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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-36500
CYMABAY THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
7575 Gateway Blvd, Suite 110
Newark, CA
(Address of principal executive offices)
94-3103561
(I.R.S. Employer
Identification No.)
94560
(Zip Code)
(510) 293-8800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.0001 par value per share
Trading
symbol(s)
CBAY
Name of each exchange
on which registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
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 ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this
Form10-K. ☒
Large accelerated filer
Non-accelerated filer
☐
☐
Emerging Growth Company ☐
Accelerated filer
☒
Smaller reporting company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based upon the closing price of its Common Stock on the
Nasdaq Global Select Market on June 28, 2019, was $ 487,988,477. This excludes 546,232 shares of the registrant’s Common Stock held by executive officers, directors and
stockholders affiliated with directors outstanding at June 28, 2019. Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of the registrant or that such person is controlled by or under common control with the registrant.
The number of shares of common stock outstanding as of February 29, 2020, was 68,882,459.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its 2020 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after
the registrant’s fiscal year ended December 31, 2019, are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K.
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Cymabay Therapeutics, Inc.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2019
TABLE OF CONTENTS
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
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. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
PART III
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
PART IV
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CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to the “safe harbor” created by those sections. Forward-looking
statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can
identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “projected,” “potential,” “seek,” “target,” “goal,” “intend,” and similar expressions intended to identify forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, time frames or achievements
to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We
discuss many of these risks, uncertainties and other factors in this Annual Report on Form 10-K in greater detail under the heading “Risk Factors.” Given
these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking
statements represent our estimates and assumptions only as of the date of this filing. You should read this Annual Report on Form 10-K completely and
with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements
by our cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the
reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the
future.
Item 1. Business
Overview
PART I
We are a clinical-stage biopharmaceutical company focused on developing and providing access to innovative therapies for patients with liver and
other chronic diseases with high unmet medical need.
Our lead product candidate, seladelpar, is a potent and selective agonist of peroxisome proliferator activated receptor delta (PPARd), a nuclear
receptor that regulates genes directly or indirectly involved in the synthesis of bile acids/sterols, metabolism of lipids and glucose, inflammation and
fibrosis. We have been developing seladelpar for the treatment of liver diseases including:
•
•
•
primary biliary cholangitis (PBC), an autoimmune disease that causes progressive destruction of the bile ducts in the liver resulting in impaired
bile flow (cholestasis) and inflammation;
nonalcoholic steatohepatitis (NASH), a prevalent and serious chronic liver disease caused by excessive fat accumulation in the liver that results
in inflammation and cellular injury that can progress to fibrosis and cirrhosis, and potentially liver failure and death; and
primary sclerosing cholangitis (PSC), a rare, chronic cholestatic liver disease characterized by diffuse inflammation and fibrosis of the
intrahepatic and extrahepatic bile ducts.
Key elements of our strategy have been to advance clinical development of seladelpar for patients with PBC, NASH and PSC, to strengthen our
patent portfolio and other means of protecting exclusivity, and to evaluate other product candidates.
We reported net losses of approximately $102.8 million, $72.5 million and $27.6 million for the years ended December 31, 2019, 2018 and 2017,
respectively. As of December 31, 2019, we had cash equivalents and marketable securities totaling $190.9 million.
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Recent Events
In November 2019, we announced the termination of our Phase 2b study of seladelpar in subjects with NASH and our recently initiated Phase 2
study of seladelpar in subjects with PSC. In addition, we placed on hold all studies of seladelpar in subjects with PBC. The decision to halt development of
seladelpar was based on initial histological observations in the Phase 2b study of seladelpar in NASH that were observed in the first blinded tranche of
liver biopsies in the trial. These observations were characterized by an interface hepatitis presentation, with or without biliary injury. Although these
patients had stable or improving biochemical markers of liver disease, the decision to halt development was based on a need to understand the significance
of the observations, and possible impact on patients, before dosing additional patients with seladelpar. The U.S. Food and Drug Administration (FDA)
agreed with this decision and subsequently placed a formal clinical hold on seladelpar in December 2019. We have since terminated our Phase 3 and other
NDA-enabling studies of seladelpar in subjects with PBC.
With the receipt of additional requests from the FDA, we have initiated a series of investigative actions to better understand the baseline
characteristics of patients enrolled in our Phase 2b NASH study and the histological observations identified by our study pathologists at the end of
treatment.
The investigation includes three activities intended to confirm and subsequently understand the significance of the observations. The first is a
comprehensive collection and review of data including patient demographics, medical history, concomitant medications and additional biochemical
markers. The second is a blinded, independent review of baseline and end of treatment biopsies by several, experienced liver pathologists. Finally, the
third, is a formal pathology and clinical hepatology review panel meeting during which experts will review all information gathered to provide a consensus
independent determination of the role of seladelpar in these findings. These activities are essential to our follow-up with the FDA and to determine if there
may be a path forward for seladelpar. Following the announcement of the histological observations, we also commenced a process to evaluate all potential
ways to maximize stockholder value. This includes a comprehensive evaluation of possible mergers and business combinations, a sale of part or all of our
assets, collaboration and licensing agreements, dissolution and liquidation of our assets, and/or continuing development of our internal programs.
CymaBay Pipeline Overview
Our pipeline includes two clinical stage product candidates: seladelpar (MBX-8025) and MBX-2982* We have one preclinical stage product
candidate, CB-001.
Product
Candidates
Seladelpar
Seladelpar
Seladelpar
Disease/condition
Primary Biliary
Cholangitis (PBC)
Nonalcoholic
Steatohepatitis (NASH)
Primary Sclerosing
Cholangitis (PSC)
Status
Phase 3
(terminated)
Phase 2
(terminated)
Phase 2
(terminated)
Description
52-week study to evaluate seladelpar in PBC patients with inadequate
response or intolerance to ursodeoxycholic acid (UDCA)
(NCT03602560)†
52-week study to evaluate safety, tolerability, and effect of seladelpar
in patients with NASH (NCT03551522)†
A 24-week study to evaluate the safety, tolerability, and efficacy of
Seladelpar in patients with PSC
(NCT04024813)†
MBX-2982*
(GPR 119 agonist)
CB-001
(GPR 120 agonist)
Gut/Liver
Gut/Liver
Pre-IND
Undisclosed indication(s)
Preclinical
Undisclosed indication(s)
*
Phase 2 (discontinued) in type 2 diabetes supported safety and pharmacokinetic profile, currently being explored for other indication(s).
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Seladelpar (MBX-8025)
Summary
Seladelpar is a selective agonist for the peroxisome proliferator-activated receptor delta (PPARd). The PPARd receptor is a nuclear receptor that
regulates genes involved in bile acid/sterol, lipid, and glucose metabolism, and regulation of certain inflammatory cells. Seladelpar has the potential to
treat certain diseases of the liver and a variety of disorders of lipid metabolism.
Seladelpar was initially developed for treatment of mixed dyslipidemia, which is characterized by elevated low-density lipoprotein (LDL-C) and
triglycerides (TGs). Results from our Phase 2 clinical study of seladelpar in patients with mixed dyslipidemia established effects that we believe have the
potential to benefit patients affected with other conditions, these benefits including:
•
•
•
•
Significant reductions in markers of cholestasis, such as alkaline phosphatase (ALP) and gamma-glutamyl transferase (GGT),
Decreases in high-sensitivity C-reactive protein (hs-CRP), a marker of inflammation,
Lowered LDL-C and raised high-density-lipoprotein (HDL-C), and
Decreased triglycerides and free fatty acids.
In February 2019, the Food and Drug Administration (FDA) granted seladelpar Breakthrough Therapy Designation for the treatment of early stage
PBC, and in October 2016, seladelpar received the European Medicines Agency (EMA) PRIority MEdicines (PRIME) designation for the treatment of
PBC. In November 2016, the FDA granted orphan drug designation to seladelpar for the treatment of PBC. In September 2017, EMA’s Committee for
Orphan Medicinal Products (COMP) granted orphan drug designation to seladelpar for the treatment of PBC.
To date, we have completed six-month and twelve-month toxicity studies of seladelpar in rats and monkeys, respectively, as well as two-year
carcinogenicity studies in mice and rats. In addition, nine Phase 1 and three Phase 2 clinical studies with seladelpar have been completed.
In November 2019, we announced that we were terminating our Phase 2b study of seladelpar in subjects with NASH and our Phase 2 study of
seladelpar in patients with PSC and putting ENHANCE, our Phase 3 study of seladelpar in subjects with PBC, on hold. The FDA agreed with this decision
and subsequently placed a formal clinical hold on seladelpar in December 2019. We have since terminated our Phase 3 and other NDA-enabling studies of
seladelpar in subjects with PBC. The decision to halt development of seladelpar was based on initial histological observations in the Phase 2b study of
seladelpar in NASH that were observed in the first tranche of liver biopsies in the trial. These observations were characterized by an interface hepatitis
presentation, with or without biliary injury. Although these patients had stable or improving biochemical markers of liver disease, the decision to halt
development was based on a need to understand the significance of the observations, and possible impact on patients, before dosing additional patients
with seladelpar. We have initiated a series of investigative actions that will involve consultation with independent, third-party experts to better understand
the baseline characteristics of patients enrolled in our Phase 2b NASH study and the histological observations identified by our study pathologists at the
end of treatment.
Overall, our seladelpar program remains on hold as we continue our investigation of the histological observations and continue our discussions with
the FDA.
Target Indications for Seladelpar Clinical
We have been targeting PBC, NASH, and PSC as indications for seladelpar, although our programs for each of these indications are on hold. The
following is a short description of each of these target indications.
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Primary Biliary Cholangitis (PBC)
Summary
PBC is a rare, chronic progressive autoimmune liver disease that predominantly affects middle-aged women. A T-cell mediated immune response is
thought to damage, and ultimately destroy, the interlobular and septal bile ducts. The loss of bile duct function leads to decreased bile secretion and
retention of toxic substances, including bile acids, within the liver parenchyma. This retention may ultimately cause liver cirrhosis and liver failure in PBC
patients.
PBC primarily affects an estimated one in 1,000 women over the age of 40. Due to its low prevalence, PBC has been recognized as an orphan
disease in the U.S. and E.U., meeting its respective FDA and EMA orphan designation criteria. Diagnosis of PBC is confirmed by elevated serum alkaline
phosphatase (AP) presence and/or magnitude of antimitochondrial antibody (AMA presence), and liver biopsies, although biopsies are no longer required
for diagnosis in most patients.
The most common clinical symptoms of PBC include fatigue and pruritus, or itching (up to 70% occurrence), which adversely affects many
patients’ quality of life. PBC patients are also frequently affected by conditions including jaundice, hyperlipidemia (notably hypercholesterolemia),
hypothyroidism, osteopenia and osteoporosis, and coexisting autoimmune diseases. Late complications of PBC include portal hypertension,
malabsorption, deficiencies of fat-soluble vitamins, and steatorrhea (excess fat in feces). Left untreated, PBC disease progression can lead to the need for
liver transplantation and liver-related mortality. Despite being a rare disease, PBC is one of the top six indications for liver transplantation in the U.S. and
E.U. Recurrence of PBC following liver transplantation is reported in 11-46% of transplantations, with an estimated prevalence of 30% at 10 years
following transplantation, further demonstrating a need for effective therapies.
Retrospective analyses of PBC clinical outcomes data have shown that elevated levels of AP and bilirubin are associated with worsened clinical
outcomes including liver transplantation and death associated with PBC. These analyses supported the use of AP and bilirubin as elements of a clinical
surrogate reasonably likely to predict outcomes that was used for the approval of obeticholic acid as a second line therapy for PBC.
Competition/Industry
We face competition from pharmaceutical and biotechnology companies. The FDA-approved treatments for PBC are ursodeoxycholic acid (UDCA),
also known as ursodiol, a generic drug, and obeticholic acid (Ocaliva®). UDCA is a natural bile acid that decreases serum levels of AP, bilirubin, alanine
transferase, aspartate aminotransferase, cholesterol, and immunoglobulin M, which are all elevated in patients with PBC and can serve as biochemical
markers of disease. Ocaliva® is a synthetic bile acid analog that binds to and activates the farnesoid X receptor, or FXR, and received orphan designations
in the U.S. and the E.U. Elafibranor (Genfit S.A.) is a mixed PPARa/d agonist in development for patients with PBC. In April 2019, Genfit announced
elafibranor had been granted Breakthrough Therapy Designation by the U.S. FDA for the treatment of PBC. In December 2018, Genfit announced positive
Phase 2 results from a Phase 2 study evaluating the efficacy and safety of elafibranor (80 mg and 120 mg once-daily) in adult patients with PBC who had
an inadequate response to UDCA.
Studies of Seladelpar in PBC
Phase 3 ENHANCE
In October 2018, we commenced enrollment of a global, Phase 3 registration study (ENHANCE) to evaluate seladelpar in patients with PBC. The
Phase 3 study is a double-blind, randomized, placebo-controlled 52-week study evaluating the safety and efficacy of 5 mg and 10 mg of seladelpar versus
placebo in patients with PBC who have had an inadequate response or are intolerant to first-line treatment with ursodeoxycholic acid (UDCA).
