n=83) in three
randomized, double-blind, placebo-controlled clinical trials for up to 16 weeks. In all three trials, patients treated with EFX
achieved highly significant improvements in lipoprotein profile, including reduction in triglycerides of up to 45 percent, a
key attribute given that cardiovascular disease remains the number one cause of mortality in NASH patients. In the
BALANCED study EFX patients experienced improvements in glycemic control, including reductions in HbA1c of up to
0.9% among diabetic NASH patients. EFX patients also achieved highly significant relative reductions in liver fat of 63 to
71 percent across dose groups, compared to 0 percent for placebo. Significant reductions in ALT (up to 51%), were also
observed. Most importantly, EFX patients experienced substantial improvements in liver histology based on analysis of
paired biopsies. Of the 40 EFX patients who had end-of-treatment biopsies, we observed that 48% achieved at least a one-
stage improvement in fibrosis without worsening of NASH and 48% achieved NASH resolution with no worsening of
fibrosis. Among patients who had F2/F3 fibrosis at baseline, 68% had at least a 1-stage improvement in fibrosis, while 50%
had a 2-stage fibrosis improvement.
We believe EFX holds the potential to be a promising monotherapy for the treatment of NASH, if approved.
NASH is a complex disease, and its treatment ideally would include intervening at all of the various stages of its
pathogenesis. Based on the results of the BALANCED study to date, we believe EFX could potentially address all of the
various stages of NASH pathogenesis in a single treatment: reducing steatohepatitis, resolving fibrosis and helping restore
healthy metabolism to the whole body.
We were incorporated in January 2017 and 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 and providing general and administrative support for these
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operations. To date, we have principally raised capital through the issuance of convertible preferred stock and the initial
public offering of our common stock in June 2019 and an underwritten public offering of our common stock in July 2020.
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 $79.2 million and $43.8 million for the years ended December 31, 2020 and
2019, respectively. As of December 31, 2020, we had an accumulated deficit of $209.5 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 December 31, 2020, we had cash, cash equivalents and short-term marketable securities of $268.4 million.
Impact of the COVID-19 Pandemic
As of March 2021, a novel strain of coronavirus, or COVID-19, has spread globally. Efforts to contain the spread
of COVID-19 have intensified and the United States, Europe and Asia have implemented severe travel restrictions, social
distancing requirements, and stay-at-home orders, among other restrictions, which have led 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 year ended December 31, 2020 were 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 has been completed. In addition, enrollment in our recently initiated Phase 2b HARMONY trial
has not been materially impacted by the COVID-19 pandemic.
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Commercial-scale manufacture of GMP drug substance, or API, was completed in April 2020 without any impact
from COVID-19. Manufacture of GMP drug product for our Phase 2b clinical trial was completed in September 2020, also
without any impact from COVID-19.
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, the actions taken to contain the pandemic or
mitigate its impact, 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 results of operations
Revenue
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.
Operating expenses
Research and development expenses
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:
● 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. We expect our research and development expenses to vary
from period to period, driven primarily by spending required to conduct clinical trials and manufacturing expenses for
EFX. 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.
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Our clinical development costs may vary significantly based 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 and drug product for use in production of our product candidate;
● 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
States and 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 our supply of
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.
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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 SEC requirements.
Other income
Other income
Other income consists primarily of interest income earned on our cash, cash equivalents and short-term
marketable securities.
Income taxes
Since our inception, we have not recorded any income tax benefits for the net losses we have incurred in each
period or for our earned research and development tax credits, as we believe, based upon the weight of available evidence,
that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. As of
December 31, 2020, we had U.S. federal and state net operating loss carryforwards of $127.4 million and $47.2 million,
respectively, which may be available to offset future income tax liabilities and expire at various dates beginning in 2037.
The federal net operating loss carryforwards include $125.0 million, which may be carried forward indefinitely. As of
December 31, 2020, we also had U.S. federal and state research and development tax credit carryforwards of $2.4 million
and $0.4 million, respectively, which may be available to offset future tax liabilities which expire at various dates
beginning in 2032. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet
date.
Results of operations
Comparison of the years ended December 31, 2020 and 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and 2019:
Year Ended
December 31,
2020
2019
(in thousands, except percentages)
$ Change
% Change
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income
Net loss
$
$
64,916
15,238
80,154
(80,154)
947
(79,207)
$
$
37,046
8,605
45,651
(45,651)
1,896
(43,755)
$
$
27,870
6,633
34,503
(34,503)
(949)
(35,452)
75 %
77 %
76 %
76 %
(50) %
81 %
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Research and development expenses
The following table summarizes our research and development expenses incurred during the years ended
December 31, 2020 and 2019:
Research and development expenses:
Direct EFX program expenses
Personnel and related costs
Total research and development expenses
Year Ended
December 31,
2020
2019
$ Change
% Change
(in thousands, except percentages)
$
$
59,884
5,032
64,916
$
$
33,978
3,068
37,046
$
$
25,906
1,964
27,870
76 %
64 %
75 %
Research and development expenses were $64.9 million and $37.0 million for the years ended December 31, 2020
and 2019, respectively, an increase of $27.9 million. Direct costs for our EFX program increased $25.9 million, attributed
primarily to a $30.1 million increase in third-party contract manufacturing expenses for EFX partially offset by a decrease
of $1.6 million for pre-clinical toxicology studies and a decrease of $2.5 million for a clinical milestone paid to Amgen in
July 2019 that was not repeated in the 2020 period. Personnel and related costs increased $2.0 million, due to a $1.1
million increase in stock-based compensation and a $0.9 million increase in wages. 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.
General and administrative expenses
General and administrative expenses were $15.2 million and $8.6 million for the years ended December 31, 2020
and 2019, respectively, an increase of $6.6 million. Personnel and related costs increased $3.5 million, due primarily to a
$3.1 million increase in stock-based compensation. Legal, accounting and other professional service fees increased $1.9
million and insurance expenses increased by $1.2 million, which are related to our growth after becoming a public
company in 2019.
Other income
Other income for the year ended December 31, 2020 is comprised primarily of $0.9 million of interest income
from our cash, cash equivalents and short-term marketable securities compared to $1.9 million for the year ended
December 31, 2019. This decrease is related to lower market interest rates available on our investment funds.
Liquidity and capital resources
From our inception through December 31, 2020, 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. To
date, we have 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 a follow-on public offering of our common stock in July
2020. Through December 31, 2020, we had received gross proceeds totaling $412.7 million from sales of our redeemable
convertible preferred stock in 2017 and 2018, the initial public offering of our common stock in June 2019 and the follow-
on public offering of our common stock in July 2020. As of December 31, 2020, we had cash, cash equivalents and short-
term marketable securities of $268.4 million. We have invested our cash resources primarily in liquid money market
accounts, commercial paper and corporate debt securities.
The following table summarizes our cash flows for the periods indicated:
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Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
$ (70,804)
(9,761)
203,107
$ 122,542
$ (35,627)
(71,513)
95,988
$ (11,152)
Year Ended
December 31,
2020
2019
(in thousands)
Cash flows from operating activities
Cash used in operating activities for the year ended December 31, 2020 was $70.8 million, consisting of a net loss
of $79.2 million, which was partially offset by non-cash charges of $6.0 million for stock-based compensation expense and
net cash provided by the net changes in our operating assets and liabilities of $2.1 million. The net change in operating
assets and liabilities was primarily due to a $2.5 million in increase in accounts payable.
Cash used in operating activities for the year ended December 31, 2019 was $35.6 million, consisting of a net loss
of $43.8 million, which was partially offset by non-cash charges of $1.8 million for stock-based compensation expense and
net cash provided by changes in our operating assets and liabilities of $6.5 million. The change in operating assets and
liabilities was primarily due to a reduction in accrued expenses and other current liabilities of $7.4 million, of which $6.1
million was due to the timing of payments to our CROs and CMOs, and $1.3 million that was related to employee
compensation. These amounts were partially offset by a $0.5 million increase in prepaid expenses and other current assets
and a $0.4 million decrease in accounts payable, both related to the timing of prepayments and payments to our CROs,
CMOs and insurance vendors.
Cash flows from investing activities
Cash used in investing activities for the year ended December 31, 2020 was $9.8 million, consisting of $105.4
million from the sales and maturities of short-term marketable securities offset by $115.0 million in purchases of short-term
marketable securities.
Cash used in investing activities for the year ended December 31, 2019 was $71.5 million, consisting of purchases
of short-term marketable securities.
Cash flows from financing activities
Cash provided by financing activities for the year ended December 31, 2020 was $203.1 million, consisting of
$202.6 million of follow-on public offering proceeds, net of underwriting discounts, commissions and offering costs, and
$0.5 million in proceeds from the exercise of stock options and the issuance of employee stock purchase plan shares.
Cash provided by financing activities for the year ended December 31, 2019 was $96.0 million, consisting of
$98.4 million of IPO proceeds, net of underwriting discounts and commissions, partially offset by $2.9 million of related
offering costs and $0.5 million in proceeds from the exercise of stock options and the issuance of employee stock purchase
shares.
Funding requirements
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
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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;
● 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 candidates, 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 where 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
We have entered into agreements with CROs and CMOs to provide services in connection with our nonclinical
studies and clinical trials and to manufacture clinical development materials. Apart from the contracts with non-cancelable
purchase commitments, we have entered into other contracts in the normal course of business with certain
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CROs, CMOs, and other third parties for nonclinical research studies and testing, clinical trials and manufacturing services.
These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior notice. Payments
due upon cancellation consist only of payments for services provided and expenses incurred, including non-cancelable
obligations of our service providers, up to the date of cancellation.