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An inadequate response is defined as a patient having AP greater than 1.67 times the upper limit of normal (ULN). Approximately 265 patients were
randomized to receive placebo, 5 mg of seladelpar, or 10 mg of seladelpar. Patients on 5 mg were to have the potential to increase the dose, in a double-
blinded manner, to 10 mg after 6 months if they have not yet met the primary endpoint. The primary endpoint was a composite response defined as a
patient achieving an AP level below 1.67 times the upper limit of normal, with at least a 15% reduction from baseline, and a normal total bilirubin at 52
weeks. The primary effective measure was to compare response rates of treatment groups to those of the placebo. Key secondary endpoints were to be AP
normalization rate and changes in pruritus, as measured by the numerical rating scale, or NRS.
In December 2019, we announced that this trial was being terminated based on initial histological observations in our Phase 2b study of seladelpar
in NASH. The FDA subsequently placed a formal clinical hold on development of seladelpar in all indications.
Safety Extension Study
Our long-term safety extension study of seladelpar was open to patients participating in current or future PBC studies in the PBC clinical
development program. Patients completing the Phase 2 open label study discussed immediately below began transferring into the long-term safety
extension study in December 2017. To date, 54 patients have received seladelpar between 12 and 24 months and 52 patients have received seladelpar
between 24 and 36 months. The extension study was discontinued due to the histological observations in the Phase 2b NASH study.
Phase 2 Open Label Study
In December 2016, we initiated a second Phase 2 Low Dose study of seladelpar in patients with PBC. The study was an open label, randomized,
dose-ranging study evaluating lower doses of seladelpar and the primary efficacy endpoint percent change in AP from baseline. Secondary outcomes were
to evaluate other markers of cholestasis, inflammation, and lipid parameters, as well as clinical symptoms such as pruritus and quality of life.
Following positive results from our planned interim analysis in early 2018, we released updated data from the Phase 2 Low Dose study in November
2018 that continued to show sustained anti-cholestatic and anti-inflammatory effects with no worsening of pruritus through 52 weeks. Results highlight the
potential for seladelpar to offer patients an efficacious treatment option.
Specifically, efficacy data was released on the first set of patients treated for 52 weeks and safety data on patients that received at least one dose of
seladelpar in the study. Eligible PBC patients with either an inadequate response or intolerance to ursodeoxycholic acid (UDCA) were randomized to daily
seladelpar at 5 or 10 mg. After 12 weeks, patients on 5 mg could escalate to 10 mg if their AP treatment goal was not met (5/10 mg group). The primary
efficacy outcome was the AP % change from baseline. At 52 weeks, the mean decreases in AP were -47% and -46% in the 5/10 and 10 mg groups,
respectively. A key secondary outcome was the composite response measured at week 52 where a responder was defined as a patient with AP <1.67 x
ULN, ≥15% decrease in AP, and total bilirubin ≤ULN. At 52 weeks, 59% and 71% of patients met the composite endpoint in the 5/10 and 10 mg groups,
respectively. The anti-cholestatic effect of seladelpar was further substantiated with normalization of AP levels at 52 weeks in 24% and 29% of patients in
the 5/10 and 10 mg groups, respectively. Treatment with seladelpar also demonstrated a robust anti-inflammatory activity with median transaminase
decreases of -31% and -33% in the 5/10 and 10 mg groups, respectively.
A 26-week analysis from the study was also shared on the effect of seladelpar on pruritus, or itching, which is a common clinical symptom of PBC
that adversely effects a patient’s quality of life. After 26 weeks, the median changes in the pruritus visual analog scale (VAS) was -50% and -55% in the 5
/10 and 10 mg groups, respectively. These data suggest that seladelpar is not associated with drug-induced pruritus and support further evaluation of
seladelpar’s potential benefit on pruritus.
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The study is complete and in the data cleaning phase. Of the 119 patients that received at least one dose of seladelpar, 11 serious adverse events were
documented, and none were considered related to seladelpar. Three patients discontinued seladelpar, of which only one discontinuation, for a grade 1
gastroesophageal reflux, was deemed related to seladelpar. There was no transaminase safety signal, and importantly, there was no indication that
seladelpar was associated with drug-induced pruritus.
Nonalcoholic Steatohepatitis (NASH)
Summary
Nonalcoholic fatty liver disease (NAFLD) is the most common chronic liver disease worldwide and encompasses a spectrum of conditions that arise
from fat accumulation in the liver of individuals that cannot otherwise be attributed to alcohol consumption. The prevalence of NAFLD has increased and
is reported to account for approximately 25% of the general population worldwide. It is widely believed that the increase in NAFLD prevalence is a
consequence of the obesity epidemic, and studies associate NAFLD with visceral obesity, Type 2 diabetes, hypertension, dyslipidemia, and
hypothyroidism.
The accumulation of fat in combination with hepatic inflammation can cause chronic liver injury leading to nonalcoholic steatohepatitis (NASH).
NASH is the progressive form of NAFLD and increases patient risk of developing advanced liver fibrosis, cirrhosis, decompensated cirrhosis, the need for
liver transplantation, hepatocellular carcinoma (HCC), and/or death. Serum markers that are often elevated in NASH patients include the transaminases
alanine aminotransferase (ALT) and/or aspartate aminotransferase (AST). Liver biopsies are performed to confirm a NASH diagnosis. Approximately
10-20% of individuals with NAFLD progress to NASH.
Competition/Industry
There are currently no drugs approved in the U.S. or E.U. for the treatment of NASH. In September 2019, Intercept Pharmaceuticals filed a New
Drug Application to the U.S. FDA for obeticholic acid in patients with fibrosis due to NASH. Several clinical studies have been completed or are underway
with drug candidates that may affect disease outcomes in patients with non-cirrhotic NASH, including Phase 3 studies with Ocaliva®, an FXR-agonist
(Intercept Pharmaceuticals), elafibranor (GFT505), a PPARa/d agonist (Genfit SA), cenicriviroc, a CCR2/5 receptor antagonist (Allergan), and
selonsertib, an ASK1 inhibitor (Gilead). Over two dozen other compounds are currently in Phase 2 development in NASH.
Studies of Seladelpar in NASH
Phase 2b NASH Study
In May 2018, we initiated a randomized, placebo-controlled, parallel, dose-ranging Phase 2b study to evaluate seladelpar in patients with NASH. In
February 2019, we announced full enrollment of 181 patients with liver biopsy proven NASH at specialized U.S. investigational centers. Seladelpar at
doses of 10, 20, and 50 mg per day were studied versus placebo in a 2:2:2:1 randomization. The primary efficacy outcome was the change from baseline in
liver fat content at 12 weeks as measured by magnetic resonance imaging using the proton density fat fraction method (MRI-PDFF). In June 2019, we
announced results from the primary efficacy outcome, which were that treatment with seladelpar resulted in minimal reductions in liver fat that were not
significant when compared to placebo. Treatment with seladelpar did, however, result in robust and clinically meaningful reductions in markers associated
with liver injury. Alanine aminotransferase (ALT) declined up to 37.5% or 32 U/L in 12 weeks. These reductions in ALT are significantly greater than the
17 U/L threshold that has been correlated with histologic improvement in NASH. Gamma glutamyl transferase (GGT) also decreased significantly,
suggesting a reduction in hepatocellular oxidative stress. Significant reductions in alkaline phosphatase (AP) at 12 weeks were observed, supportive of a
decrease in hepatocellular bile acids. The marked changes in these liver enzymes collectively suggested the potential to impact ballooning and lobular
inflammation, the two key components of NASH resolution. In November 2019, we announced that this trial was
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terminated based on initial histological observations. Although these patients had stable or improving biochemical markers of liver disease, FDA placed a
clinical hold on dosing additional patients with seladelpar due to the lack of understanding the significance of the observations, and possible impact on
patients. We have initiated a series of investigative actions to better understand the histological observations.
In March 2020, we announced additional preliminary data from the terminated Phase 2b study of seladelpar in patients with NASH. For liver tests
at 52 weeks, there were 19, 35, 41 and 40 evaluable patients in the placebo, 10, 20 and 50 mg groups, respectively. The corresponding percent changes
from baseline at week 52 in ALT were +1.1%, -29.1%, -41.9% and -41.3%. Similarly for AST, relative changes at week 52 were -0.5%, -19.7%, -25.0%,
and -16.6% percent for placebo, 10, 20 and 50 mg, respectively. Finally, corresponding changes in GGT were -0.6%, -29.0%, -46.1% and -35.0%. Out of
181 patients enrolled in the study, there were 152 with paired biopsies at entry and end-of-treatment. The number of patients with paired biopsies in the
placebo, 10, 20 and 50 mg seladelpar groups were 25, 39, 42 and 46, respectively. The proportion of responders with resolution of NASH with no
worsening in fibrosis were 8.0%, 10.3%, 19.0% and 26.1% in the placebo, 10, 20 and 50 mg seladelpar groups, respectively. The corresponding
responder rates for at least a one stage improvement in fibrosis with no worsening in NASH were 20.0%, 23.1%, 23.8% and 37.0%. The proportion of
patients meeting both endpoints were 8.0%, 5.1%, 11.9% and 19.6% for the placebo, 10, 20 and 50 mg seladelpar groups, respectively.
Pre-clinical Studies
The mode of action for seladelpar in NASH was established in a diabetic and dyslipidemic obese mouse model (the foz/foz mouse model; Haczeyni
et al., 2017). These mice develop liver pathology similar to humans with NASH consisting of steatohepatitis complicated by pericellular fibrosis (Van
Rooyen et al., 2011; Haczeyni et al., 2015). The pathogenic progression of NASH and seladelpar’s actions in this model are broadly summarized as
follows: (1) The accumulation of fat with an accompanying development of insulin resistance: seladelpar reduced hepatic steatosis by increasing
expression of genes associated with mitochondrial fatty acid oxidation, which was accompanied by restoration of full insulin sensitivity; (2) Cell stress and
injury response: seladelpar reduced hepatocellular toxic species, including lipotoxic lipids and free cholesterol, with strong reductions in apoptosis and cell
regeneration response to injury. There was a complete abrogation of cellular ballooning (necroinflammation), which is a defining characteristic of NASH;
(3) Initiation and perpetuation of inflammation: seladelpar treatment led to strong reductions in liver macrophages, which was accompanied by reductions
in inflammatory mediators; (4) Extracellular matrix deposition and remodeling: seladelpar reduced collagen deposition and characteristic fibrogenic
transcripts that accompany stellate cell activation and fibrosis.
Recently, we have confirmed many of the features of the mechanism of seladelpar for NASH in a second mouse model, a diet-induced biopsy-
confirmed NASH model in obese mice (Choi et al., 2018). This independent model employed feeding mice a diet with high levels of trans-fat, fructose
and cholesterol to create a more aggressive NASH with fibrosis. Reduction in hepatic fat and improvement in NASH pathology, including abrogation of
ballooning, were also observed. Fibrosis was reduced as measured by total collagen content in the liver.
Primary Sclerosing Cholangitis (PSC)
Summary
Primary Sclerosing Cholangitis (PSC) is a rare, chronic cholestatic liver disease that is characterized by diffuse inflammation and fibrosis of the
bile ducts. The disease predominantly affects the medium to large-sized bile ducts inside and outside the liver and is manifested by ongoing ductal
destruction leading to cholestasis, advanced fibrosis, and cirrhosis. Disease progression will eventually lead to liver failure with consequent
complications such as portal hypertension and increased risk of malignancy, including hepatocellular carcinoma (HCC) and cholangiocarcinoma. Other
clinical symptoms of PSC include fatigue and pruritus. Males are affected
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twice as often as females and an estimated 70% of PSC patients have concomitant inflammatory bowel disease, particularly ulcerative colitis. There are
currently no FDA-approved treatments for PSC. In other clinical studies, seladelpar has demonstrated anti-cholestatic and anti-inflammatory activity,
suggesting the potential of seladelpar as a therapeutic option for the treatment of PSC.
Competition/Industry
There are currently no drugs approved in the U.S. or E.U. for the treatment of PSC. However, clinical studies have been completed or are underway
with drug candidates that may affect disease outcomes in patients with PSC, including a Phase 2 study with Ocaliva®, an FXR-agonist (Intercept
Pharmaceuticals), and other compounds which are in earlier stages of development in PSC.
Studies of Seladelpar in PSC
Phase 2 PSC Study
In June 2019, we initiated a Phase 2 randomized, placebo-controlled, dose-ranging study of seladelpar in patients with PSC that was designed to
enroll approximately 100 patients at 60 sites globally. Seladelpar at doses of 5, 10, and 25 mg once daily would have been studied versus placebo in a
1:1:1:1 randomization. The primary efficacy outcome was the relative change in alkaline phosphatase (AP) from baseline at 24 weeks. The study was
discontinued due to the histological observations in the Phase 2 NASH study. At the time of study termination, 1 subject, randomized to placebo was
enrolled.
MBX-2982
Summary
MBX-2982 targets G protein-coupled receptor 119 (GPR119), a receptor that interacts with bioactive lipids known to stimulate glucose-dependent
insulin secretion. Preclinical data indicate that MBX-2982 is a potent selective orally-active GPR119 agonist that functions through a unique dual
mechanism of action that acts directly on the beta cell to increase insulin secretion and stimulates release of the incretin GLP-1 from the gut. We have
previously conducted clinical studies for MBX-2982 as a potential treatment for diabetes, demonstrating MBX-2982 was safe and well tolerated.
We believe MBX-2982 may also have utility in various diseases impacting the gut, liver or gut-liver axis and are currently exploring potential
opportunities to advance development.
CB-001 (GPR120)
Summary
CB-001 targets G protein-coupled receptor 120 (GPR120), a receptor for omega-3 fatty acids such as docosahexaenoic acid (DHA).
Pharmacodynamic effects include insulin sensitization, stimulation of GLP-1 release, glucose sensitive insulin secretion (GSIS), improvement in hepatic
steatosis and lipid profile, and anti-inflammatory activity. Preclinical target validation has been achieved.
We believe CB-001 may have utility in various diseases impacting the gut, liver or gut-liver axis and are currently exploring potential opportunities
to advance development.
Arhalofenate
Summary
Arhalofenate is a dual-acting anti-inflammatory and uric acid lowering agent being developed for the treatment of gout. In 2016, we entered into an
exclusive licensing agreement granting Kowa Pharmaceuticals
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America, Inc. the rights to develop and commercialize arhalofenate in the U.S. (including all possessions and territories). Under the terms of the agreement
with Kowa, we received an upfront payment of $5.0 million, and in January 2018 we received a $5.0 million milestone payment for the initiation of a
study evaluating the pharmacokinetics of arhalofenate in subjects with renal impairment. We were also entitled to receive additional milestone payments
based upon the achievement of specific development and sales milestones and royalties on future sales of arhalofenate products. On October 24, 2018, we
received a notice from Kowa terminating the license agreement for the development of arhalofenate, effective on January 22, 2019. As a result of the
termination, the rights licensed to Kowa through the agreement reverted to us on the termination date and we are no longer eligible to receive additional
milestone payments or royalties from Kowa.
License Agreements and Intellectual Property
General
We actively seek to obtain, where appropriate, patent protection and regulatory exclusivity for the proprietary technology that we consider important
to our business, including compounds, compositions and formulations, their methods of use and processes for their manufacture both in the United States
and other countries. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing to develop and maintain our proprietary
position. Our success depends in part on our ability to obtain, maintain and enforce proprietary protection for our product candidates, technology and know
— how, to operate without infringing the proprietary rights of others, and to exclude others from infringing our proprietary rights. However, patent
protection may not afford us complete protection against competitors who seek to circumvent our patents.
We also depend upon the skills, knowledge, experience and know-how of our management, research and development personnel, as well as that of
our advisors, consultants and other contractors. To help protect our proprietary know-how, which is not patentable, and for inventions for which patents
may be difficult to enforce, we currently rely, and will in the future rely, on trade secret protection and confidentiality agreements to protect our interests.
To this end, we require all of our employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit the disclosure
of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions
important to our business.
Collaborations and Licensing Agreements
We have entered into various arrangements with licensors and licensees. Our current significant collaborations are summarized below:
Johnson & Johnson: In June 2006, we entered into a license agreement with Janssen Pharmaceutical NV (Janssen NV), an affiliate of Johnson &
Johnson, in which we received an exclusive worldwide, royalty-bearing license to seladelpar and certain other PPARd compounds (the PPARd Products)
with the right to grant sublicenses to third parties to make, use and sell such PPARd Products. Under the terms of the agreement, we have full control and
responsibility over the research, development and registration of any PPARd Products and are required to use diligent efforts to conduct all such
activities. Janssen NV has the sole responsibility for the preparation, filing, prosecution, maintenance of, and defense of certain patents related to the
PPARd Products. Janssen NV has a right of first negotiation under the agreement to license PPARd Products from us in the event that we elect to seek a
third-party corporate partner for the research, development, promotion, and/or commercialization of such PPARd Product. Under the terms of the
agreement Janssen NV is entitled to receive up to an 8% royalty on net sales of PPARd Products. Under the terms of the agreement, if we do not expend
more than a de minimis amount of effort and resources on the research and/or development of at least one PPARd Product, such action would constitute
a default under the agreement. In addition, if we fail to use diligent efforts to promote, market and sell any PPARd Product under the agreement, such
action would constitute a default under the agreement. In the event of such default, or upon our termination of the agreement, we are
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obligated to grant Janssen NV a worldwide, exclusive, irrevocable license under the agreement in all information that is controlled, developed or
acquired by us that relates to a PPARd compound or PPARd Product and in all patents that are filed during the term of the agreement with a priority date
after the effective date of the agreement and relate to a PPARd compound or PPARd Product.
In June 2010, we entered into two development and license agreements with Janssen Pharmaceuticals, Inc. (Janssen), an affiliate of Johnson &
Johnson, under which Janssen obtained the right to further develop undisclosed metabolic disease target agonists for the treatment of Type 2 diabetes and
other disorders, and we received a one-time nonrefundable technology access fee related to the agreements. These development and licensing agreements
were terminated as of April 2015. In December 2015, we exercised an option pursuant to the terms of one of the original agreements to continue work to
research, develop and commercialize compounds with activity against an undisclosed metabolic disease target. Janssen granted us an exclusive,
worldwide license (with rights to sublicense) under the Janssen know-how and patents to research, develop, make, have made, import, use, offer for sale
and sell such compounds. We have full control and responsibility over the research, development and registration of any products developed and/or
discovered from the metabolic disease target and are required to use diligent efforts to conduct all such activities.
Research and Development
We do not currently own or operate research and development facilities. We rely on contract service providers (CSPs) including clinical research
organizations, clinical trial sites, central laboratories and other service providers to ensure the proper and timely conduct of our clinical trials. While we
have agreements governing their activities, we have limited influence over their actual performance. We have relied and plan to continue to rely upon CSPs
to monitor and manage data for our ongoing clinical programs for our product candidates, as well as the execution of nonclinical studies. We control only
certain aspects of our CSPs’ activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the
applicable protocol, legal, regulatory and scientific standards and our reliance on the CSPs does not relieve us of our regulatory responsibilities. We also
rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization
strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts
with other entities that may limit their availability to us, which could also adversely affect the progress of our research, development and
commercialization objectives.
Intellectual Property
We own or co-own approximately 40 United States patents and 190 foreign patents, as well as approximately 10 United States patent applications
and 40 foreign and Patent Cooperation Treaty applications that are counterparts to certain United States patents and patent applications. In addition, we
license from third parties approximately 20 United States patents and 1 United States patent application, 330 foreign patents and 20 foreign and Patent
Cooperation Treaty applications that are counterparts to certain United States patents and patent applications. These patents and patent applications include
claims covering various aspects of our product pipeline and research and development strategies, including certain PPARd agonists (including seladelpar),
their compositions and uses both alone and in combination with other drugs, arhalofenate crystal forms, methods of use and methods of manufacture, and
certain GPR119 and GPR 120 agonist compositions and uses.
The seladelpar portfolio consists of approximately 470 issued patents and 70 pending patent applications related to composition and method of use
that we believe protect it through at least 2025-2038, before accounting for any potential patent term extension. Patent and trade secret protection is critical
to our business. Our success will depend in large part on our ability to obtain, maintain, defend and enforce patents and other intellectual property, to
extend the life of patents covering our product candidates, to preserve trade secrets and proprietary know-how, and to operate without infringing the
patents and proprietary rights of third parties.
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Manufacturing
We do not currently own or operate manufacturing facilities for the production or testing of seladelpar or other product candidates that we develop,
nor do we have plans to develop our own manufacturing operations in the foreseeable future. We presently depend on third party contract manufacturers
to obtain all of our required raw materials, active pharmaceutical ingredients (APIs) and finished products for our clinical studies for seladelpar. We have
executed manufacturing agreements for our API and clinical supplies of seladelpar with established manufacturing firms that are responsible for sourcing
and obtaining the raw materials necessary for the finished products. The raw materials necessary to manufacture the API for seladelpar are available from
more than one source.
Competition
The biopharmaceutical industry is highly competitive and subject to rapid and significant innovation. Although we believe that our development
expertise and scientific knowledge provide us with advantages over our competitors, particularly in the therapeutic areas in which we are focused, other
biopharmaceutical companies in the industry may be able to develop therapeutics that are able to achieve better results. Our competitors include
pharmaceutical companies, biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of our
competitors have significantly greater financial, technical and human resources than we have.
We have been developing seladelpar for the treatment of patients with PBC, PSC and NASH; competition in these indications is discussed further
below.
PBC Competition
Currently, the only FDA-approved treatments for PBC are ursodeoxycholic acid (UCDA), also known as ursodiol, an isomer of chenodeoxycholic
acid and the synthetic bile acid analog obeticholic acid (Ocaliva®, Intercept Pharmaceuticals). Ursodiol decreases serum levels of AP, bilirubin, alanine
aminotransferase, aspartate aminotransferase, cholesterol, and immunoglobulin M, all of which are elevated in patients with PBC and can serve as
biochemical markers of the disease. In a study that combined data from three controlled trials with a total of 548 patients, ursodiol significantly reduced
the likelihood of liver transplantation or death after four years. Ursodiol also delayed the progression of hepatic fibrosis in early-stage PBC, but was not
effective in advanced disease. It is also known that up to 50% of PBC patients fail to respond adequately to ursodiol therapy. Ursodiol is available as a
generic and is priced at a discount to typical branded therapies.
Ocaliva was approved by the FDA and European Medicines Agency in 2016 for the treatment of PBC in combination with UDCA in adults with an
inadequate response to UDCA, or as monotherapy in adults unable to tolerate UDCA. Ocaliva also received orphan designations in the U.S. and the E.U. A
Phase 3 study was completed with a primary composite endpoint defined as a responder rate comprised of the percentage of patients with AP < 1.67 times
upper limit of normal with a decrease in AP of at least 15% and total bilirubin less than or equal to upper limit of normal. This study met its goals and
Ocaliva was granted accelerated approval based on meeting this primary composite endpoint.
Although not approved for use in PBC, off-label use of fibrate drugs has been reported, though many fibrates are specifically contraindicated for use
in PBC due to potential concerns over acute and long-term safety in this patient population. Other therapies, such as colchicine, methotrexate, prednisone
and multiple immunosuppressive regimens have been attempted. However, their efficacy is limited or unproven, and they are associated with multiple
side-effects impacting tolerance and safety. Liver transplantation improves survival in patients with PBC, and it is the only effective treatment for those
with liver failure. Liver transplantation however is problematic because of its costs, the limited availability of donor organs, and by the fact that the disease
may recur after an initially successful transplantation. As a result, despite the previously mentioned therapeutic interventions, it is recognized that PBC
continues to progress in many patients and additional medical treatment is needed to address this disease.
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Elafibranor (Genfit S.A.) is a mixed PPARa/d agonist in development for patients with PBC. In April 2019, Genfit announced elafibranor had
been granted Breakthrough Therapy Designation by the U.S. FDA for the treatment of PBC. In December 2018, Genfit announced positive Phase 2
results from a Phase 2 study evaluating the efficacy and safety of elafibranor (80 mg and 120 mg once-daily) in adult patients with PBC who had an
inadequate response to UDCA. Additional potential therapies in early stage clinical development for PBC include FXR agonists that act through the
same mechanism of action as Ocaliva (tropifexor (LJN452, Novartis Pharmaceuticals Corp.), GS-9674 (Gilead Sciences, Inc.) and EDP-305 (Enanta
Pharmaceuticals, Inc.)), the dual PPARa/g agonist saroglitazar, the selective NOX inhibitor GKT137831, the oxy-sterol sulfate DUR-928, and the
selective S1P receptor modulator etrasimod (APD334) (Arena Pharmaceuticals, Inc.). GSK23306772 (GlaxoSmithKline) is an inhibitor of the Intestinal
Bile Acid Transporter (IBAT) and is being evaluated for the treatment of itch associated with PBC and maralixibat, another IBAT inhibitor, was recently
discontinued for this indication due to lack of efficacy. NGM-282 (NGM Biopharmaceuticals), an FGF-19 variant was also studied in PBC, but the
clinical program has been re-focused towards the treatment of NASH.
NASH Competition
There are currently no drugs approved in the U.S. or E.U. for the treatment of NASH. In September 2019, Intercept Pharmaceuticals filed a New
Drug Application to the U.S. FDA for obeticholic acid in patients with fibrosis due to NASH. Several clinical studies have been completed or are underway
with drug candidates that may affect disease outcomes in patients with non-cirrhotic NASH, including Phase 3 studies with OCA, an FXR-agonist
(Intercept Pharmaceuticals), elafibranor (GFT505), a PPARa/d agonist (Genfit SA), cenicriviroc, a CCR2/5 receptor antagonist (Allergan), and
selonsertib, an ASK1 inhibitor (Gilead). Over two dozen other compounds are currently in Phase 2 development in NASH.
PSC Competition
There are currently no drugs approved in the U.S. or E.U. for the treatment of PSC. However, clinical studies have been completed or are underway
with drug candidates that may affect disease outcomes in patients with PSC, including a Phase 2 study with Ocaliva®, an FXR-agonist (Intercept
Pharmaceuticals), and other compounds which are in earlier stages of development in PSC.
Government Regulation and Product Approval
Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the
research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution,
post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. The pharmaceutical drug product
candidates that we develop must be approved by the Food and Drug Administration (FDA) before they may be legally marketed in the United States.
United States Pharmaceutical Product Development Process
In the United States, the FDA regulates pharmaceutical products under the Federal Food, Drug and Cosmetic Act, and implementing regulations.