The following table represents our non-cancelable contractual obligations aggregated by type (in
thousands):
Operating lease obligations1
Purchase obligations2
Total non-cancelable contractual obligations
Total
$ 2,167
5,513
$ 7,680
Payments due by period as of December 31, 2020
1 to 3
Less than 1
years
year
(in thousands)
$
3 to 5
years
$
303
5,513
$ 5,816
$
633
$
—
$
633
672
$
—
$
672
years
559
—
559
More than 5
1 See Note 12. Commitments and contingencies of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on
Form 10-K for additional information.
2 Purchase obligations represent management’s estimate of the future liability that would occur if agreements with CROs and CMOs were
prematurely cancelled. We do not intend to prematurely cancel any agreements that we are currently party to.
Under the Amgen Agreement, we are obligated to pay Amgen $7.5 million in connection with dosing the first
patient in a Phase 3 clinical trial, up to $30.0 million in connection with marketing approvals, and aggregate milestone
payments of up to $75.0 million upon the achievement of specified commercial milestones for all products licensed under
the agreement. Commencing on the first commercial sale of licensed products, we are obligated to pay tiered royalties on
escalating tiers of annual net sales of licensed products ranging from low to high single-digit percentages. The amount and
timing of any contingent payment obligations to Amgen are not currently known. The first clinical milestone, in the
amount of $2.5 million, was paid to Amgen in July 2019.
Critical accounting policies and significant judgments and estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in
the United States or GAAP. The preparation of our consolidated financial statements and related disclosures requires us to
make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses, and the disclosure of
contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience,
known trends and events, and various other factors that we believe are 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. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from
these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial
statements appearing elsewhere in this Annual Report, we believe that the following critical accounting policies reflect the
most significant judgments and estimates used in the preparation of our consolidated financial statements.
Cash and cash equivalents
We consider all highly liquid investments with original maturities of three months or less at the time of purchase
to be cash equivalents. Cash equivalents, which consist primarily of amounts invested in money market accounts, are stated
at fair value.
Short-term marketable securities
We invest in short-term marketable securities, primarily money market funds, commercial paper, U.S. treasury
securities and corporate debt securities. We classify our short-term marketable securities as available-for-sale securities and
report them at fair value in cash equivalents or short-term marketable securities on the consolidated balance sheets with
related unrealized losses included within accumulated other comprehensive loss on the consolidated balance sheets.
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The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity,
which is included in other income on the consolidated statements of operations and comprehensive loss. Realized gains and
losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other
income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities
classified as available-for-sale are included in other income.
We regularly review all of our investments for other-than-temporary declines in estimated fair value. Our review
includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number
of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether we have the intent to
sell the securities and whether it is more likely than not that we will be required to sell the securities before the recovery of
their amortized cost basis. When we determine that the decline in estimated fair value of an investment is below the
amortized cost basis and the decline is other-than-temporary, we reduce the carrying value of the security and record a loss
for the amount of such decline.
Accrued research and development expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued
research and development expenses. This process involves reviewing open contracts and purchase orders, communicating
with our applicable personnel to identify services that have been performed on our behalf and estimating the level of
service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise
notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-
determined schedule or when contractual milestones are met; however, some require advance payments. We make
estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and
circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers
and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid
to:
•
•
•
vendors in connection with nonclinical development activities;
CROs and investigative sites in connection with nonclinical studies and clinical trials; and
CMOs in connection with the production of nonclinical and clinical trial materials.
We base the expense recorded related to external research and development on our estimates of the services
received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and
manage nonclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to
negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which
payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In
accruing service fees, we estimate the time period over which services will be performed and the level of effort to be
expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate,
we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be
materially different from amounts actually incurred, our understanding of the status and timing of services performed
relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too
high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of
accrued research and development expenses.
Stock-based compensation
We measure all stock-based awards granted to employees and nonemployees based on the fair value on the date of
the grant and recognize compensation expense for those awards over the requisite service period, which is generally the
vesting period of the respective award, on a straight-line basis. We account for forfeitures as they occur. We estimate the
fair value of stock option grants using the Black-Scholes option pricing model. Prior to our initial public offering, the
exercise price for all stock options granted was at the estimated fair value of the underlying common stock as determined
on the date of grant by our board of directors.
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The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing
model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the
expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and
our expected dividend yield. We completed our IPO in June 2019 and accordingly, we lack sufficient company-specific
historical and implied volatility information for our shares traded in the public markets. Therefore, we estimate our
expected share price volatility based on the historical volatility of publicly traded peer companies and expect to continue to
do so until such time as we have adequate historical data regarding the volatility of our own traded share price. The
expected term of our stock options has been determined utilizing the "simplified" method for awards that qualify as "plain-
vanilla" options. 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
based on the fact that we have never paid cash dividends on our common stock and do not expect to pay any cash
dividends in the foreseeable future. The fair value of each restricted common stock award is estimated on the date of grant
based on the fair value of our common stock on that same date.
Compensation expense for purchases under the Employee Stock Purchase Plan is recognized based on the fair
value of the common stock estimated based on the closing price of our common stock as reported on the date of offering,
less the purchase discount percentage provided for in the plan.
Stock-based compensation expense was $6.0 million and $1.8 million for the years ended December 31, 2020 and
2019, respectively. As of December 31, 2020, we had $23.2 million of unrecognized stock-based compensation costs,
which we expect to recognize over a weighted-average period of 2.5 years.
We have not recognized, and we do not expect to recognize in the near future, any tax benefit related to stock-
based compensation expense as a result of the full valuation allowance on our deferred tax assets including deferred tax
assets related to our net operating loss carryforwards.
Income taxes
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated
financial statements or in our tax returns. Deferred tax assets and liabilities are determined based on the difference between
the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for
income taxes. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the
extent we believe, based upon the weight of available evidence, that it is more likely than not that all or a portion of the
deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense.
Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering
prudent and feasible tax planning strategies.
We account for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-
step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine
the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed
more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the
consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater
than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any
resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and
penalties.
Utilization of our NOL carryforwards and research and development tax credit carryforwards may be subject to a
substantial annual limitation due to ownership changes that may have occurred or that could occur in the future, as required
by Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, and similar state provisions.
These ownership change limitations may limit the amount of NOL carryforwards and other tax attributes that can be
utilized annually to offset future taxable income or tax liabilities. In general, an “ownership change” as defined by
Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an
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ownership change of more than 50 percentage points (by value) of the outstanding stock of a company by certain
stockholders. As of December 31, 2020, the Company determined that ownership changes occurred on March 24, 2017,
June 7, 2018 and July 8, 2020. As a result of the ownership changes, approximately $2.1 million and $3.6 million of the
NOLs will expire unutilized for federal and state purposes, respectively. The ability of the Company to use its remaining
NOL carryforwards may be further limited if the Company experiences a Section 382 ownership change as a result of
future changes in its stock ownership.
Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements,
as defined in the rules and regulations of the Securities and Exchange Commission.
Recent accounting pronouncements
See Note 2 to our consolidated financial statements included in Part I, Item 8, “Notes to Consolidated Financial
Statements,” of this Annual Report on Form 10-K for a description of recent accounting pronouncements applicable to our
business.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS
Act), and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to
other public companies that are not emerging growth companies. Section 107 of the JOBS Act provides that an emerging
growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act
of 1933 for complying with new or revised accounting standards issued subsequent to the enactment of the JOBS Act until
such time as those standards apply to private companies. Section 107 of the JOBS Act provides that we can elect to opt out
of the extended transition period at any time, which election is irrevocable. We have elected to avail ourselves of this
exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or
revised accounting standards as other public companies that are not emerging growth companies.
As an emerging growth company, we intend to rely upon other exemptions and reduced reporting requirements
under the JOBS Act, including without limitation (i) providing an auditor’s attestation report on our system of internal
controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any
requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm
rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated
financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the
earlier of (a) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (b) the last
day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (c) the date
on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (d) the date on
which we are deemed to be a large accelerated filer under the rules of the SEC.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information required by this Item is not applicable as we are electing scaled disclosure requirements available to
Smaller Reporting Companies with respect to this Item.
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Item 8. Financial Statements and Supplementary Data
AKERO THERAPEUTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2020 and 2019
Report of Independent Registered Accounting Firm
Audited Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
107
108
109
110
111
112
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Report of Independent Registered Public Accounting Firm
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Akero Therapeutics, Inc. and subsidiaries (the
"Company") as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss,
redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows, for each of the two years in the
period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period
ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Parsippany, NJ
March 16, 2021
We have served as the Company's auditor since 2018.
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Akero Therapeutics, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Short-term marketable securities
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Right of use asset
Other assets, noncurrent
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Total current liabilities
Operating lease liability, noncurrent
Other liabilities, noncurrent
Total liabilities
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $0.0001 par value, 150,000,000 shares authorized as of
December 31, 2020 and December 31, 2019; 34,741,649 and 28,567,837 shares
issued and outstanding as of December 31, 2020 and December 31, 2019,
respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31, 2020 December 31, 2019
$
$
$
$
$
$
$
187,242
81,145
2,958
271,345
131
1,662
201
273,339
3,428
9,683
13,111
1,516
—
14,627
64,788
71,612
1,649
138,049
—
—
69
138,118
947
8,422
9,369
—
23
9,392
4
468,238
(3)
(209,527)
258,712
273,339
$
3
259,049
(6)
(130,320)
128,726
138,118
The accompanying notes are an integral part of these consolidated financial statements.
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Akero Therapeutics, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income
Net loss
Net unrealized gain (loss) on short-term marketable securities
Comprehensive loss
Net loss per common share, basic and diluted
Weighted-average number of shares used in computing net loss per common share,
basic and diluted
Year ended December 31,
2019
2020
64,916
15,238
80,154
(80,154)
947
(79,207)
3
(79,204)
(2.52)
$
$
$
37,046
8,605
45,651
(45,651)
1,896
(43,755)
(6)
(43,761)
(2.90)
31,463,248
15,070,728
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
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Akero Therapeutics, Inc.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except share amounts)
Redeemable Convertible Preferred
Stock
Common Stock
Amount
Shares
Amount
Shares
64,730,410
$
124,728
238,986
$
— $
36,646
$
— $
(86,565)
Additional
Paid-In-
Capital
Accumulated
Other
Comprehensive
Gain (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
(49,919)
$
124,726
—
—
124,728
95,452
—
—
95,453
Balances at December 31, 2018
Conversion of convertible preferred stock into
common stock upon closing of public offering
Issuance of common stock upon closing of initial
public offering, net of issuance costs and
underwriting fees of $10,348
Issuance of restricted common stock upon early
exercise of stock options
Exercise of stock options
Vesting of restricted stock
Issuance of common stock pursuant to ESPP
purchases
Stock-based compensation expense
Net unrealized loss on short-term marketable
securities
Net loss
Balances at December 31, 2019
Issuance of common stock upon closing of follow-
on public offering, net of issuance costs and
underwriting fees of $906
Exercise of stock options
Vesting of restricted stock
Issuance of common stock pursuant to ESPP
purchases
Stock-based compensation expense
Disgorgement of stockholders' short-swing profits,
net
Net unrealized gain on short-term marketable
securities
Net loss
Balances at December 31, 2020
(64,730,410)
(124,728)
21,056,136
—
—
6,612,500
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
491,207
164,503
—
4,505
—
—
—
28,567,837
6,012,390
150,343
—
11,079
—
—
—
—
34,741,649
$
2
1
—
—
—
—
—
—
—
3
1
—
—
—
—
—
—
—
4
—
130
240
85
1,770
—
—
259,049
202,553
303
61
198
6,022
52
—
—
—
—
—
(6)
—
(6)
—
—
—
—
—
—
(43,755)
(130,320)
—
—
—
—
—
—
—
—
—
—
—
—
3
—
(3)
—
130
240
85
1,770
(6)
(43,755)
128,726
202,554
303
61
198
6,022
52
—
—
468,238
$
$
—
(79,207)
(209,527)
$
3
(79,207)
258,712
$
The accompanying notes are an integral part of these consolidated financial statements.
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Akero Therapeutics, Inc.
Consolidated Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense
Depreciation
Non-cash lease expense
Net amortization of premiums and discounts on short-term investments
Changes in operating assets and liabilities:
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other current liabilities
Other liabilities
Operating lease liability
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term marketable securities
Proceeds from sales of short-term marketable securities
Proceeds from maturities of short-term marketable securities
Purchase of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common stock in follow-on public offering, net of issuance costs
and underwriting fees
Proceeds from the issuance of common stock in initial public offering, net of issuance costs and
underwriting fees
Proceeds from the exercise of stock options
Proceeds from the issuance of common stock pursuant to employee stock purchase plan
purchases
Proceeds from the disgorgement of stockholders' short-swing profits, net
Proceeds from the early exercise of stock options in exchange for restricted common stock
Net cash provided by financing activities
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of the year
Cash, cash equivalents and restricted cash at the end of the year
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
INFORMATION:
Right of use asset obtained in exchange for operating lease liability
Net unrealizable gain (loss) on marketable securities
Remeasurement of right of use asset and operating lease liability
Conversion of convertible preferred stock into common stock
Year ended December 31,
2019
2020
$
(79,207)
$
(43,755)
6,022
17
196
83
(1,378)
2,481
1,122
(2)
(138)
(70,804)
(115,037)
9,864
95,560
(148)
(9,761)
1,770
—
—
(104)
(507)
(426)
7,395
—
—
(35,627)
(71,513)
—
—
—
(71,513)
202,554
—
—
303
198
52
—
203,107
122,542
64,848
187,390
$
95,452
130
85
—
321
95,988
(11,152)
76,000
64,848
$
1,751
$
3
173
$
— $
—
(6)
—
124,728
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
1. Nature of the business and basis of presentation
Akero Therapeutics, Inc., together with its wholly owned subsidiary Akero Securities Corporation, (“Akero” or
the “Company”) is a cardio-metabolic nonalcoholic steatohepatitis, or NASH, company dedicated to developing pioneering
medicines designed to restore metabolic balance and improve overall health. 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. The Company’s lead product candidate, 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. The Company conducted a Phase 2a clinical trial, the BALANCED study,
to evaluate EFX in the treatment of biopsy-confirmed NASH patients. The main portion of this study in NASH patients
with F1-F3 fibrosis showed EFX’s potential to reduce liver fat, improve liver health, reverse fibrosis, improve glycemic
control and reduce risks of cardiovascular disease. In February 2021 the Company began screening for a Phase 2b clinical
trial, the HARMONY study, to evaluate EFX in the treatment of NASH patients with F2/F3 fibrosis. Based on clinical data
to date, the Company believes EFX has the potential to be a foundational NASH monotherapy.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology
industry, including, but not limited to, completion and success of clinical testing, development by competitors of new
technological innovations, compliance with governmental regulations, dependence on key personnel and protection of
proprietary technology and the ability to secure additional capital to fund operations. EFX will require extensive clinical
testing prior to regulatory approval and commercialization. These efforts require significant amounts of additional capital,
adequate personnel, and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug
development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product
sales.
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) and include the accounts of the Company after elimination
of all intercompany accounts and transactions. All adjustments necessary for the fair presentation of the Company’s
consolidated financial statements for the periods have been reflected.
Initial public offering
On June 24, 2019, Akero completed its initial public offering or IPO at which time the Company issued 6,612,500
shares of common stock, including the exercise in full by the underwriters of their option to purchase up to 862,500
additional shares of common stock, at a public offering price of $16.00 per share. The Company received $98,394, net of
underwriting discounts and commissions, but before deducting offering costs payable by the Company, which were $2,942.
Upon the closing of the IPO, all outstanding shares of redeemable convertible preferred stock converted
into 21,056,136 shares of common stock (see Note 6). In connection with the completion of its IPO in June 2019, the
Company amended its certificate of incorporation to authorize the issuance of up to 150,000,000 shares of $0.0001 par
value common stock and 10,000,000 shares of $0.0001 par value preferred stock designated as undesignated preferred
stock.
Reverse stock split
On June 6, 2019, the Company effected a one-for-3.07418 reverse stock split of the Company’s common stock.
All common stock, stock options and per share information presented have been adjusted to reflect the reverse stock split
on a retroactive basis for all periods presented. There was no change in the par value of the Company’s common stock.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
The ratio by which shares of preferred stock are convertible into shares of common stock was adjusted to reflect the effects
of the reverse stock split.
Liquidity
In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are certain
conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a
going concern within one year after the date that the consolidated financial statements are issued.
Since its inception, the Company has funded its operations primarily with proceeds from sales of redeemable
convertible preferred stock and most recently with proceeds from its IPO in June 2019 and a follow-on public offering of
its common stock in July 2020. The Company has incurred recurring losses since its inception, including a net loss of
$79,207 and $43,755 for the years ended December 31, 2020 and 2019, respectively. In addition, as of December 31, 2020,
the Company had an accumulated deficit of $209,527. The Company expects to continue to generate operating losses for
the foreseeable future. As of March 16, 2021, the issuance date of these consolidated financial statements, the Company
expects that its existing cash, cash equivalents and short-term marketable securities of $268,387 as of December 31, 2020,
will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the
issuance date of these consolidated financial statements. The Company expects that it will require additional funding
beyond this time to complete the clinical development of EFX, commercialize EFX, if it receives regulatory approval, and
pursue in-licenses or acquisitions of other product candidates.
If the Company is unable to obtain funding, the Company will be forced to delay, reduce or eliminate some or all
of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely
affect its business prospects, or the Company may be unable to continue operations. Although management continues to
pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms
acceptable to the Company to fund continuing operations, if at all.
2. Summary of significant accounting policies
Use of estimates
The preparation of the Company's consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses
during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements
include, but are not limited to, the accrual of research and development expenses, the valuations of common stock and the
valuation allowance for deferred tax assets. The Company bases its estimates on historical experience, known trends and
other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing
basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in
estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the time
of purchase to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Short-term marketable securities
The Company invests in short-term marketable securities, primarily money market funds, commercial paper, U.S.
treasury securities and corporate debt securities. The Company classifies its short-term marketable securities as available-
for-sale securities and reports them at fair value in short-term marketable securities on the consolidated balance sheets with
related unrealized gains and losses included within accumulated other comprehensive gain (loss) on the consolidated
balance sheets. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to
maturity, which is included in other income on the consolidated statements of operations and comprehensive loss. Realized
gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are
included in other income. The cost of securities sold is based on the specific identification method. Interest and dividends
on securities classified as available-for-sale are included in other income.
The Company regularly reviews all its investments for other-than-temporary declines in estimated fair value. This
review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the
number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company
has the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the
securities before the recovery of their amortized cost basis. When the Company determines that the decline in estimated
fair value of an investment is below the amortized cost basis and the decline is other-than-temporary, the carrying value of
the security will be reduced and a loss will be recorded for the amount of such decline.
Restricted cash
As of December 31, 2020 the Company was required to maintain a separate cash balance of $108 for the benefit
of the landlord in connection with the Company’s Gateway office space lease in South San Francisco, California (the
“Gateway Lease”), which is classified within other assets (non-current) on the 2020 consolidated balance sheet (see
Note 12). As of December 31, 2019 the Company was required to maintain a separate cash balance of $20 for the benefit of
the landlord in connection with the Company’s Harbor office space lease in South San Francisco, California (the “Harbor
Lease”), which is classified within other assets (non-current) on the 2019 consolidated balance sheet (see Note 12).