Pharmaceutical products are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the
subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial
resources. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or
after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include refusal to approve pending applications,
withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution,
injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action
could have a material adverse effect on us. The
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process required by the FDA before a pharmaceutical product may be marketed in the United States generally involves the following:
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Completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices (GLP) or other
applicable regulations;
Submission to the FDA of an Investigational New Drug (IND) application, which must become effective before human clinical studies may
begin;
Performance of adequate and well-controlled human clinical studies according to the FDA’s current Good Clinical Practices (GCP), to
establish the safety and efficacy of the proposed pharmaceutical product for its intended use;
Submission to the FDA of a New Drug Application (NDA) for a new pharmaceutical product;
Satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the pharmaceutical product is produced to
assess compliance with the FDA’s current Good Manufacturing Practice standards (cGMP), to assure that the facilities, methods and controls
are adequate to preserve the pharmaceutical product’s identity, strength, quality and purity;
Potential FDA audit of selected preclinical and clinical study sites that generated the data in support of the NDA; and
FDA review and approval of the NDA.
The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the
expenditure of substantial resources and approvals are inherently uncertain.
Before testing any compounds with potential therapeutic value in humans, the pharmaceutical product candidate enters the preclinical testing stage.
Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and
activity of the pharmaceutical product candidate. The conduct of the preclinical tests must comply with federal regulations and requirements including
GLP. The sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or
literature and a proposed clinical protocol, to the FDA as part of the IND. The IND automatically becomes effective 30 days after receipt by the FDA,
unless the FDA has concerns and notifies the sponsor by way of a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding
concerns before the clinical study can begin. The FDA may also impose clinical holds on a pharmaceutical product candidate at any time before or during
clinical studies due to safety concerns or non-compliance. Submission of an IND may not result in the FDA allowing clinical studies to begin and, once
begun, issues may arise that lead to suspension or termination of such clinical study.
During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to
submission of an IND, at the end of a Phase 2 trial and before an NDA is submitted. Meetings at other times may be requested. These meetings can
provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and FDA to
reach agreement on the next phase of development. Sponsors typically use the End-of-Phase 2 meeting to discuss their Phase 2 clinical results and present
their plans for the pivotal Phase 3 clinical trial that they believe will support approval of the new drug.
Clinical studies involve the administration of the pharmaceutical product candidate to healthy volunteers or patients under the supervision of
qualified investigators, who are generally physicians not employed by or under the clinical study sponsor’s control. Clinical studies are conducted under
protocols detailing, among other things, the objectives of the clinical study, dosing procedures, subject selection and exclusion criteria, how the results
will be analyzed and presented and the parameters to be used to monitor subject safety. Each protocol must be submitted to the FDA as part of the IND.
Clinical studies must be conducted in accordance with GCP. Further,
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each clinical study must be reviewed and approved by an independent institutional review board (IRB) at, or servicing, each institution at which the
clinical study will be conducted. An IRB is charged with protecting the welfare and rights of study participants and considers such items as whether the
risks to individuals participating in the clinical studies are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the
informed consent form that must be provided to each clinical study subject or his or her legal representative and must monitor the clinical study until
completed.
Human clinical studies are typically conducted in three sequential phases that may overlap or be combined:
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Phase 1. The pharmaceutical product is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion.
Phase 2. The pharmaceutical product is evaluated in a limited patient population to identify possible adverse effects and safety risks, to
preliminarily evaluate the efficacy of the product for specific targeted diseases, to determine dosage tolerance, optimal dosage and dosing
schedule and to identify patient populations with specific characteristics where the pharmaceutical product may be more effective.
Phase 3. Clinical studies are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at
geographically dispersed clinical study sites. These clinical studies are intended to establish the overall risk/benefit ratio of the product and
provide an adequate basis for product labeling. The studies must be well-controlled and usually include a control arm for comparison. One or
two Phase 3 studies are required by the FDA for an NDA approval, depending on the disease severity and other available treatment options.
Post-approval studies, or Phase 4 clinical studies, may be conducted after initial marketing approval. These studies are used to gain additional
experience from the treatment of patients in the intended therapeutic indication.
Progress reports detailing the results of the clinical studies must be submitted at least annually to the FDA and written IND safety reports must be
submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in laboratory animals that suggests a
significant risk for human subjects. Phase 1, Phase 2 and Phase 3 clinical studies may not be completed successfully within any specified period, if at all.
The FDA or the sponsor or its data safety monitoring board may suspend a clinical study 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 study at its
institution if the clinical study is not being conducted in accordance with the IRB’s requirements or if the pharmaceutical product has been associated with
unexpected serious harm to patients.
Concurrent with clinical studies, companies usually complete additional animal studies and must also develop additional information about the
chemistry and physical characteristics of the pharmaceutical product as well as finalize a process for manufacturing the product in commercial quantities
in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the pharmaceutical
product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final pharmaceutical product.
Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the pharmaceutical product
candidate does not undergo unacceptable deterioration over its shelf life.
United States Review and Approval Processes
Pre-Approval Requirements
The results of product development, preclinical studies and clinical studies, along with descriptions of the manufacturing process, analytical tests
conducted on the chemistry of the pharmaceutical product, proposed
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labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an
NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances.
In addition, under the Pediatric Research Equity Act (PREA), an NDA or supplement to an NDA must contain data to assess the safety and
effectiveness of the pharmaceutical product 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 data or full or partial
waivers. Unless otherwise required by regulation, PREA does not apply to any pharmaceutical product for an indication for which orphan designation
has been granted.
The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for
filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA
under the Prescription Drug User Fee Act (PDUFA), the FDA has 10 months from filing in which to complete its initial review of a standard NDA and
respond to the applicant, and six months from filing for a priority NDA. The FDA does not always meet its PDUFA goal dates for standard and priority
NDAs. The review process and the PDUFA goal date may be extended by three months if the FDA requests or if the NDA sponsor otherwise provides
additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal
date.
After the NDA submission is accepted for filing, the FDA reviews the NDA application to determine, among other things, whether the proposed
product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the
product’s identity, strength, quality and purity. The FDA may refer applications for novel pharmaceutical products or pharmaceutical products which
present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review,
evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the
recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During the pharmaceutical product
approval process, the FDA also will determine whether a risk evaluation and mitigation strategy (REMS) is necessary to assure the safe use of the
pharmaceutical product. If the FDA concludes that a REMS is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not
approve the NDA without a REMS, if required.
Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the 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 an NDA, the FDA will typically inspect one or more clinical sites as well as
the site where the pharmaceutical product is manufactured to assure compliance with GCP and cGMP. If the FDA determines 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. In addition, the FDA will require the review and approval of product labeling.
The NDA review and approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are
not satisfied or may require additional clinical data or other data and information. Even if such data and information is submitted, the FDA may
ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical studies are not always conclusive and the FDA may
interpret data differently than we interpret the same data. The FDA will issue a complete response letter if the agency decides not to approve the NDA.
The complete response letter describes the specific deficiencies in the NDA identified by the FDA. The deficiencies identified may be minor, for
example, requiring labeling changes, or major, for example, requiring additional clinical studies. Additionally, the complete response letter may include
recommended actions that the applicant might take to place the application in a condition for
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approval. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or
withdraw the application.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may
otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or
precautions be included in the product labeling. In addition, the FDA may require Phase 4 testing which involves clinical studies designed to further
assess pharmaceutical product safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that
have been commercialized.
Expedited Development and Review Programs
The FDA offers a number of expedited development and review programs for qualifying product candidates. A product intended to treat a serious
or life-threatening disease or condition may be eligible for breakthrough therapy designation to expedite its development and review. A product can
receive breakthrough therapy designation if preliminary clinical evidence indicates that the product, alone or in combination with one or more other drugs
or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial
treatment effects observed early in clinical development. The designation provides opportunities for frequent interactions with the review team during
product development and, once an NDA is submitted, the product may be eligible for priority review. The NDA may also be eligible for rolling review,
where the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted.
EMA’s recently established PRIME regulatory initiative similarly provides early enhanced regulatory support to facilitate regulatory applications
and accelerate the review of medicines that address a high unmet need.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, which is a disease
or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States for which there is no
reasonable expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered
from sales in the United States for that drug. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug
designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. The orphan drug designation
does not convey any advantage in, or shorten the duration of, the regulatory review or approval process.
If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the
product is entitled to orphan drug exclusive approval (or exclusivity), which means that the FDA may not approve any other applications, including a full
NDA, to market the same drug for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the
product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of
sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug
exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a
different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA
application fee.
A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it
received orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for
designation was materially defective or if the
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manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. A comparable orphan
drug program is provided under EU law.
Post-Approval Requirements
Any pharmaceutical products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things,
record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information,
product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA
promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, prohibitions on promoting
pharmaceutical products for uses or in patient populations that are not described in the pharmaceutical product’s approved labeling (known as “off-label
use”), industry-sponsored scientific and educational activities and promotional activities involving the internet. Failure to comply with FDA requirements
can have negative consequences, including adverse publicity, enforcement letters from the FDA, actions by the United States Department of Justice
and/or United States Department of Health and Human Services (HHS) Office of Inspector General, mandated corrective advertising or communications
with doctors, and civil or criminal penalties. Although physicians may prescribe legally available pharmaceutical products for off-label uses,
manufacturers may not directly or indirectly market or promote such off-label uses.
Manufacturers of our products are required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP
regulations. cGMP regulations require, among other things, quality control and quality assurance, as well as the corresponding maintenance of records
and documentation. Pharmaceutical product manufacturers and other entities involved in the manufacture and distribution of approved pharmaceutical
products 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 compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort
in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in
restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal of the product from the market. In addition, changes to the
manufacturing process generally require prior FDA approval before being implemented and other types of changes to the approved product, such as
adding new indications and additional labeling claims, are also subject to further FDA review and approval.
The FDA also may require post-marketing testing, known as Phase 4 testing, risk minimization action plans and surveillance to monitor the effects
of an approved product or place conditions on an approval that could restrict the distribution or use of the product.
U.S. Foreign Corrupt Practices Act
The U.S. Foreign Corrupt Practices Act, or FCPA, prohibits certain individuals and entities, including us, from promising, paying, offering to pay,
or authorizing the payment of anything of value to any foreign government official, directly or indirectly, to obtain or retain business or an improper
advantage. The U.S. Department of Justice and the U.S. Securities and Exchange Commission, or SEC, have increased their enforcement efforts with
respect to the FCPA. Violations of the FCPA may result in large civil and criminal penalties and could result in an adverse effect on a company’s
reputation, operations, and financial condition. A company may also face collateral consequences such as debarment and the loss of export privileges.
Federal and State Fraud and Abuse Laws
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws have been applied
to restrict certain business practices in the biopharmaceutical industry in recent years. These laws include anti-kickback statutes, false claims statutes,
data privacy and security laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers. The
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federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or
in return for purchasing, leasing, ordering, or arranging for the purchase, lease, or order of any healthcare item or service reimbursable under Medicare,
Medicaid, or other federally financed healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value, including
for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership interests
and providing anything at less than its fair market value. The Anti-Kickback Statute has been interpreted to apply to arrangements between
pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory
exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and
our practices may not in all cases meet all of the criteria for statutory exemptions or safe harbor protection. Practices that involve remuneration that may
be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe
harbor. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to
induce referrals of federal healthcare covered business, the statute has been violated. The intent standard of the Anti-Kickback Statute was also
broadened by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the
PPACA, so that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a
violation. In addition, the PPACA provides that the government may assert 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 civil False Claims Act (discussed below).
The federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal
government. Recently, several 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, and thus non-reimbursable, uses. Additionally,
the civil monetary penalties statute imposes penalties against any person who is determined to have presented or caused to be presented a claim to a
federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. The
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit knowingly and
willfully executing a scheme to defraud any healthcare benefit program, including private third-party payers and knowingly and willfully falsifying,
concealing or covering up 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.
The federal Physician Payments Sunshine Act, created under the PPACA, and its implementing regulations, require certain manufacturers of
drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program
(with certain exceptions) to report annually information related to certain payments or other transfers of value provided to physicians and teaching
hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals, and applicable manufacturers
and group purchasing organizations to report annually certain ownership and investment interests held by physicians and their immediate family
members.
We may also be subject to data privacy and security regulation 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 its implementing regulations,
imposes certain 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 that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased
the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave
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state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek
attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in
certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
The majority of states also have statutes or regulations similar to the aforementioned federal fraud and abuse laws, some of which are broader in
scope and apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Further,
some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant
compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments or
other transfers of value provided to physicians and other health care providers and entities, marketing expenditures, and drug pricing. Certain state and
local laws also require the registration of pharmaceutical sales representatives.
These federal and state laws may impact, among other things, our proposed sales, marketing and education programs. If our operations are found
to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to
penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion from participation in government
healthcare programs, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate its business and our
results of operations. To the extent that any of our product candidates are ultimately sold in a foreign country, we may be subject to similar foreign laws
and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and
implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of the FDA approval of the use of our pharmaceutical product candidates, some of our patents
may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as
the 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 an NDA plus the time between the submission date of an NDA and the approval of that application. Only one
patent applicable to an approved pharmaceutical product is eligible for the extension and the application for the extension must be submitted prior to the
expiration of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any
patent term extension or restoration. In the future, we may apply for restoration of patent term for one of our currently owned or licensed patents to add
patent life beyond its current expiration date, depending upon the expected length of the clinical studies and other factors involved in the filing of the
relevant NDA.