As of December 31, 2020 and 2019, the Company was required to maintain a separate cash balance of $40 to
collateralize corporate credit cards with a bank, which are classified within other assets (non-current) on the consolidated
balance sheets.
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
cash, cash equivalents and short-term marketable securities. Periodically, the Company maintains deposits in accredited
financial institutions in excess of federally insured limits. The Company deposits its cash investments in financial
institutions that it believes have high credit quality and has not experienced any losses on such accounts and does not
believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking
relationships. At December 31, 2020 and 2019, all of the Company's cash, cash equivalents and short-term investments
were held at one accredited financial institution.
Property and equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is
provided using the straight-line method over the estimated useful lives of the assets, which is three years for furniture
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
and equipment. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the
improvements. Depreciation and amortization begin at the time the asset is placed in service.
Leases
Leases (Topic 842) Effective January 1, 2020
The Company determines whether an arrangement is or contains a lease at inception by assessing whether the
arrangement contains an identified asset and whether the Company has the right to control the identified asset. Right-of-
use, or ROU, assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities
represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the
lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based
on the measurement of the lease liability and are further adjusted by any lease payments made prior to or on lease
commencement, lease incentives received and initial direct costs incurred, as applicable. The Company elected, as allowed
under Topic 842 (or “ASC 842”), to not recognize leases with a lease term of one year or less on its balance sheet.
Operating lease costs included in the measurement of the lease are recognized on a straight-line basis over the lease term.
Variable lease costs are expensed as incurred as an operating expense.
In accordance with ASC 842, components of a lease should be split into three categories: lease components, non-
lease components, and non-components. The fixed and in-substance fixed contract consideration (including any
consideration related to non-components) must be allocated, based on the respective relative fair values, to the lease
components and non-lease components.
Entities may elect not to separate lease and non-lease components. Accordingly, entities making this election
would account for each lease component and related non-lease component together as a single lease component. The
Company has elected to account for lease and non-lease components together as a single lease component for all
underlying assets and allocate all of the contract consideration to the lease component only.
ASC 842 allows for the use of judgment in determining whether the assumed lease term is for a major part of the
remaining economic life of the underlying asset and whether the present value of lease payments represents substantially
all of the fair value of the underlying asset. The Company applies the bright line thresholds referenced in ASC 842 to assist
in evaluating leases for appropriate classification. The aforementioned bright lines are applied consistently to the
Company’s leases.
The Company determines the lease classification and the present value of future lease payments at the time of the
lease commencement using an incremental borrowing rate that it estimates based upon the Company’s credit risk and term
of the lease. The interest rate implicit in lease contracts has not historically been readily determinable and the Company
must therefore use the appropriate incremental borrowing rate to measure its leases. To estimate the incremental borrowing
rate, a credit rating applicable to the Company is estimated using a synthetic credit rating analysis since the Company does
not currently have a rating agency-based credit rating.
Leases (Topic 840) Prior to the Adoption of Topic 842
The Company entered into lease agreements for office facilities which were classified as operating leases. Rent
expense was recognized on a straight-line basis over the noncancelable term of the lease and, accordingly, the Company
recorded the difference between cash rent payments and the recognition of rent expense as a deferred rent liability, which
was included within accrued expenses and other current liabilities (short-term portion) and other liabilities (long-term
portion) on the condensed consolidated balance sheet.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Deferred offering costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly
associated with in-process common equity financings as deferred offering costs until such financings are consummated.
After consummation of the equity financing, these costs are recorded as a reduction of additional paid-in capital generated
as a result of such offering. Should an in-process equity financing be abandoned, the deferred offering costs will be
expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive
loss. As of December 31, 2020, the Company recorded deferred offering costs of $46, which are classified within other
assets, noncurrent, on the 2020 consolidated balance sheet. As of December 31, 2019, the Company did not have any
deferred offering costs.
Segment information
The Company manages its operations as a single operating segment for the purposes of assessing performance and
making operating decisions. The Company's singular focus is developing and commercializing transformative treatments
for serious metabolic diseases, with an initial focus on NASH.
Research and development costs
Research and development costs are expensed as incurred. Research and development expenses consist of costs
incurred to discover, research and develop drug candidates, including personnel expenses, stock-based compensation
expense, third-party license fees and external costs including fees paid to consultants, contract manufacturing
organizations, or CMOs, and clinical research organizations, or CROs, in connection with drug product manufacturing,
nonclinical studies and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening,
laboratory work, clinical trial database management, clinical trial material management and statistical compilation and
analysis. Non-refundable prepayments for goods or services that will be used or rendered for future 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.
Costs incurred in obtaining technology licenses are charged immediately to research and development expense if
the technology licensed has not reached technological feasibility and has no alternative future uses.
Research contract costs and accruals
The Company has entered into various research and development and other agreements with commercial firms,
researchers and others for provisions of goods and services. These agreements are generally cancelable, and the related
costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing
research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress
of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs.
Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period.
Actual results could differ materially from the Company's estimates.
Patent costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as
incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and
administrative expenses.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Stock-based compensation
The Company measures all stock-based awards granted to employees and nonemployees based on the fair value
on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is
generally the vesting period of the respective award, on a straight-line basis. The Company accounts for forfeitures as they
occur. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. Prior to
the Company’s initial public offering, the exercise price for all stock options granted was at the estimated fair value of the
underlying common stock as determined on the date of grant by the Company’s board of directors.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing
model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the
expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and
the Company's expected dividend yield. The Company went public in June 2019 and accordingly, lacks sufficient
company-specific historical and implied volatility information for its shares traded in the public markets. Therefore, it
estimates its expected share price volatility based on the historical volatility of publicly traded peer companies and expects
to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price.
The expected term of the Company's stock options has been determined utilizing the "simplified" method for awards that
qualify as "plain-vanilla" options. 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 based on the fact that the Company has never paid cash dividends on common stock and does not expect
to pay any cash dividends in the foreseeable future. The fair value of each common stock award is estimated on the date of
grant based on the fair value of the Company's common stock on that same date.
Compensation expense for purchases under the Employee Stock Purchase Plan is recognized based on the fair
value of the common stock estimated based on the closing price of our common stock as reported on the date of offering,
less the purchase discount percentage provided for in the plan.
The Company classifies stock-based compensation expense in its consolidated statement of operations and
comprehensive loss in the same manner in which the award recipient's payroll costs are classified or in which the award
recipient's service payments are classified.
Comprehensive loss
Comprehensive loss includes net loss as well as other changes in stockholders' equity (deficit) that result from
transactions and economic events other than those with stockholders. The Company’s comprehensive loss is comprised of
net loss and changes in unrealized gains and losses on its short-term marketable securities.
Income taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the
consolidated financial statements or in the Company's tax returns. Deferred tax assets and liabilities are determined based
on the difference between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are
recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be
recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is
more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established
through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future
taxable profits expected and considering prudent and feasible tax planning strategies.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by
applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be
evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax
position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of
benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the
largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income
taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well
as the related net interest and penalties.
Net loss per share
Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of
common stock outstanding during the period, without consideration of common stock equivalents. Diluted net loss per
share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given the
Company’s net loss.
Emerging growth company
The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as
amended (the “JOBS Act”). Under the JOBS Act, companies have extended transition periods available for complying with
new or revised accounting standards. The Company has elected this exemption to delay adopting new or revised
accounting standards until such time as those standards apply.
Recently adopted accounting pronouncements
In February 2016 the FASB issued ASU 2016-02, Leases (Topic 842, ASC 842 or ASU 2016-02). ASU 2016-02
amends several aspects of lease accounting, including requiring lessees to recognize almost all leases with a term greater
than one year as a ROU asset and corresponding liability, measured at the present value of the lease payments. On January
1, 2020, the Company adopted Topic 842 using the modified retrospective approach and the adoption date as the initial date
of application. Results prior to the adoption effective date are presented under Topic 840. No prior period amounts were
adjusted and continue to be reported in accordance with previous lease guidance, Accounting Standards Codification Topic
840, Leases, or Topic 840.
Topic 842 provides a number of optional practical expedients in transition. The Company elected the short-term
lease expedient for leases with a term of one year or less, which permits a lessee to not recognize lease assets and lease
liabilities for those leases. The Company elected the practical expedients to not reassess its prior conclusions about lease
identification under the new standard, to not reassess lease classification, and to not reassess initial direct costs for its
existing leases at adoption.
Operating lease liabilities and their corresponding ROU assets are recorded based on the present value of future
lease payments over the expected remaining lease term at lease commencement. In transition to ASC 842, the Company
utilized the remaining lease term of its leases, as of the effective date, in determining the appropriate incremental
borrowing rate. Lease cost for operating leases is recognized on a straight-line basis over the lease term as an operating
expense.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
The impact of the Company’s adoption of Topic 842 as of January 1, 2020 was as follows:
Assets:
Operating lease ROU asset
Liabilities:
Adjustments
Due to the
December 31, Adoption of
Topic 842
2019
January 1,
2020
$
— $
280
$
280
Operating lease liabilities, current (included in accrued expenses and other
current liabilities)
Deferred rent, current (included in accrued expenses and other current
liabilities)
Operating lease liabilities, noncurrent (included in other liabilities)
Deferred rent, noncurrent (included in other liabilities)
—
2
—
2
224
224
(2)
60
(2)
—
60
—
In August 2018, the FASB issued No. ASU 2018 13, Fair Value Measurement (Topic 820)—Disclosure
Framework (“ASU 2018 13”), which improves the disclosure requirements for fair value measurements. The Company
adopted ASU 2018 13 on January 1, 2020, which did not have a material impact on its consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In June 2016, the FASB issued No. ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU
2016-13”). ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In November
2019, the FASB issued No. ASU 2019-10 to modify the effective date for ASU 2016-13 for other public business entities
includes smaller reporting companies, as defined by the SEC. This guidance will become effective for us beginning in the
first quarter of 2023. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of
ASU 2016-13 will have on its consolidated financial statements.