Market exclusivity provisions under the U.S. Food, Drug, and Cosmetic Act can also delay the submission or the approval of certain applications
of other companies seeking to reference another company’s NDA. Currently seven years of reference product exclusivity are available to pharmaceutical
products designated as orphan drugs, during which the FDA may not approve generic products relying upon the reference product’s data. Pediatric
exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity
periods and 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 clinical study in accordance with an FDA-issued “Written Request” for such a clinical study.
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Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical product candidates for which we obtain
regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial
sale will depend in part upon the availability of coverage and adequate reimbursement from third-party payors. Third-party payors include government
payors such as Medicare and Medicaid, managed care providers, private health insurers and other organizations. In the United States, no uniform policy
of coverage and reimbursement for products exists among third-party payors. While commercial payors often follow Medicare coverage policy and
payment limitations, coverage and reimbursement for products can differ significantly from payor to payor. The process for determining whether a payor
will provide coverage for a pharmaceutical product may be separate from the process for setting the price or reimbursement rate that the payor will pay
for the pharmaceutical product. Third-party payors may limit coverage to specific pharmaceutical products on an approved list, or formulary, which
might not include all of the FDA-approved pharmaceutical products for a particular indication.
Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and
services, in addition to their safety and efficacy. We may need to conduct expensive pharmaco-economic studies in order to demonstrate the medical
necessity and cost-effectiveness of its products, in addition to the costs required to obtain the FDA approvals. Our pharmaceutical product candidates
may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a pharmaceutical product does not imply that
an adequate reimbursement rate will be approved. 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. In addition, in the United States there is a growing emphasis on
comparative effectiveness research, both by private payors and by government agencies. To the extent other drugs or therapies are found to be more
effective than our products, payors may elect to cover such therapies in lieu of our products and/or reimburse our products at a lower rate.
Different pricing and reimbursement schemes exist in other countries. The downward pressure on health care costs in general, particularly
prescription drugs, has become very 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 pharmaceutical product candidates for which we receive regulatory approval for commercial sale may suffer if the
government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has
increased and we expect this will continue to increase the pressure on pharmaceutical pricing. 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.
In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could
affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels
that seek to reduce healthcare costs. For example, in March 2010 the PPACA was enacted, which includes measures to significantly change the way
healthcare is financed by both governmental and private insurers. Among the provisions of the PPACA of importance to the pharmaceutical and
biotechnology industry are the following:
•
•
an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned
among these entities according to their market share in certain government healthcare programs;
an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer
price for branded and generic drugs, respectively;
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•
•
•
•
•
•
•
•
•
•
a new Medicare Part D coverage gap discount program, in which manufacturers must now agree to offer 70% point-of-sale discounts to
negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s
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 and by adding new mandatory eligibility categories for certain 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 Public Health Service pharmaceutical pricing program;
new transparency reporting requirements under the federal Physician Payments Sunshine Act, created under Section 6002 of the PPACA;
a requirement to annually report drug samples that manufacturers and distributors provide to physicians;
expansion of health care fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative
powers, and enhanced penalties for noncompliance;
a licensure framework for follow-on biologic products;
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research,
along with funding for such research; and
establishment of a Center for Medicare & Medicaid Innovation at the Centers for Medicare & Medicaid Services (CMS) to test innovative
payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
Since its enactment there have been judicial and Congressional challenges to certain aspects of the PPACA, as well as recent efforts by the Trump
administration to repeal or replace certain aspects of the PPACA. Since January 2017, President Trump has signed two Executive Orders and other
directives designed to delay the implementation of certain provisions of the PPACA or otherwise circumvent some of the requirements for health
insurance mandated by the PPACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the PPACA.
While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the PPACA and it is unclear how
these laws and other efforts to repeal and replace the PPACA will impact the PPACA.
In addition, other legislative changes have been proposed and adopted since the PPACA 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, or joint committee, to
recommend proposals in spending reductions to Congress. The joint committee did not achieve its targeted deficit reduction of at least $1.2 trillion for the
years 2013 through 2021, triggering automatic reductions to several government programs. These reductions include aggregate reductions to Medicare
payments to providers of up to 2% per fiscal year, starting in 2013 and, due to subsequent legislative amendments, will remain in effect through 2027
unless additional congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which,
among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover
overpayments to providers from three to five years.
More recently, there have been several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among
other things, bring more transparency to drug pricing, review the relationship
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between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. At the federal
level, Trump administration 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. On January 31, 2019,
the HHS Office of Inspector General proposed modifications to the federal Anti-Kickback Statute discount safe harbor for the purpose of reducing the
cost of drug products to consumers which, among other things, if finalized, will affect discounts paid by manufacturers to Medicare Part D plans,
Medicaid managed care organizations and pharmacy benefit managers working with these organizations. While some of these and other proposed
measures may require additional authorization to become effective, Congress and the Trump administration have each 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. These new laws may result in additional reductions in Medicare and other healthcare funding,
which could have a material adverse effect on our business.
International Regulation
In addition to regulations in the United States, there are a variety of foreign regulations governing clinical studies and commercial sales and
distribution of our future product candidates. Whether or not FDA approval is obtained for a product, approval of a product must be obtained by the
comparable regulatory authorities of foreign countries before clinical studies or marketing of the product can commence in those countries. The approval
process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the
conduct of clinical studies, product licensing, pricing and reimbursement vary greatly from country to country. In addition, certain regulatory authorities
in select countries may require us to repeat previously conducted preclinical and/or clinical studies under specific criteria for approval in their respective
country which may delay and/or greatly increase the cost of approval in certain markets targeted for approval by us.
Corporate Information
CymaBay Therapeutics, Inc., formerly Metabolex, Inc., was incorporated under the laws of the State of Delaware on October 5, 1988, originally
under the name Transtech Corporation. Our executive offices are located at 7575 Gateway Blvd., Suite 110, Newark, CA 94560. The telephone number
at our executive office is (510) 293-8800. Our corporate website address is www.cymabay.com. We do not incorporate the information contained on, or
accessible through, our website into this Annual Report on Form 10-K, and you should not consider it part of this Annual Report. We make available free
of charge on or through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, 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 of 1934, as amended, or the Exchange Act, as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the SEC.
Employees
As of December 31, 2019, and March 1, 2020, we had 36 and 24 full-time employees, respectively.
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Information about our Executive Officers
As of March 1, 2020, our executive officers and key other officers were as follows:
Name
Executive Officers
Sujal Shah
Charles A. McWherter, Ph.D.
Klara Dickinson
Daniel Menold
Key Other Officers
Robert L. Martin, Ph D
Patrick J. O’Mara
Biographical Information
Executive Officers
Age
Position Held With CymaBay
46 President & Chief Executive Officer
64 Chief Scientific Officer
52 Chief Regulatory and Compliance Officer
50 Vice President, Finance
57 Senior Vice President, Manufacturing and Nonclinical Development
58 Senior Vice President, Business Development
Sujal Shah has served as our President and Chief Executive Officer since November 2017. Prior to that he served as our Interim President and
Chief Executive Officer from March 2017 to November 2017. From December 2013 to March 2017, Mr. Shah served as Chief Financial Officer. Prior to
that he served as a consultant and acting Chief Financial Officer for us from June 2012 to December 2013. From 2010 to 2012, Mr. Shah served as
Director, Health Care Investment Banking for Citigroup Inc., where he was responsible for managing client relationships and executing strategic and
financing related transactions for clients focused in life sciences. From 2004 to 2010 Mr. Shah was employed with Credit-Suisse, last serving in the
capacity as Vice President, Health Care Investment Banking Group. Mr. Shah currently serves on the Executive Advisory Board of the Chemistry of Life
Processes Institute at Northwestern University. Mr. Shah received an MBA from Carnegie Mellon University — Tepper School of Business and M.S. and
B.S. degrees in Biomedical Engineering from Northwestern University.
Charles A. McWherter, Ph.D. has served as our Chief Scientific Officer since 2013 and served as our Senior Vice President, Preclinical Research
and Development from 2007 to 2013. From 2003 to 2007, he served as Vice President and head of the cardiovascular therapeutics areas of Pfizer Inc., a
biopharmaceutical company. From 2001 to 2003, Dr. McWherter served as Vice President of Drug Discovery at Sugen, Inc., a biopharmaceutical
company acquired by Pfizer Inc. in 2003. Dr. McWherter obtained his Ph.D. from Cornell University.
Klara Dickinson has served as our Chief Regulatory and Compliance Officer since January 2019, and was previously our Senior Vice President of
Regulatory Affairs and Compliance. Prior to joining CymaBay in June 2017, she served as Senior Vice President, Chief Regulatory Officer of Anthera.
From 2007 to 2014, she was Senior Vice President of Regulatory Affairs and Compliance at Hyperion Therapeutics Inc. Ms. Dickinson also spent three
years at CoTherix, Inc. as Vice President, Regulatory Affairs and Healthcare Compliance Officer, and held various positions at biopharmaceutical
companies Scios, Inc. and DEY Laboratories, a subsidiary of Mylan, Inc. Ms. Dickinson holds a B.S. in Biology from the College of Great Falls in
Montana and is certified by the Regulatory Affairs Certification Board.
Daniel Menold has served as our Vice President, Finance since April 2017, and was previously our Corporate Controller since January 2014. Prior
to joining CymaBay, Mr. Menold served as Corporate Controller for technology firm Zoosk, Inc., from 2011 to 2013, where he was responsible for the
accounting and financial reporting functions and as Controller and Director of Accounting at Affymetrix. Prior to 2005, he also held accounting and
finance positions of increasing responsibility at public and private life sciences and high technology companies in the Silicon Valley. Earlier in his career,
Mr. Menold was at Ernst & Young where he was an audit manager and served on audits of life sciences and high technology companies. Mr. Menold
received a M.S. in accounting and B.S. in finance from The University of Virginia McIntire School of Commerce.
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Key Other Officers
Robert L. Martin, Ph.D., has served as our Senior Vice President, Manufacturing and Nonclinical Development since April 2015. Previously, he
served as our Vice President of Nonclinical Development and Project Management from 2008 to 2015. Dr. Martin served as our Sr. Director of Preclinical
Development and Project Management from 2006 to 2008 and our Director of Preclinical Development and Project Management from 2004 to 2006. From
1994 to 2004, Dr. Martin served in various positions with Roche Palo Alto, a division of F. Hoffman-La Roche Ltd. Dr. Martin obtained his Ph.D. in
Biochemistry from the University of California, Davis.
Patrick J. O’Mara has served as our Senior Vice President, Business Development since January 2017. Previously he served as our Vice President,
Business Development from 2006 through 2016. He served as our Sr. Director of Business Development, from 2004 to 2006, our Director of Business
Development from 2000 to 2004 and our Manager of Business Development from 1997 to 2000. Mr. O’Mara served as our Manager of Laboratory
Operations from 1991 to 1997. Mr. O’Mara received a B.A. in Biochemistry from the University of California, Berkeley.
Item 1A. Risk Factors
In addition to the factors discussed elsewhere in this report, the following are important factors that could cause actual results or events to differ
materially from those contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not currently known to us or that we deem immaterial also may impair our business operations. If
any of the following risks or such other risks actually occur, our business could be harmed.
Risks Related to Our Financial Condition and Capital Requirements
Recent clinical setbacks may cause us to liquidate the company.
In November 2019, due to histologic observations in our NASH clinical trial, the NASH and PSC clinical trials and programs were terminated and
the PBC program was placed on hold. In December 2019 the PBC clinical trials were terminated, pending further analysis of data from the NASH trial and
further discussions with the FDA. This course of action terminated, or put on hold, substantially all of our active development programs. While we have
several early stage development programs that are continuing, we are exploring various strategic alternatives, including liquidation, sale, merger, asset
acquisitions and/or continuing development of our internal programs. If we are unable to restart clinical development of seladelpar, advance our earlier
stage development programs, enter into a strategic transaction or acquire or in-license additional assets, or if we determine such alternatives will not be in
the best interests of stockholders, we may choose to liquidate the company. Liquidation would take time and the proceeds of the liquidation are uncertain
given the extent to which we may need to follow patients from our terminated clinical trials that may or may not have histologic observations.
We will need additional capital in the future to sufficiently fund our operations and research.
We have incurred significant net losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future,
and we may never achieve or maintain profitability. As of December 31, 2019, we had cash, cash equivalents and marketable securities of approximately
$190.9 million. If appropriate opportunities become available, or if we are unable to restart clinical development of seladelpar, advance our earlier stage
development programs and/or are unable to enter into a strategic transaction and/or acquire or in-license additional assets, we may need to raise additional
equity and/or debt capital to fund our continued operations, including clinical trials and other product development. Our monthly spending levels vary
based on new and ongoing development and corporate activities. Developing pharmaceutical products, including conducting preclinical studies and clinical
trials, is a time-consuming, expensive and uncertain process that takes years to complete.
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In the event we do not successfully raise sufficient funds in financing our product development activities or do not have appropriate developmental
assets, we will curtail our product development activities commensurate with the magnitude of the shortfall or our product development activities may
cease altogether. To the extent that any costs of the ongoing development exceed our current estimates and we are unable to raise sufficient additional
capital to cover such additional costs, we will need to reduce operating expenses, sell assets, enter into another strategic transaction, or effect a combination
of the above. No assurance can be given that we will be able to affect any of such transactions on acceptable terms, if at all.