3. Fair value of financial assets and liabilities
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of
unobservable inputs. Observable inputs are inputs that market participants would use in pricing a financial asset or liability
based on market data obtained from sources independent of the Company. Financial assets and liabilities carried at fair
value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two
are considered observable and the last is considered unobservable:
● Level 1—Quoted prices in active markets for identical assets or liabilities.
● Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for
similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or
liabilities, or other inputs that are observable or can be corroborated by observable market data.
● Level 3—Unobservable inputs that are supported by little or no market activity that are significant to
determining the fair value of the assets or liabilities, including pricing models, discounted cash flow
methodologies and similar techniques.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
The following table summarizes our financial assets measured at fair value on a recurring basis as of December
31, 2020 and 2019:
Money market funds
Commercial paper
Corporate debt securities
Money market funds
Commercial paper
U.S. treasury securities
Corporate debt securities
December 31, 2020
Total
158,023
47,955
33,190
239,168
Level 1
158,023
—
—
158,023
$
$
Level 2
Level 3
$
$
— $
47,955
33,190
81,145
$
—
—
—
—
Total
49,948 $
49,114
6,048
20,143
125,253
$
December 31, 2019
Level 1
Level 2
Level 3
49,948
$
—
6,048
— $
49,114
—
—
$
55,996
20,143
69,257
$
—
—
—
—
—
$
$
$
$
Commercial paper and corporate debt securities were valued by the Company using quoted prices in active
markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy. The carrying values
of the Company’s prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair
values due to the short-term nature of these assets and liabilities. During the years ended December 31, 2020 and
December 31, 2019, there were no transfers between Level 1, Level 2 and Level 3.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
4. Short-term marketable securities
The following is a summary of short-term marketable securities presented on the Company’s consolidated balance
sheet as of December 31, 2020 and 2019:
Money market funds
Commercial paper
Corporate debt securities
Cash equivalents
Short-term marketable securities
Money market funds
Commercial paper
U.S. treasury securities
Corporate debt securities
Cash equivalents
Short-term marketable securities
December 31, 2020
Amortized cost
$ 158,023 $
47,955
33,193
$ 239,171
$
Gross
unrealized
gains
— $
—
—
— $
Gross
unrealized
losses
Fair value
— $ 158,023
47,955
—
33,190
(3)
$ 239,168
(3)
$ 158,023
81,145
$ 239,168
December 31, 2019
Gross
unrealized
gains
Gross
unrealized
losses
Amortized cost
$
49,948 $
49,114
6,048
20,149
$ 125,259
$
— $
—
—
—
— $
Fair value
49,948
49,114
6,048
20,143
$ 125,253
— $
—
—
(6)
(6)
$
53,641
71,612
$ 125,253
As of December 31, 2020 and 2019, all of the Company’s short-term marketable securities had contractual
maturities of less than one year.
5. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following:
Accrued external research and development expenses
Accrued employee compensation and benefits
Accrued legal and professional fees
Short-term lease liability and other
Year Ended December 31,
2020
8,740
495
154
294
9,683
$
$
2019
6,361
1,606
370
85
8,422
$
$
121
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
6. Redeemable convertible preferred stock
Upon completion of the Company’s IPO on June 24, 2019, 50,858,462 of the Company’s Series A redeemable
convertible preferred stock and 13,871,948 shares of the Company’s Series B redeemable convertible preferred were
converted into 21,056,136 shares of common stock and the related carrying value of $124,728 was reclassified to common
stock in the amount of $2 and additional paid-in capital in the amount of $124,726. Accordingly, there were no shares of
redeemable convertible preferred stock outstanding as of December 31, 2020 or 2019.
7. Stockholders’ equity (deficit)
Common stock
As of December 31, 2020 and 2019, the Company’s certificate of incorporation, as amended and restated,
authorized the Company to issue 150,000,000 shares of $0.0001 par value common stock. Each share of common stock
entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. The holders of common
stock, voting exclusively and as a separate class, have the exclusive right to vote for the election of directors of the
Company. Common stockholders are entitled to receive dividends, which may be declared by the board of directors.
Through December 31, 2020, no cash dividends had been declared or paid.
On June 24, 2019, the Company completed its IPO at which time the Company issued 6,612,500 shares of
common stock, including the exercise in full by the underwriters of their option to purchase up to 862,500 additional shares
of common stock, at a public offering price of $16.00 per share. The Company received $98,394, net of underwriting
discounts and commissions, but before deducting offering costs payable by the Company, which were $2,942. Upon the
closing of the IPO, all outstanding shares of convertible preferred stock converted into 21,056,136 shares of common stock
(see Note 6).
On July 10, 2020, the Company completed a follow-on public offering at which time the Company issued
6,012,390 shares of common stock, including the exercise in full by the underwriters of their option to purchase up to
784,224 additional shares of common stock, at a public offering price of $36.00 per share. The Company received
$203,460 net of underwriting discounts and commissions, but before deducting offering costs paid by the Company, which
were $906.
As of December 31, 2020 and December 31, 2019, there were 34,741,649 and 28,567,837 shares of common
stock issued and outstanding, respectively.
The following shares of common stock were reserved for issuance as follows:
Options outstanding under the 2018 Stock Option and Grant Plan
Options outstanding under the 2019 Stock Option and Incentive Plan
Options available for future grant
2019 Employee Stock Purchase Plan
Year Ended December 31,
2019
2020
2,296,029
2,148,019
800,526
1,585,293
1,771,931
2,127,544
269,364
543,963
5,137,850
6,404,819
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Undesignated preferred stock
The Company’s fourth amended and restated certificate of incorporation authorizes the Company to issue up to
10,000,000 shares of undesignated preferred stock, par value $0.0001 per share. There were no undesignated preferred
shares issued or outstanding as of December 31, 2020 or 2019.
Restricted common stock
In March 2017, the Company issued an aggregate of 226,400 shares of restricted common stock under restricted
stock agreements with the founders. Pursuant to the terms of the agreements, the restricted common stock was initially
subject to a vesting schedule over a four-year period commencing in January 2017 and culminating in January 2021. In
March 2018, the Company amended the restricted stock agreements such that the restricted common stock became subject
to a vesting schedule over a two-year period commencing in May 2018 and culminating in June 2020. As of December 31,
2020, all restricted stock issued to the founders is fully vested.
In April, June and July 2019, the Company amended certain option grant agreements granted under the
Company’s 2018 Stock Option and Grant Plan to allow the holders the right to early exercise unvested options, subject to a
repurchase right held by the Company equal to the lesser of the original exercise price per share or the fair value of the
shares on the repurchase date. The unvested shares issued as a result of the early exercise are deemed restricted stock
pursuant to a restricted stock agreement and a vesting schedule identical to the vesting schedule of the original grant
agreement. The proceeds related to unvested restricted common stock are recorded as liabilities until the stock vests, at
which point they are reclassified to additional paid-in capital. Common shares issued for the early exercise of options are
included in issued and outstanding shares.
The following table summarizes restricted stock activity since December 31, 2018:
Unvested restricted common stock as of December 31, 2018
Early exercise of unvested stock options
Shares vesting
Unvested restricted common stock as of December 31, 2019
Shares vesting
Unvested restricted common stock as of December 31, 2020
Number of Shares
Grant-Date Fair
Value
80,190
491,207
(416,248)
155,149
(121,535)
33,614
$
$
—
0.65
0.65
0.52
0.50
0.62
As of December 31, 2020, there were 33,614 shares of unvested restricted common stock from the early exercise
of stock options which were subject to repurchase by the Company.
8. Stock-based awards
2018 Stock option and grant plan
The Company’s 2018 Stock Option and Grant Plan (the “2018 Plan”) provided for the Company to grant incentive
stock options or nonqualified stock options, restricted stock awards and other stock-based awards to employees, directors
and consultants of the Company. The 2018 Plan was administered by the board of directors or, at the discretion of the board
of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions were determined at
the discretion of the board of directors, or its committee if so delegated.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
The total number of shares of common stock that could have been issued under the 2018 Plan was 3,071,960
shares, of which 107,635 shares remained available for grant on June 18, 2019, the date that the Company’s 2019 Stock
Option and Incentive Plan (the “2019 Plan”) became effective. Upon the effectiveness of the 2019 Plan, the 107,635
remaining shares available under the 2018 Plan were transferred and became available for issuance under the 2019 Plan.
Shares of common stock underlying outstanding awards under the 2018 Plan that are forfeited, cancelled, held back upon
exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to
vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) will be added to
the shares of common stock available for issuance under the 2019 Plan.
2019 Stock option and incentive plan
The 2019 Plan was adopted and approved by the Company’s board of directors in May 2019 and by the Company’s
stockholders in June 2019. The 2019 Plan became effective on June 18, 2019 and replaced the Company’s 2018 Plan on
that date. The 2019 Plan allows the board of directors or the compensation committee of the board of directors to make
equity-based incentive awards to the Company’s officers, employees, directors or other key persons (including
consultants). The number of shares initially reserved for issuance under the 2019 Plan is 2,572,457, which includes the
107,635 shares transferred from the 2018 Plan, and shall be cumulatively increased on January 1, 2020 and each January 1
thereafter by 4% of the number of shares of the Company’s common stock outstanding on the immediately preceding
December 31 or such lesser number of shares determined by the Company’s board of directors or compensation committee
of the board of directors. The 2019 Plan was increased by 1,142,713 shares on January 1, 2020 and 1,389,665 shares on
January 1, 2021.