Beyond the plan of operations outlined above, our future funding requirements and sources will depend on many factors, including but not limited to
the following:
•
•
•
•
•
•
•
•
the rate of progress and cost of our clinical studies;
the need for additional or expanded clinical studies;
the rate of progress and cost of our Chemistry, Manufacturing and Control development, registration, validation and commercial programs;
the timing, economic and other terms of any licensing, collaboration or other similar arrangement into which we may enter;
the costs and timing of seeking and obtaining U.S. Food and Drug Administration (FDA) and other regulatory approvals;
the extent of our other development activities;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
the effect of competing products and market developments.
If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and
commercialization efforts, which will have a material adverse effect on our business, operating results and prospects and on our ability to develop our
product candidates.
Our ability to generate future revenues from product sales is uncertain and depends upon our ability to successfully develop, obtain regulatory
approval for, and commercialize product candidates.
Our ability to generate revenue and achieve profitability depends on our ability, alone or with collaborators, to successfully complete the
development of, obtain the necessary regulatory approvals for, and commercialize, product candidates. We do not anticipate generating revenues from
sales of our product candidates for the foreseeable future, if ever. Our ability to generate revenues from product sales depends heavily on our success in
generating a pipeline of product candidates.
Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may
never generate the necessary data required to obtain regulatory approval and achieve product sales. Our anticipated development costs would likely
increase if we do not obtain favorable results or if development of our product candidates is delayed. In particular, we would likely incur higher costs than
we currently anticipate if development of our product candidates is delayed because we are required by a regulatory authority such as the U.S. FDA to
perform studies or trials in addition to those that we currently anticipate. Because of the numerous risks and uncertainties associated with pharmaceutical
product development, including whether we will resume development of seladelpar, we are unable to predict the timing or amount of any increase in our
anticipated development costs.
In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales
of products that we do not expect to be commercially available for
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several years, if at all. Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs in
connection with commercialization. As a result, we cannot assure you that we will be able to generate revenues from sales of any approved product
candidates, or that we will achieve or maintain profitability even if we do generate sales.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies
or product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity
offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. We do not have
any committed external source of funds. If appropriate opportunities become available, we may seek to raise additional equity and/or debt capital to fund
our continued operations, including clinical trials and other product development.
To raise additional funds to support our operations, we may sell additional equity or debt securities, enter into collaborations, strategic alliances, or
licensing arrangements or other marketing or distribution arrangements. To the extent that we raise additional capital through the sale of equity or
convertible debt securities, ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect the rights of stockholders. Debt financing, if available, may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, and declaring dividends, and may impose
limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to
conduct our business.
If we raise additional funds through collaborations, strategic alliances, or licensing arrangements or other marketing or distribution arrangements
with third parties, we may have to relinquish valuable rights to our intellectual property, technologies, future revenue streams, research programs or
product candidates, or grant licenses on terms that may not be favorable to us.
If we are unable to expand our operations or otherwise capitalize on our business opportunities, our business, financial condition and results of
operations could be materially adversely affected. If we are unable to raise additional funds through equity or debt financings when needed, we may be
required to delay, limit, reduce or terminate our product development or commercialization efforts, or grant others rights to develop and market product
candidates that we would otherwise prefer to develop and market ourselves.
We have incurred and will continue to incur increased costs as a result of operating as a public company, and we will devote substantial time to meet
compliance obligations.
We have incurred and will continue to incur legal, accounting and other expenses as a result of operating as a public company. We are subject to the
reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the Nasdaq Stock
Market, or Nasdaq, that impose significant requirements on public companies, including requiring the establishment and maintenance of effective
disclosure and financial controls and changes in corporate governance practices.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and
procedures. Ensuring that we have adequate internal financial and accounting controls and procedures in place is a costly and time-consuming effort that
needs to be re-evaluated from time to time. We expect to incur expense and devote management effort toward ensuring compliance with Section 404 of the
Sarbanes-Oxley Act, or Section 404, including but not limited to system and process evaluation and testing of our internal controls over financial reporting,
as required by Section 404. Pursuant to Section 404(c) of the Sarbanes-Oxley Act, our independent registered public accounting firm is required to deliver
an attestation report on the effectiveness of our internal control over financial reporting. Our future
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testing may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective
or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement. Implementing certain
appropriate changes to our internal controls may require specific compliance training for our directors, officers and employees, entail substantial costs to
modify our existing accounting systems, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the
adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate consolidated financial statements
or other reports on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. Moreover, effective
internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud. If we are not able to comply with the
requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal
controls that are deemed to be material weaknesses, the market price of our stock could decline and/or we could be subject to sanctions or investigations
by Nasdaq, the SEC or other regulatory authorities.
Risks Related to Clinical Development and Regulatory Approval
We depend on the success of our product candidates and we may not obtain regulatory approval or successfully commercialize our product candidates.
We have not marketed, distributed or sold any products. The success of our business depends upon our ability to develop and commercialize our
product candidates. Our lead product candidate, seladelpar, has been placed on clinical hold, pending further analysis of data from the NASH trial and
further discussions with the FDA. It is uncertain if seladelpar will be taken off clinical hold or what requirements would need to be satisfied to lift the
clinical hold. The success of any product candidate will depend on many factors, including the following:
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successful enrollment and completion of clinical trials;
receipt of marketing approvals from the FDA and regulatory authorities outside the United States for the product candidate;
establishing commercial manufacturing capabilities by making arrangements with third-party manufacturers;
launching commercial sales of the product, whether alone or in collaboration with others;
acceptance of the product by patients, the medical community and third-party payors;
effectively competing with other therapies;
a continued acceptable safety profile of the product following marketing approval; and
obtaining, maintaining, enforcing and defending intellectual property rights and claims.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully
commercialize our product candidate, which would materially harm our business.
We depend on the successful completion of clinical trials for our product candidates.
Before obtaining regulatory approval for the sale of our product candidates, we must conduct additional clinical trials to demonstrate the safety and
efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is
uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. For example, in November 2019, due
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to histologic observations in our NASH clinical trial, the NASH and PSC clinical trials and programs were terminated and the PBC program was placed on
hold. In December 2019, the PBC clinical trials were terminated, pending further analysis of data from the NASH trial and further discussions with the
FDA. This course of action terminated, or put on hold, substantially all of our active programs. The outcome of preclinical testing and early clinical trials
may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover,
preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates
performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products.
We may experience a number of unforeseen events during clinical trials for our product candidates, including seladelpar, that could delay or prevent
the commencement and/or completion of our clinical trials, including the following:
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regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a
prospective trial site;
the clinical study protocol may require one or more amendments delaying study completion;
clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to
conduct additional clinical trials or abandon product development programs;
the number of subjects required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials
may be insufficient or slower than we anticipate, we may have to compete with other clinical trials to enroll eligible subjects, or subjects may
drop out of these clinical trials at a higher rate than we anticipate;
clinical investigators or study subjects fail to comply with clinical study protocols;
trial conduct and data analysis errors may occur, including, but not limited to, data entry and/or labeling errors;
our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at
all;
we might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the subjects are being
exposed to unacceptable health risks;
regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons,
including noncompliance with regulatory requirements;
the cost of clinical trials of our product candidates may be greater than we anticipate;
the supply or quality of our clinical trial materials or other materials necessary to conduct clinical trials of our product candidates may be
insufficient or inadequate; and
our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators to suspend or
terminate the trials.
Because successful development of product candidates is uncertain, we are unable to estimate the actual funds required to complete research and
development and commercialize our products under development.
Negative or inconclusive results of our future clinical trials of product candidates could cause the FDA or other regulatory authorities to require that
we repeat or conduct additional clinical studies. The histologic observations in our NASH clinical trial may cause the FDA or other regulatory authorities
to require additional testing in order to lift the clinical hold on seladelpar. If later stage clinical trials do not produce favorable results, our ability to obtain
regulatory approval for our product candidates may be adversely impacted.
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We have terminated development of seladelpar for all indications. If seladelpar is not taken off clinical hold or does not demonstrate safety or efficacy,
or if the benefits of treatment with seladelpar do not outweigh the risks, our ability to successfully develop and commercialize seladelpar will be
stopped.
We commenced clinical trials of seladelpar for the indications for PBC, PSC and NASH. In November 2019, due to histologic observations in our
NASH clinical trial, the NASH and PSC clinical trials and programs were terminated and the PBC program was placed on hold. In December 2019 the
PBC clinical trials were terminated, pending further analysis of data from the NASH trial and further discussions with the FDA. This course of action
terminated, or put on hold, substantially all of our active development programs. Seladelpar may not be demonstrated to be effective in these indications or
other indications we may target. There is no guarantee that seladelpar will be taken off clinical hold or will prove to be safe or efficacious in the treatment
of any disease, or that we will be able to obtain regulatory approval for any indication.
Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay our ability to
obtain regulatory approval and commence product sales.
Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. We may experience
delays in clinical trials at any stage of development and testing of our product candidates and any delay could result in increased costs to us. Any clinical
trials we undertake may not begin on time, have an effective design, enroll a sufficient number of subjects, or be completed on schedule, if at all.
Events that may result in delays or unsuccessful completion of clinical trials include the following:
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inability to raise funding necessary to initiate or continue a trial;
delays in obtaining regulatory approval to commence a trial;
delays in reaching agreement with the FDA or other regulatory authorities on final trial design;
imposition of a clinical hold following a reported safety event;
an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;
delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs) and clinical trial sites;
delays in obtaining required institutional review board (IRB) approval at each site;
delays in recruiting suitable patients to participate in a trial;
delays in having subjects complete participation in a trial or return for post-treatment follow-up;
delays caused by subjects dropping out of a trial due to side effects or otherwise;
changes to treatment guidelines or the introduction of a new standard of care;
delays caused by clinical sites dropping out of a trial;
time required to add new clinical sites;
delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials; and
delays in importing clinical trial materials into foreign countries where our clinical trials are being conducted.
If initiation or completion of any clinical trials we may undertake for our product candidates is delayed for any of the above reasons, our
development costs may increase, the approval process could be delayed, any periods during which we may have the exclusive right to commercialize our
product candidates may be reduced
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and our competitors may bring products to market before us. Any of these events could impair our ability to generate revenues from product sales and
impair our ability to generate regulatory and commercialization milestones and royalties, all of which could have a material adverse effect on our business.
Our product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of
any approved label or market acceptance.
In May 2016, we announced results a High Dose Phase 2 clinical study of seladelpar in patients with PBC. During the course of this trial three cases
of asymptomatic, reversible transaminase elevations occurred, and we made the decision to discontinue the study early after review of safety and efficacy
data demonstrated a need for further dose reduction to optimize clinical safety and efficacy. In November 2019, due to histologic observations in our
NASH clinical trial, the NASH and PSC clinical trials were terminated and programs and the PBC program was placed on hold. In December 2019 the
PBC clinical trials were terminated, pending further analysis of data from the NASH trial and further discussions with the FDA. This course of action
terminated, or put on hold, substantially all of our active development programs. The emergence of adverse events (AEs) and histological observations in a
seladelpar clinical trial could prevent us from further developing seladelpar or could result in the denial of regulatory approval.
Furthermore, if any of our approved products cause serious or unexpected side effects after receiving market approval, a number of potentially
significant negative consequences could result, including the following:
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regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution in a form of a risk evaluation and
mitigation strategy (REMS) plan;
regulatory authorities may require the addition of labeling statements, such as black box or other warnings or contraindications that could
diminish the usage of the product or otherwise limit the commercial success of the affected product;
we may be required to change the way the product is administered or to conduct additional clinical studies;
we may choose to discontinue sale of the product;
we could be sued and held liable for harm caused to patients; or
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the
costs of commercializing our product candidates.
If any product candidate that we successfully develop does not achieve broad market acceptance among physicians, patients, health care payors and
the medical community, the revenues that it generates from its sales will be limited.
Even if our product candidates receive regulatory approval, the products may not gain market acceptance among physicians, patients, health care
payors and the medical community. Coverage and reimbursement of our product candidates by third-party payors, including government payors, generally
is also necessary for commercial success. The degree of market acceptance of any of our approved products will depend upon a number of factors,
including:
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the efficacy and safety, as demonstrated in clinical studies;
the risk/benefit profile of our product candidates;
the prevalence and severity of any side effects;
the clinical indications for which the product is approved;
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acceptance of the product by physicians, other health care providers and patients as a safe and effective treatment;
the potential and perceived advantages of product candidates over alternative treatments;
the safety of product candidates seen in a broader patient group, including if physicians prescribe our products for uses outside the approved
indications;
the cost of treatment in relation to alternative treatments;
the timing of market introduction of competitive products;
the availability of coverage and adequate reimbursement by third party payors and government authorities;
relative convenience and ease of administration; and
the effectiveness of our or our partners’ sales, marketing and distribution efforts.
If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, health care payors and patients,
we may not generate sufficient revenue from these products and we may not become or remain profitable.
Potential conflicts of interest arising from relationships with principal investigators for our clinical studies and any related compensation with respect
to clinical studies could adversely affect the drug approval process.
Principal investigators for our clinical studies may serve as scientific advisors or consultants to us or may be affiliated with our other service
providers, including clinical research organizations or site management organizations, and from time to time receive cash compensation in connection with
such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the
applicable clinical study site or in the applicable study may be questioned or jeopardized.
We may be subject to costly claims related to our clinical studies and may not be able to obtain adequate insurance.
Because we conduct clinical studies in humans, we face the risk that the use of seladelpar or other product candidates will result in adverse side
effects. We cannot predict the possible harms or side effects that may result from our clinical studies. Although we have clinical study liability insurance,
our insurance may be insufficient to cover any such events. There is also a risk that we may not be able to continue to obtain clinical study coverage on
acceptable terms. In addition, we may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limit of,
our insurance coverage. There is also a risk that third parties that we have agreed to indemnify could incur liability. Any litigation arising from our clinical
studies, even if we are ultimately successful, would consume substantial amounts of our financial and managerial resources and may create adverse
publicity.
After the completion of our clinical trials, we cannot predict whether or when we will obtain regulatory approval to commercialize our product
candidates and we cannot, therefore, predict the timing of any future revenue from our product candidates. Regulatory approval of a product
candidate is not guaranteed, and the approval process is expensive, uncertain and lengthy.
We cannot commercialize our product candidates until the appropriate regulatory authorities, such as the FDA, have reviewed and approved the
product candidate. The regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain regulatory
approval for our product candidates. Additional delays may result if a product candidate is brought before an FDA advisory committee, which could
recommend restrictions on approval or recommend non-approval of the product candidate. In addition, we may
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experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory
agency policy during the period of product development, clinical studies and the review process. As a result, we cannot predict when, if at all, we will
receive any future revenue from commercialization of any of our product candidates. The FDA and foreign regulatory authorities have substantial
discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons, including the
following:
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we may be unable to demonstrate to the satisfaction of regulatory authorities that a product candidate is safe and effective for any indication;
regulatory authorities may not find the data from nonclinical studies and clinical studies sufficient or may differ in the interpretation of the data;
regulatory authorities may require additional nonclinical or clinical studies;
the FDA or foreign regulatory authority might not approve our third party manufacturers’ processes or facilities for clinical or commercial
product;
the FDA or foreign regulatory authority may change its approval policies or adopt new regulations;
the FDA or foreign regulatory authority may disagree with the design or implementation of our clinical studies;
the FDA or foreign regulatory authority may not accept clinical data from studies that are conducted in countries where the standard of care is
potentially different from that in the United States;
the results of clinical studies may not meet the level of statistical significance required by the FDA or foreign regulatory authorities for
approval;
we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; and
the data collection from clinical studies of our product candidates may not be sufficient to support the submission of a new drug application
(NDA), marketing authorization or other equivalent submission, or to obtain regulatory approval in the United States or elsewhere.
In addition, events raising questions about the safety of certain marketed pharmaceuticals may result in increased caution by the FDA and other
regulatory authorities in reviewing new pharmaceuticals based on safety, efficacy or other regulatory considerations and may result in significant delays in
obtaining regulatory approvals.
Even if we obtain regulatory approval for our product candidates, we will still face extensive regulatory requirements and our products may face
future development and regulatory difficulties.
Even if we obtain regulatory approval in the United States, the FDA may still impose significant restrictions on the indicated uses or marketing of
our product candidates or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Our product candidates
would be subject to additional ongoing FDA requirements governing the labeling, packaging, storage, distribution, safety surveillance, advertising,
promotion, record-keeping and reporting of safety and other post-market information. The holder of an approved NDA is obligated to monitor and report
AEs and any failure of a product to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental
applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and
promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.
Furthermore, promotional materials must be approved by the FDA prior to use for any drug receiving accelerated approval.
In addition, manufacturers of drug products and their facilities are subject to payment of user fees and continual review and periodic inspections by
the FDA and other regulatory authorities for compliance with
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current Good Manufacturing Practices (cGMP), and adherence to commitments made in the NDA. If we, or a regulatory agency, discover previously
unknown problems with a product, such as quality issues or AEs of unanticipated severity or frequency, or problems with the facility where the product is
manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requesting recall or withdrawal
of the product from the market or suspension of manufacturing.
If we, or our third party contractors, fail to comply with applicable regulatory requirements following approval of our product candidate, a
regulatory agency may:
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issue an untitled or warning letter asserting violation of the law;
seek an injunction or impose civil or criminal penalties up to and including imprisonment or monetary fines;
suspend or withdraw regulatory approval;
suspend any ongoing clinical trials;
refuse to approve a pending NDA or supplements to an NDA; or
request recall and/or seize product.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate
negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and inhibit our
ability to generate revenues.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. If we are found to have
improperly promoted our products for off-label uses, we may become subject to significant fines and other liability.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. In particular, a
product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling.
If we receive marketing approval for our product candidates, physicians may nevertheless prescribe such products to their patients in a manner that is
inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant government fines and
other related liability. For example, the federal government has levied large civil and criminal fines against companies for alleged improper promotion and
has enjoined several companies from engaging in off-label promotion. The FDA also has requested that companies enter into consent decrees or permanent
injunctions under which specified promotional conduct is changed or curtailed.
Even if we obtain FDA approval for our product candidates in the United States, we may never obtain approval for or commercialize our product
candidates outside of the United States, which would limit our ability to realize their full market potential.
In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements on a
country-by-country basis regarding safety and efficacy. Approval by the FDA does not ensure approval by regulatory authorities in other countries or
jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval
in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product
testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and
require additional preclinical studies or clinical trials that could be costly and time consuming. Regulatory requirements can vary widely from country to
country and could delay or prevent the introduction of our products in those countries. We do not have any product candidates approved for sale in any
jurisdiction,
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including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with
regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are
delayed, our target market will be reduced and our ability to realize the full market potential of our products will be unrealized.
Our relationships with health care professionals, customers and payors may be subject to applicable anti-kickback, fraud and abuse and other health
care laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits
and future earnings.
Health care professionals and third party payors play a primary role in the recommendation and prescription of any products for which we obtain
marketing approval. Our future arrangements with healthcare professionals, third-party payors and customers may expose us to broadly applicable fraud
and abuse and other health care laws and regulations that may constrain the business or financial arrangements and relationships through which we
market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable federal and state health care laws and
regulations, include the federal Anti-Kickback Statute, the federal False Claims Act, the Health Insurance Portability and Accountability Act of 1996, or
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, the federal false statements statute, the
federal transparency requirements under the PPACA, commonly referred to as the Physician Payments Sunshine Act, and analogous state laws and
regulations, such as state anti-kickback and false claims laws.
Efforts to ensure that our business arrangements with third parties will comply with applicable health care laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes,
regulations or case law involving applicable fraud and abuse or other health care laws and regulations. If our operations are found to be in violation of any
of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties,
damages, fines, disgorgement, exclusion from government funded health care programs, such as Medicare and Medicaid, integrity oversight and reporting
obligations, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do
business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions
from government funded health care programs.
Current laws and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product
candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding
the health care system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our
ability to profitably sell any products for which we obtain marketing approval.
For example, the Patient Protection and Affordable Care Act (PPACA) was enacted to broaden access to health insurance, reduce or constrain the
growth of health care spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance
industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Since its enactment there have been judicial and
Congressional challenges to certain aspects of the PPACA as well as recent efforts by the Trump administration to repeal or replace certain aspects of the
PPACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain
provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the PPACA. Congress has considered
legislation that would repeal or repeal and replace all or part of the PPACA. While Congress has not passed comprehensive repeal legislation, it has
enacted laws that modify certain provisions of the PPACA Although the full effect of the PPACA remains uncertain, it appears likely to continue the
pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens
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and operating costs. Further, other legislative changes have been adopted since the PPACA was enacted, such as the Budget Control Act of 2011 and the
American Taxpayer Relief Act of 2012, which have resulted in reduced reimbursement under the Medicare program.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for
pharmaceutical products. In addition, there have been several recent congressional inquiries, proposed bills and other proposals designed to, among other
things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government
program reimbursement methodologies for drug products including instituting reference pricing. At the federal level, the Trump administration 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. At the state level, legislatures have increasingly passed legislation and implemented
regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions
on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other
countries and bulk purchasing.
We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed,
or what the impact of such changes on the marketing approvals of our product candidates, if any, may be.
Risks Related to Our Reliance on Third Parties
We rely on third-party manufacturers to produce our preclinical and clinical drug supplies, and we intend to rely on third parties to produce
commercial supplies of any approved product candidates.
We do not own or operate, and we do not expect to own or operate, facilities for product manufacturing, storage and distribution, or testing. We
currently rely on third-party manufacturers for supply of our preclinical and clinical drug supplies. We expect that in the future we will continue to rely on
such manufacturers for drug supplies that will be used in clinical trials of our product candidates, and for commercialization of any of our product
candidates that receive regulatory approval.
The facilities used by our contract manufacturers to manufacture the approved product must be approved by the FDA pursuant to inspections that
will be conducted only after we submit an NDA to the FDA, if at all. A representative from the EMA or another regulatory authority may also require
inspection and approval of such contract manufacturing facilities. We are completely dependent on our contract manufacturing partners for compliance
with the FDA’s requirements for manufacture of finished pharmaceutical products. If our contract manufacturers cannot successfully manufacture material
that conforms to our specifications and the FDA’s strict regulatory requirements of safety, purity and potency, we will not be able to secure and/or
maintain FDA approval for our product candidates. In addition, we have no direct control over the ability of the contract manufacturers to maintain
adequate quality control, quality assurance and qualified personnel. If our contract manufacturers cannot meet FDA standards, we may need to find
alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product. No
assurance can be given that our manufacturers can continue to make clinical and commercial supplies of product candidates, at an appropriate scale and
cost to make it commercially feasible.
In addition, we do not have the capability to package and distribute finished products to pharmacies and other customers. If we receive marketing
approval from the FDA, we intend to sell pharmaceutical product packaged and distributed by one or more pharmaceutical product packagers/distributors.
Although we have entered into agreements with our current contract manufacturers and packager/distributor for clinical trial
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material, we may enter into commercial agreements with contract manufacturers and with one or more pharmaceutical product packagers/distributors to
ensure proper supply chain management once we are authorized to make commercial sales of our product candidates. However, we may be unable to
maintain agreements or negotiate commercial supply agreements on commercially reasonable terms with contract manufacturers and pharmaceutical
product packagers/distributors, which could delay our ability to launch commercial sales and/or have a material adverse impact upon our business.
We rely on limited sources of supply for our product candidates, and any disruption in the chain of supply may cause delay in developing and
commercializing for each product candidate.
If supply from an approved vendor is interrupted, there could be a significant disruption in commercial supply of our products. An alternative
vendor would need to be qualified through a supplemental registration, which would be expensive, time consuming and could result in further delay. The
FDA or other regulatory agencies outside of the United States may also require additional studies if a new drug substance or drug product supplier is relied
upon for commercial production. These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of
our products, and cause us to incur additional costs. Furthermore, if our suppliers fail to deliver the required commercial quantities of active
pharmaceutical ingredient on a timely basis and at commercially reasonable prices, and we are unable to secure one or more replacement suppliers capable
of production at a substantially equivalent cost, the supply chain for our products may be delayed, which could inhibit our ability to generate revenues.
Manufacturing issues may arise that could increase product and regulatory approval costs or delay commercialization of our products.
As the manufacturing processes are scaled up they may reveal manufacturing challenges or previously unknown impurities that could require
resolution in order to proceed with our planned clinical trials and obtain regulatory approval for the commercial marketing of our products. In the future,
we may identify manufacturing issues or impurities that could result in delays in the clinical program and regulatory approval for our products, increases in
our operating expenses, or failure to obtain or maintain approval for our products.
Our reliance on third-party manufacturers entails risks, including the following:
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the inability to meet our product specifications, including product formulation, and quality requirements consistently;
a delay or inability to procure or expand sufficient manufacturing capacity;
manufacturing and product quality issues, including those related to scale-up of manufacturing;
costs and validation of new equipment and facilities required for scale-up;
a failure to comply with cGMP and similar quality standards;
the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;
termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us;
the reliance on a limited number of sources, and in some cases, single sources for key materials, such that if we are unable to secure a sufficient
supply of these key materials, we will be unable to manufacture and sell our product candidates in a timely fashion, in sufficient quantities or
under acceptable terms;
the lack of qualified backup suppliers for those materials that are currently purchased from a sole or single source supplier;
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operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the
bankruptcy of the manufacturer or supplier;
disruption of the distribution of chemical supplies between the U.K. and E.U. due to Brexit;
carrier disruptions or increased costs that are beyond our control; and
the failure to deliver our products under specified storage conditions and in a timely manner.
Any of these events could lead to delays in any clinical study we may undertake, failure to obtain regulatory approval or impact our ability to
successfully commercialize any product candidates. Some of these events could be the basis for FDA or other regulatory authorities’ action, including
injunction, recall, seizure, or total or partial suspension of production.
We rely on third parties to conduct, supervise and monitor our clinical studies, and if those third parties perform in an unsatisfactory manner, it may
harm our business.