The 2019 Plan is administered by the board of directors or, at the discretion of the board of directors, by a
committee of the board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of
the board of directors, or its committee if so delegated, except that the exercise price per share of stock options may not be
less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option may
not be greater than ten years. All incentive options granted to any person possessing more than 10% of the total combined
voting power of all classes of shares may not have an exercise price of less than 110% of the fair market value of the
common stock on the grant date. Stock options granted to employees, officers, members of the board of directors and
consultants will typically vest over a four-year period.
Shares that are expired, terminated, surrendered or canceled under the 2019 Plan without having been fully
exercised will be available for future awards.
2019 Employee stock purchase plan
The 2019 Employee Stock Purchase Plan (the “2019 ESPP”) was adopted and approved by the Company’s board
of directors in May 2019 and by the Company’s stockholders in June 2019. The 2019 ESPP became effective on June 18,
2019, at which time 273,869 shares were reserved for issuance. The 2019 ESPP provides that the number of shares
reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2020 and each
January 1 thereafter through January 1, 2029, by the least of (i) 1% of the outstanding number of shares of the Company’s
common stock on the immediately preceding December 31, (ii) 410,803 shares or (iii) such number of shares as determined
by the compensation committee. The 2019 ESPP was increased by 285,678 shares on January 1, 2020 and 347,416 shares
on January 1, 2021.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Stock option valuation
The assumptions that the Company used to determine the grant-date fair value of stock options granted to
employees, directors and consultants were as follows, presented on a weighted average basis:
Expected term (in years)
Expected volatility
Weighted average risk-free interest rate
Expected dividend yield
Stock options
Year Ended December 31,
2019
2020
6.00
73.38 %
0.65 %
0.00 %
6.00
73.75 %
2.12 %
0.00 %
The following table summarizes the Company’s stock option activity since December 31, 2018:
Balance outstanding, December 31, 2018
Options granted
Options exercised
Balance outstanding, December 31, 2019
Options granted
Options exercised
Options cancelled
Balance outstanding, December 31, 2020
Exercisable, December 31, 2020
Vested and expected to vest, December 31, 2020
Weighted-
Average
Exercise
Price per
Share
Weighted-
Average
remaining
contractual
term (years)
9.74
Aggregate
Intrinsic
Value
(000's)
$
10,577
Number
of Options
$
1,839,913
1,912,352
$
(655,710) $
$
3,096,555
788,320
$
(150,343) $
(1,220) $
$
$
$
3,733,312
1,069,363
3,733,312
0.61
12.42
0.69
7.89
26.94
2.01
0.62
12.15
8.12
12.15
9.19
44,323
8.53
8.21
8.53
$
$
$
52,498
18,933
52,498
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the
stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than
the fair value of the Company’s common stock.
The weighted average grant-date fair value per share of stock options granted during the year ended December 31,
2020 was $17.07.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Stock-based compensation
The following table summarizes the Company’s stock-based compensation expense for the years ended December
31, 2020 and 2019:
Classified within research and development expense
Classified within general and administrative expense
Total stock-based compensation expense
Year Ended December 31,
2020
2019
$
$
1,633
4,389
6,022
$
$
485
1,285
1,770
As of December 31, 2020, total unrecognized compensation cost related to the unvested stock-based awards was
$23,156, which is expected to be recognized over a weighted average period of 2.5 years.
In April, June and July 2019, certain option holders early exercised options to purchase 491,207 shares of
common stock, at an average exercise price of $0.65 per share, for cash proceeds of $321 (See Note 7). Stock-based
compensation expense related to these options will continue to be recognized over the requisite service period of the
awards based on the grant-date fair value which was determined using the Black-Scholes option-pricing model.
9. Amgen license agreement
In June 2018, the Company entered into a license agreement (the “Amgen Agreement”) with Amgen pursuant to
which the Company was granted an exclusive license to certain patents and intellectual property related to a long-acting
FGF21 analog in order to commercially develop, manufacture, use and distribute FGF21 as a treatment for NASH and
other serious metabolic diseases. The Amgen Agreement provides the Company with exclusive global rights to the licensed
products and the right to grant sublicenses that cover EFX to third parties.
In exchange for these rights, the Company made an upfront payment of $5,000 and issued 2,653,333 shares of
Series A Preferred Stock with a fair value of $1,353 to Amgen. Amgen was also entitled to maintain a 10% ownership
interest of the outstanding shares of the Company’s common stock, on a fully diluted and converted basis, through the
second closing of the Company’s Series A Preferred Stock financing. In November 2018, in connection with the second
closing of the Company’s Series A Preferred Stock financing, the Company issued 3,205,128 shares of Series A Preferred
Stock to Amgen for a total value of $7,404, satisfying its anti-dilution obligation under the Amgen Agreement.
Under the Amgen Agreement, the Company made a milestone payment in August 2019 of $2,500 in connection
with dosing the first patient in the BALANCED study and is obligated to pay Amgen $7,500 in connection with dosing the
first patient in a Phase 3 clinical trial, up to $30,000 in connection with marketing approvals, and aggregate milestone
payments of up to $75,000 upon the achievement of specified commercial milestones for all products licensed under the
Amgen Agreement.
Under the Amgen Agreement, the Company is obligated to pay Amgen tiered royalties ranging from a low to high
single-digit percentages on annual net sales of the licensed products, beginning on the first commercial sale of such
licensed products in each country and expiring on a country-by-country basis on the latest of (i) the expiration of the last
valid patent claim covering such licensed products in such country, (ii) the loss of regulatory exclusivity in such country,
and (iii) ten years after the first commercial sale of such licensed product in such country. The royalty payments are subject
to reduction under specified conditions set forth in the Amgen Agreement.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
The Company is solely responsible for all development, manufacturing, and commercial activities and costs of the
licensed products, including clinical studies or other tests necessary to support the use of a licensed product. The Company
is also responsible for costs related to the filing, prosecution and maintenance of the licensed patent rights.
The Amgen Agreement will remain in effect until the expiration of the royalty term in all countries for all licensed
products. The Amgen Agreement may be terminated by either party with at least 90 days' notice in the event of material
breach by the other party that remains uncured for 90 days, by either party for insolvency or bankruptcy of the other party
and immediately by Amgen if the Company challenges the licensed patents. The Company may also terminate the Amgen
Agreement with 90 days' written notice for discretionary reasons such as scientific, technical, regulatory or commercial
issues, as defined in the Amgen Agreement.
During the year ended December 31, 2020, the Company did not record any research and development expense in
connection with the Amgen Agreement. During the year ended December 31, 2019, the Company recorded research and
development expense of $2,500 related to the achievement of a clinical milestone, as specified in the agreement.
10. Income taxes
During the years ended December 31, 2020 and 2019, the Company recorded no income tax benefits for the net
operating losses incurred or for the research and development tax credits generated in each period due to its uncertainty of
realizing a benefit from those items. All of the Company’s operating losses since inception have been generated in the
United States.
A summary of the Company’s current and deferred tax provision is as follows:
Current income tax provision:
Federal
State
Total current income tax provision
Deferred income tax benefit:
Federal
State
Total deferred income tax benefit
Change in deferred tax asset valuation allowance
Total provision for income taxes
127
Year Ended December 31,
2019
2020
$
— $
—
—
(17,580)
(3,135)
(20,715)
20,715
$
— $
—
24
24
(9,400)
688
(8,712)
8,712
24
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
The $24 provision for income taxes for the year ended December 31, 2019 was classified within general and
administrative expense on the Consolidated Statements of Operations and Comprehensive Loss.
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as
follows:
Federal statutory income tax rate
State income taxes, net of federal benefit
Research and development tax credits
Other permanent differences
Change in deferred tax asset valuation allowance
Effect of Section 382 limitation
Effective income tax rate
Year Ended December 31,
2019
2020
21.0 %
4.0
1.3
(0.1)
(26.2)
-
- %
21.0 %
(1.6)
1.9
0.1
(19.9)
(1.5)
- %
Net deferred tax assets as of December 31, 2020 and 2019 consisted of the following:
Deferred tax assets
Net operating loss carry forwards
Research and development tax credit carry forwards
License fees
Stock based compensation
Accruals, reserves and other
Total deferred tax assets
Deferred tax liabilities
Prepaid expenses
Total deferred tax liabilities
Net deferred tax assets
Valuation allowance
Total net deferred tax assets
December 31,
2020
2019
$
29,951 $
2,096
3,364
1,402
63
36,876
(649)
(649)
36,227
(36,227)
$
— $
11,380
969
3,232
196
44
15,821
(309)
(309)
15,512
(15,512)
—
As of December 31, 2020, the Company had U.S. federal and state net operating loss carryforwards of $127,416
and $47,200, respectively, which may be available to offset future taxable income and begin to expire in 2037. The federal
net operating loss carryforwards include $124,973, which may be carried forward indefinitely. As of December 31, 2020,
the Company also had U.S. federal and state research and development tax credit carryforwards of $2,441 and $378,
respectively, which may be available to offset future tax liabilities and begin to expire in 2032. During the year ended
December 31, 2020, gross deferred tax assets, before valuation allowance, increased by $20,715, due to the operating loss
incurred by the Company during that period.
Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit
carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code
of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could
occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset
future taxable income or tax liabilities. In general, an ownership change, as defined by Section 382, results from
transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than
50% over a three-year period. The annual limitation is determined by multiplying the value of
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
the Company's stock at the time of such ownership change by the applicable long-term tax-exempt rate. Such limitations
may result in expiration of a portion of the NOL carryforwards before utilization. As of December 31, 2020, the Company
determined that ownership changes occurred on March 24, 2017, June 7, 2018 and July 8, 2020. As a result of the
ownership changes, approximately $2,118 and $3,632 of the NOLs will expire unutilized for federal and state purposes,
respectively. The ability of the Company to use its remaining NOL carryforwards may be further limited if the Company
experiences a Section 382 ownership change as a result of future changes in its stock ownership.
The Company’s research and development credits are subject to IRC section 383 and are limited due to the
ownership changes that the Company has experienced. As of December 31, 2020, the Company has derecognized
approximately $87 and $43 of gross federal and state research and development credits, respectively. The Company has not
derecognized any of the California research and development credit-related deferred tax assets because the credits do not
expire.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax
assets at each reporting period. In doing so, the Company has considered its history of cumulative net losses incurred and
its lack of commercialization of any products or generation of any revenue from product sales and has concluded that it is
more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation
allowance has been recorded against the net deferred tax assets as of December 31, 2020 and 2019. Management
reevaluates the positive and negative evidence at each reporting period.
Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2020 and 2019
are as follows:
Valuation allowance as of January 1,
Increases recorded to income tax provision
Decreases recorded as a benefit to income tax provision
Valuation allowance as of December 31,
2020
$ (15,512) $
—
(20,715)
$ (36,227)
$
2019
(6,800)
—
(8,712)
(15,512)
As of December 31, 2020, the Company had gross unrecognized tax benefits of $644, none of which if
recognized, would reduce the effective tax rate in a future period, due to the Company's full valuation allowance on U.S.
net deferred tax assets. The Company’s policy is to record interest and penalties related to income taxes as part of its
income tax provision. As of December 31, 2020, the Company had not accrued interest or penalties related to uncertain tax
positions and no amounts had been recognized in the Company’s consolidated statements of operations and comprehensive
loss. For the year ended December 31, 2020, the Company will file income tax returns in the U.S., California, Connecticut,
Illinois, Massachusetts, Maryland, New York, and Pennsylvania, as prescribed by the tax laws of the jurisdictions in which
it operates. The Company is subject to examination by federal and state jurisdictions, where applicable. There are
currently no pending tax examinations. The Company is open to future tax examination under statute from 2017 to the
present.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
A reconciliation of the beginning and ending unrecognized tax benefits for the years ended December 31, 2020
and 2019 is as follows
Balance at December 31, 2018
Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions
Settlements
Lapse of statute of limitations
Balance at December 31, 2019
Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions
Settlements
Lapse of statute of limitations
Balance at December 31, 2020
$
$
$
—
—
—
237
—
—
237
—
—
407
—
—
644
On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” (the “Act”) was signed
into law. The Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of
certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net
interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.
The Company analyzed the provisions of the Act and determined there was no significant impact to its income taxes for the
year ended December 31, 2020.
On June 29, 2020, the Governor of California signed Assembly Bill 85 (“A.B. 85”), which includes several tax
measures, provides for a three-year suspension of the use of net operating losses for medium and large businesses and a
three-year cap on the use of business incentive tax credits to offset no more than $5,000 of tax per year. Generally, A.B. 85
suspends the use of net operating losses for taxable years 2020, 2021, and 2022 for taxpayers with taxable income of
$1,000 or more. Since the Company is not expected to generate California source taxable income of more than $1,000, no
material impact is anticipated at this time.
On December 27, 2020, the “Consolidated Appropriations Act, 2021” (the “CAA”) was signed into law. The CAA
includes provisions meant to clarify and modify certain items put forth in the CARES Act, while providing aid to
businesses affected by the COVID-19 pandemic. The CAA allows deductions for expenses paid for by Paycheck Protection
Program (“PPP”) and Economic Injury Disaster Loan (“EIDL”) Program, clarifies forgiveness of EIDL advances, and
other business provisions. The Company analyzed the provisions of the CAA and determined there was no significant
impact to its 2020 tax provision.
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
11. Net loss per share
Basic and diluted net loss per share was calculated as follows:
Numerator:
Net loss
Denominator:
Weighted average common shares outstanding, basic and diluted
Net loss per share, basic and diluted
Year Ended December 31,
2019
2020
$
$
(79,207)
$
(43,755)
31,463,248
(2.52)
$
15,070,728
(2.90)
The Company excluded 31,215 shares and 49,568 shares of restricted common stock, presented on a weighted
average basis, from the calculations of basic net loss per share for the years ended December 31, 2020 and 2019,
respectively, because those shares had not vested.
The Company’s potentially dilutive securities, which include stock options and unvested restricted common stock,
have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per
share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net
loss per share is the same. The Company excluded the following potential common shares, presented based on amounts
outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because
including them would have had an anti-dilutive effect:
Options to purchase common stock
Unvested restricted common stock
12. Commitments and contingencies
COVID-19 Pandemic
Year Ended December 31,
2019
2020
3,096,555
3,733,312
155,149
33,614
3,251,704
3,766,926
In December 2019, a novel strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China.
As of March 2021, COVID-19 has spread to other countries, including Europe and the United States, and has been declared
a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified and the United
States, Europe and Asia have implemented severe travel restrictions, social distancing requirements, stay-at-home orders
and have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. The Company’s
financial results for the years ended December 31, 2020 and 2019 were not significantly impacted by COVID-19, however,
the Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have
on its financial condition, operations, and business plans for 2021, including the timing and enrollment of patients in its
planned clinical trials and other expected milestones of its product candidate.
Operating leases
In October 2018, the Company entered into a lease agreement for office space in South San Francisco, California.
In March 2019, the Company amended this lease agreement (the “First Amendment”) to extend the term of
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
the lease and expand the square footage of the existing leased office space. On May 7, 2020, the Company entered into an
agreement to effectuate an early termination of the 2018 office lease agreement in South San Francisco, California, without
penalty, resulting in a non-cash reduction to the ROU asset and corresponding lease liability of $173 at that time. This early
termination was effective on June 30, 2020 and reduced the Company’s future minimum lease payments by approximately
$180.
In September 2019, the Company entered into an agreement to use office space in Cambridge, Massachusetts.
The agreement was for an initial six-month term, which was extended until September 2020, and provided for rolling six-
month extensions. The Company determined this lease to be short term, as the Company is not obligated at any time for
more than a six-month term. The Company made monthly payments of $4 under the agreement until the agreement was
terminated on September 30, 2020.
In February 2020, the Company entered into a seven-year agreement to occupy 6,647 square feet of office space
in South San Francisco, California. The lease commenced on July 10, 2020 when the Company took occupancy of the
leased space and determined that the lease should be classified as an operating lease. Under the agreement, the Company is
required to make approximately $2,300 in total minimum payments during the term. The Company is also required to pay
its proportionate share of building operating and tax costs after the first year under lease which are not included in the
measurement of the lease and treated as variable lease cost and expense when incurred.
As of December 31, 2020, maturities of the Company’s operating lease liabilities were as follows:
2021
2022
2023
2024
2025
2026 and thereafter
Total future minimum lease payments
Less imputed interest
Present value of operating lease liabilities
$
$
303
312
321
331
341
559
2,167
(469)
1,698
As of December 31, 2020, the total lease liability was $1,698, of which $1,516 was noncurrent and $182 was
current and classified within “Accrued expenses and other current liabilities” on the balance sheet.
For the year ended December 31, 2020, the components of operating lease cost were as follows:
Lease cost:
Operating lease cost
Variable operating lease cost
Short-term lease cost
Total operating lease cost
Statement of Operations Classification:
General and administrative expense
General and administrative expense
Research and development expense
Other information:
Cash paid for amounts included in the measurement of
operating lease liability
Weighted average remaining lease term
132
Year Ended
December 31, 2020
$
$
$
267
43
32
342
210
6.6
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Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Weighted average discount rate
7.6%
Prior to the Company’s adoption of ASC 842 on January 1, 2020, the Company recognized rent expense on a
straight-line basis over the respective lease periods and recorded rent expense of $305 for the year ended December 31,
2019. As of December 31, 2019, future minimum commitments due under the Company’s leases totaled $401, of which
$321 was due in 2020 and $80 was due in 2021.
Research and manufacturing commitments
The Company has entered into agreements with CROs and CMOs to provide services in connection with its
nonclinical studies and clinical trials and to manufacture clinical development materials. As of December 31, 2020, the
Company had non-cancelable purchase commitments under these agreements totaling $5,513.
Indemnification agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to
vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses
arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In
addition, the Company has entered into indemnification agreements with members of its board of directors and its
executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the
Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the
Company has not incurred any material costs as a result of such indemnifications. The Company is not currently aware of
any indemnification claims and has not accrued any liabilities related to such obligations in its consolidated financial
statements as of December 31, 2020 or 2019.
Legal proceedings
The Company is not a party to any litigation and does not have contingency reserves established for any litigation
liabilities. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss
is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for
contingencies. The Company intends to expense as incurred the costs related to such legal proceedings if they should arise.
13. Related parties
Apple Tree Life Sciences, Inc.
The principal and founding member of Apple Tree Life Sciences, Inc. ("Apple Tree"), one of the Company’s
significant investors, is a member of the Company’s board of directors. The Company's founders, including the current
Executive Vice President and Chief Operating Officer and Chief Scientific Officer, were formerly employees of Apple
Tree. During the years ended December 31, 2020 and 2019, the Company incurred fees for certain general and
administrative services from Apple Tree totaling $0 and $20, respectively. As of December 31, 2020 and 2019, the
Company did not owe any amounts to Apple Tree.
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Table of Contents
Akero Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
Atlas Venture Life Science Advisors, LLC
A partner of Atlas Venture Life Science Advisors (“Atlas”), one of the Company’s significant investors, is a
member of the Company’s board of directors. In August 2018, the Company entered into a use and occupancy agreement
for office space in Cambridge, Massachusetts with Atlas. The parties terminated the agreement in September of 2019.
During the year ended December 31, 2019 the Company incurred fees under the use and occupancy agreement with Atlas
totaling $22. As of December 31, 2020 and 2019, the Company did not owe any amounts to Atlas.
14. Benefit plans
The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code.
This plan covers all employees who meet minimum age and service requirements and allows participants to defer a portion
of their annual compensation on a pre-tax basis. Matching contributions to the plan may be made at the discretion of the
Company’s board of directors. The Company did not make any matching contributions to the plan during the years ended
December 31, 2020 and 2019.
15. Subsequent events
The Company evaluated subsequent events through March 16, 2021, the date on which these financial statements
were issued. Based on this evaluation, it was determined that no subsequent events occurred that require recognition or
disclosure in its financial statements for the year ended December 31, 2020.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-
15(e) under the Exchange Act) designed to ensure that information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act of 1934, as amended, or Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and
communicated to management, including the principal executive officer (our Chief Executive Officer) and principal
financial officer (our Chief Financial Officer), to allow timely decisions regarding required disclosure. In addition, the
design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is
required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act, as of December 31, 2020. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31,
2020.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Our management utilized the criteria established in the Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and conducted an evaluation of the
effectiveness of our internal control over financial reporting as of December 31, 2020. Based on the results of our
evaluation under that framework, management concluded that our internal control over financial reporting was effective as
of December 31, 2020.
Attestation Report of the Registered Public Accounting Firm
This report does not include an attestation report of our independent registered public accounting firm regarding
internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting identified in connection with the
evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended December
31, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Item 9B. Other Information.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Except as set forth below, the information required by this item is incorporated by reference from our definitive
Proxy Statement to be filed with the SEC in connection with our 2021 Annual Meeting of Stockholders within 120 days
after the end of the fiscal year ended December 31, 2020.
We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and
employees, including our principal executive officer and principal financial officer. The Code of Business Conduct and
Ethics is posted on our website at https://ir.akerotx.com/corporate-governance/governance-overview.
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or
waiver from, a provision of this Code of Business Conduct and Ethics by posting such information on our website, at the
address and location specified above and, to the extent required by the listing standards of The NASDAQ Global Select
Stock Market, by filing a Current Report on Form 8-K with the SEC, disclosing such information.
Item 11. Executive Compensation.
The information called for by this item is incorporated by reference from our definitive Proxy Statement to be
filed with the SEC in connection with our 2021 Annual Meeting of Stockholders within 120 days after the end of the fiscal
year ended December 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information called for by this item is incorporated by reference from our definitive Proxy Statement to be
filed with the SEC in connection with our 2021 Annual Meeting of Stockholders within 120 days after the end of the fiscal
year ended December 31, 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information called for by this item is incorporated by reference from our definitive Proxy Statement to be
filed with the SEC in connection with our 2021 Annual Meeting of Stockholders within 120 days after the end of the fiscal
year ended December 31, 2020.
Item 14. Principal Accounting Fees and Services
The information called for by this item is incorporated by reference from our definitive Proxy Statement to be
filed with the SEC in connection with our 2021 Annual Meeting of Stockholders within 120 days after the end of the fiscal
year ended December 31, 2020.
Part IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1) The consolidated financial statements filed as part of this Annual Report on Form 10-K are listed in the
“Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K.
136
Table of Contents
2) No schedules are submitted because they are not applicable, not required or because information is
included in the consolidated financial statements or the notes thereto.
3) The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form 10-
K are listed in the Exhibit Index immediately preceding the signature page of this Annual Report on
Form 10-K. The exhibits listed in the Exhibit Index are incorporated by reference herein.
Item 16. Form 10-K Summary
The Company has elected not to include summary information.
137
Table of Contents
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
10.1#
10.2#
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
EXHIBIT INDEX
Exhibit Description
Fourth Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference
to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-38944) filed on June 24,
2019)
Amended and Restated Bylaws of the Registrant and the amendments thereto, as currently in effect
(incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No.
001-38944) filed on March 12, 2021)
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s
Registration Statement on Form S-1/A (File No. 333-231747) filed on June 10, 2019)
Amended and Restated Investors' Rights Agreement among the Registrant and certain of its
stockholders, dated December 5, 2018 (incorporated by reference to Exhibit 4.2 of the Registrant’s
Registration Statement on Form S-1 (File No. 333-231747) filed on May 24, 2019).
Description of Securities (incorporated by reference to Exhibit 4.3 of the Registrant’s Annual Report
on Form 10-K (File No. 001-38944) filed on March 16, 2020)
2018 Stock Option and Grant Plan, as amended, and form of award agreements thereunder
(incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1 (File
No. 333-231747) filed on May 24, 2019)
2019 Stock Option and Grant Plan, and form of award agreements thereunder. (incorporated by
reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-
231747) filed on June 10, 2019)
2019 Employee Stock Purchase Plan. (incorporated by reference to Exhibit 10.3 of the Registrant’s
Registration Statement on Form S-1/A (File No. 333-231747) filed on June 10, 2019)
2019 Senior Executive Cash Bonus Plan (incorporated by reference to Exhibit 10.5 of the Registrant’s
Registration Statement on Form S-1 (File No. 333-231747) filed on May 24, 2019)
Form of Indemnification Agreement between the Registrant and each of its directors and executive
officers (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form
S-1 (File No. 333-231747) filed on May 24, 2019)
Form of Amended and Restated Employment Agreement for Executive Officers (incorporated by
reference to Exhibit 10.8 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-
231747) filed June 10, 2019)
Amended and Restated Employment Agreement for Andrew Cheng (incorporated by reference to
Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-231747) filed
June 10, 2019)
Amended and Restated Employment Agreement for William White (incorporated by reference to
Exhibit 10.10 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-231747) filed on
June 10, 2019)
138
Table of Contents
Exhibit
Number
10.9**
10.10
10.11
Exclusive License Agreement, by and between the Registrant and Amgen Inc., dated June 7, 2018
(incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1 (File
No. 333-231747) filed on May 24, 2019)
Exhibit Description
Amended and Restated Non-Employee Director Compensation Policy (incorporated by reference to
Exhibit 10.11 of the Registrant’s Annual Report on Form 10-K (File No. 001-38944) filed on March
16, 2020)
Office Lease between Gateway Center LP and the Registrant, dated as of February 14, 2020
(incorporated by reference to Exhibit 10.12 of the Registrant’s Annual Report on Form 10-K (File No.
001-38944) filed on March 16, 2020)
21.1*
List of Subsidiaries of the Registrant
23.1*
Consent of Deloitte & Touche LLP, independent registered public accounting firm
24.1*
Power of Attorney (included on the signatures pages hereto)
31.1*
31.2*
32.1+
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended
Certification of Principal Executive Officer and 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*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document.
#
*
**
+
Indicates a management contract or any compensatory plan, contract or arrangement.
Filed herewith.
Confidential treatment has been granted by the Securities and Exchange Commission as to certain portions.
The certifications furnished in Exhibit 32.1 hereto are deemed to be furnished with this Annual Report on Form 10-K
and will not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
except to the extent that the Registrant specifically incorporates it by reference.
139
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
AKERO THERAPEUTICS, INC.
Date: March 16, 2021
By:
/s/ ANDREW CHENG
Andrew Cheng, M.D., Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and appoints Andrew Cheng, Jonathan Young,
and William White, and each of them, with full power of substitution and resubstitution and full power to act without the
other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the
name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to
this annual report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by
the following persons in the capacities indicated below and on the dates indicated:
Signature
/s/ ANDREW CHENG
Andrew Cheng, M.D., Ph.D.
/s/ WILLIAM WHITE
William White
/s/ KEVIN BITTERMAN
Kevin Bitterman, Ph.D.
/s/ SETH L. HARRISON
Seth L. Harrison, M.D.
/s/ JANE P. HENDERSON
Jane P. Henderson
/s/ TOM HEYMAN
Tom Heyman
/s/ MARK IWICKI
Mark Iwicki
/s/ GRAHAM WALMSLEY
Graham Walmsley, M.D., Ph.D
Title
Chief Executive Officer, President
and Director (Principal Executive Officer)
Executive Vice President, Chief Financial Officer
and Head of Corporate Development
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
140
Date
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
SUBSIDIARIES
Subsidiary
Jurisdiction of Incorporation
Akero Securities Corporation
Massachusetts
Exhibit 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-232234 and 333-237220 on Form S-8 of
our report dated March 16, 2021 relating to the consolidated financial statements of Akero Therapeutics, Inc. appearing in
this Annual Report on Form 10-K for the year ended December 31, 2020.
Exhibit 23.1
/s/ Deloitte & Touche LLP
Parsippany, NJ
March 16, 2021
EXHIBIT 31.1
CERTIFICATION
I, Andrew Cheng, certify that:
1.
I have reviewed this annual report on Form 10-K of Akero Therapeutics, 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;
and
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.
1
Date: March 16, 2021
/s/ ANDREW CHENG
Andrew Cheng, M.D., Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
2
EXHIBIT 31.2
CERTIFICATION
I, William White, certify that:
1.
I have reviewed this annual report on Form 10-K of Akero Therapuetics, 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;
and
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.
1
Date: March 16, 2021
/s/ WILLIAM WHITE
William White
Executive Vice President, Chief Financial Officer and Head
of Corporate Development
(Principal Financial and Accounting Officer)
2
Certification of Principal Executive Officer and Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
EXHIBIT 32.1*
In connection with the Annual Report of Akero Therapeutics, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2020 (the “Report”), the undersigned hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of their knowledge:
1.
2.
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Dated: March 16, 2021
Dated: March 16, 2021
/s/ ANDREW CHENG
Andrew Cheng, M.D., Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
/s/ WILLIAM WHITE
William White
Executive Vice President, Chief Financial Officer and Head
of Corporate Development
(Principal Financial and Accounting Officer)
* This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934.
1