We rely on contract service providers (CSPs), including clinical research organizations, clinical trial sites, central laboratories and other service
providers to ensure the proper and timely conduct of our clinical trials. While we have agreements governing their activities, we have limited influence
over their actual performance. We have relied and plan to continue to rely upon CSPs to monitor and manage data for clinical programs for our product
candidates, as well as the execution of nonclinical studies. We control only certain aspects of our CSPs’ activities. Nevertheless, we are responsible for
ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the
CSPs does not relieve us of our regulatory responsibilities.
We and our CSPs are required to comply with the FDA’s guidance, which follows the International Counsel for Harmonization Good Clinical
Practice (ICH GCP), which are regulations and guidelines enforced by the FDA for all of our product candidates in clinical development. The FDA
enforces the ICH GCP through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CSPs fail to comply with
the ICH GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials
before approving our marketing applications. Our CSPs are not our employees, and we cannot control whether or not they devote sufficient time and
resources to our ongoing clinical and nonclinical programs. These CSPs may also have relationships with other entities, including our competitors, for
whom they may also be conducting clinical studies, or other drug development activities that could harm our competitive position. We face the risk of
potential unauthorized disclosure or misappropriation of our confidential information, including our intellectual property, by CSPs, which may reduce our
trade secret protection and allow our potential competitors to access and exploit our proprietary technology, among other things. If our CSPs do not
successfully carry out their contractual duties or obligations, fail to meet expected deadlines, 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 any 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
financial results and the commercial prospects for our product candidates that we develop would be harmed, our costs could increase, and our ability to
generate revenues could be delayed.
Risks Related to Commercialization of Our Product Candidates
The commercial success of any product candidate will depend upon the acceptance of these products by the medical community, including physicians,
patients and health care payors.
If any of our product candidates receive marketing approval, they may nonetheless be unable to gain sufficient market acceptance by physicians,
patients, health care payors and others in the medical community. If
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these products do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The
degree of market acceptance of any of our product candidates will depend on a number of factors, including the following:
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demonstration of clinical safety and efficacy in our clinical trials;
the risk/benefit profile of our product candidates;
the relative convenience, ease of administration and acceptance by physicians, patients and health care payors;
the prevalence and severity of any side effects;
the safety of product candidates seen in a broader patient group, including its use outside the approved indications;
limitations or warnings contained in the FDA and other regulatory authorities approved label for the relevant product candidate;
acceptance of the product by physicians, other health care providers and patients as a safe and effective treatment;
the potential and perceived advantages of product candidates over alternative treatments;
the timing of market introduction of competitive products;
pricing and cost-effectiveness;
the effectiveness of our or any future collaborators’ sales and marketing strategies;
our ability to obtain formulary approval;
our ability to obtain and maintain sufficient third-party coverage or reimbursement, which may vary from country to country; and
the effectiveness of our or any future collaborators’ sales, marketing and distribution efforts.
If any of our product candidates is approved but does not achieve an adequate level of acceptance by physicians, patients and health care payors, we
may not generate sufficient revenue and we may not become or remain profitable.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we
may be unable to generate any revenue.
We currently do not have an organization for the sales, marketing and distribution of pharmaceutical products and the cost of establishing and
maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market any products that may be approved we must build our
sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. We may enter into
strategic partnerships with third parties to commercialize our product candidates.
If we are unable to build our own sales force or negotiate a strategic partnership for the commercialization of our product candidates, we may be
forced to delay the potential commercialization of the product, or reduce the scope of our sales or marketing activities. If we elect to increase our
expenditures to fund commercialization activities ourselves, we will 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 will not be able to bring the product to market or generate product revenue.
If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able
to generate sufficient product revenue and may not become profitable.
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We will be competing with companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the
support of a third party to perform sales and marketing functions, we may be unable to compete successfully against these more established companies.
In addition, there are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with third parties
to perform these services. For example, recruiting and training a sales force 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 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 sales and marketing personnel.
If we obtain approval to commercialize any products outside of the United States, a variety of risks associated with international operations could
materially adversely affect our business.
If our product candidates are approved for commercialization outside the United States, we expect that we will be subject to additional risks related
to international operations, including the following:
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different regulatory requirements for drug approvals in foreign countries;
reduced protection for intellectual property rights;
unexpected changes in tariffs, trade barriers and regulatory requirements;
differing payor reimbursement regimes, governmental payors or patient self-pay systems and price controls;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign taxes, including withholding of payroll taxes;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing
business in another country;
workforce uncertainty in countries where labor unrest is more common than in the United States;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geopolitical actions, including war and terrorism, pandemics, or natural disasters including earthquakes,
typhoons, volcanic eruptions, floods and fires.
We have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by both the
European Union and many of the individual countries in Europe with which we will need to comply. Many U.S.-based biopharmaceutical companies have
found the process of marketing their own products in Europe to be very challenging.
If our competitors develop and market products that are more effective, safer or less expensive than our own, our commercial opportunities will be
negatively impacted.
The life sciences industry is highly competitive, and we face significant competition from other pharmaceutical, biopharmaceutical and
biotechnology companies and possibly from academic institutions, government agencies and private and public research institutions that are researching,
developing and marketing
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products designed to address diseases that we are seeking to treat. Our competitors generally have significantly greater financial, manufacturing, marketing
and drug development resources. Large pharmaceutical companies, in particular, have extensive experience in the clinical testing of, obtaining regulatory
approvals for, and marketing of, drugs. New developments, including the development of other pharmaceutical technologies and methods of treating
disease, occur in the pharmaceutical and life sciences industries at a rapid pace.
These developments may render our product candidates obsolete or noncompetitive. Compared to us, potential competitors may have substantially
greater:
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research and development resources, including personnel and technology;
regulatory experience;
experience in pharmaceutical development and commercialization;
ability to negotiate competitive pricing and reimbursement with third-party payors;
experience and expertise in the exploitation of intellectual property rights; and
capital resources.
As a result of these factors, 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 candidates. The competitors may also develop
products that are more effective, better tolerated, more useful and less costly than our products and they may also be more successful in manufacturing
and marketing their products.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product
candidates.
We face an inherent risk of product liability exposure related to the testing of seladelpar, and our other product candidates, in human clinical studies,
and will face an even greater risk if we sell our products commercially. An individual or a group of individuals may bring a liability claim against us if one
of our product candidates causes, or merely appears to have caused, an injury. If we cannot successfully defend ourselves against product liability claims,
we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in the following:
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decreased demand for our product candidates;
impairment to our business reputation;
withdrawal of clinical study participants;
distraction of management’s attention from our primary business;
substantial monetary awards to patients or other claimants;
the inability to commercialize our product candidates; and
loss of revenues.
We carry product liability insurance for our clinical studies. Further, we intend to expand our insurance coverage to include the sale of commercial
products if marketing approval is obtained for any of our product candidates. However, we may be unable to obtain this product liability insurance on
commercially reasonable terms and with insurance coverage that will be adequate to satisfy any liability that may arise. On occasion, large judgments have
been awarded in class action or individual lawsuits relating to marketed pharmaceuticals. A successful product liability claim or series of claims brought
against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our
business.
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We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications
that may be more profitable or for which there is a greater likelihood of success.
The success of our business depends primarily upon our ability to identify, develop and commercialize product candidates. Because we have limited
financial and managerial resources, we focus on product candidates for specific indications. As a result, we may forego or delay pursuit of opportunities
with other product candidates or other indications that later prove to have greater commercial potential. We may focus our efforts and resources on product
candidates that ultimately prove to be unsuccessful.
If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to
that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to retain
sole development and commercialization rights.
Risks Related to Our Intellectual Property
If we are unable to obtain or protect intellectual property rights related to our products and product candidates, we may not be able to compete
effectively in our market.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our
products and product candidates. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and
can be uncertain. The patent applications that we own, co-own or in-license may fail to result in issued patents with claims that cover the products in the
United States or in other countries. If this were to occur, early generic competition could be expected against our product candidates in development. There
is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or
prevent a patent from issuing based on a pending patent application. Even if patents do successfully issue, third parties may challenge their validity,
enforceability, scope or ownership, which may result in such patents, or our rights to such patents, being narrowed or invalidated. Furthermore, even if
they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around
our claims. If the patent applications we hold or license with respect to our product candidates fail to issue or if their breadth or strength of protection is
threatened, it could dissuade companies from collaborating with us and threaten our ability to commercialize our products. We cannot offer any assurances
about which, if any, patents will issue or whether any issued patents will be found invalid or unenforceable, will be challenged by third parties or will
adequately protect our products and product candidates. Further, if we encounter delays in development or regulatory approvals, the period of time during
which we could market our products under patent protection could be reduced. Since patent applications in the United States and most other countries are
confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we or our licensors were the first to file any patent
application related to our product candidates. Furthermore, if third parties have filed such patent applications, an interference proceeding in the United
States can be provoked by a third party or instituted by us to determine who was the first to invent any of the subject matter covered by the patent claims of
our applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license it from the prevailing party, which
may not be available on commercially reasonable terms or at all.
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how
that is not patentable, processes for which patents are difficult to enforce and other elements of our drug discovery and development processes that involve
proprietary know-how, information or technology that is not covered by patents. Although we expect all of our employees to assign their inventions to us,
and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into
confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed, that such agreements provide adequate
protection
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and will not be breached, that our trade secrets and other confidential proprietary information will not otherwise be disclosed or that competitors will not
otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. If we are unable to prevent
material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any
such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market, which could materially
adversely affect our business, results of operations and financial condition.
Further, the laws of some foreign countries do not protect patents and other proprietary rights to the same extent or in the same manner as the laws of
the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property abroad. We may also fail to
pursue or obtain patents and other intellectual property protection relating to our products and product candidates in all foreign countries.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts or otherwise affect our
business.
Our commercial success depends in part on our avoiding infringement and other violations of the patents and proprietary rights of third parties.
There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the
biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter party re-examination proceedings
before the United States Patent and Trademark Office (U.S. PTO) and its foreign counterparts. Numerous U.S. and foreign issued patents and pending
patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing product candidates. As the
biotechnology and pharmaceutical industries expand and more patents are issued, and as we gain greater visibility and market exposure as a public
company, the risk increases that our product candidates or other business activities may be subject to claims of infringement of the patent and other
proprietary rights of third parties.
Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent
applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product
candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued
patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes
upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product
candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our
ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire. Similarly, if any
third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use,
including combination therapy, the holders of any such patent may be able to block our ability to develop and commercialize the applicable product
candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or
at all. In addition, we may be subject to claims that we are infringing other intellectual property rights, such as trademarks or copyrights, or
misappropriating the trade secrets of others, and to the extent that our employees, consultants or contractors use intellectual property or proprietary
information owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and
commercialize one or more of our product candidates. 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. In the event of a successful infringement or other intellectual property claim
against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses
from third parties, pay royalties or redesign our affected
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products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available
at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses
from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to
obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize
one or more of our product candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist
that might be enforced against our products or product candidates, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an
obligation on our part to pay royalties and/or other forms of compensation to third parties.
We license certain key intellectual property from third parties, and the loss of our license rights could have a materially adverse effect on our business.
We are a party to a number of technology licenses that are important to our business and expect to enter into additional licenses in the future. For
example, we rely on an exclusive license to certain patents and know-how from Janssen Pharmaceutical NV (Janssen NV), which include seladelpar and
certain other PPARd compounds (the PPARd Products). Under the exclusive license with Janssen NV we have full control and responsibility over the
research, development and registration of any PPARd Products and are required to use diligent efforts to conduct all such activities. If we fail to comply
with our obligations under our agreement with Janssen NV, including our obligations to expend more than a de minimis amount of effort and resources on
the research and/or development of at least one PPARd product, to make any payment called for under the agreement, not to disclose any non-exempt
confidential information related to the agreement, or to use diligent efforts to promote, market and sell any PPARd Product under the agreement, such
action would constitute a default under the agreement and Janssen NV may have the right to terminate the license, in which event we would not be able to
develop or market products covered by the license, including in the case of the Janssen NV license, seladelpar, which would have a materially adverse
effect on our business.
We may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights, which could be
expensive, time consuming and unsuccessful.
Competitors may infringe or otherwise violate our patents, the patents of our licensors or our other intellectual property rights. To counter
infringement or unauthorized use, we may be required to file legal claims, which can be expensive and time-consuming. In addition, in an infringement
proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the
technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings
could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. The
initiation of a claim against a third party may also cause the third party to bring counter-claims against us.
We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the
laws may not protect those rights as fully as in the United States. Our business could be harmed if in a litigation if the prevailing party does not offer us a
license on commercially reasonable terms. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful,
may result in substantial costs and distract our management and other employees.
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. 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 our common stock.
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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 fees on any issued patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over the lifetime of
the patent. The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment
and other similar provisions during the patent application process. While an inadvertent lapse can in many 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, but are not limited to, 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 licensors that control the prosecution and maintenance of our licensed
patents fail to maintain the patents and patent applications covering our product candidates, we may lose our rights and our competitors might be able to
enter the market, which would have a material adverse effect on our business.
Our business could be negatively affected as a result of the actions of activist or hostile stockholders.
Risks Related to Our Business Operations and Industry
Our business could be negatively affected as a result of stockholder activism, which could cause us to incur significant expense, hinder execution of
our business strategy, and impact the trading value of our securities. Stockholder activism, including potential proxy contests, requires significant time and
attention by management and the Board, potentially interfering with our ability to execute our strategic plan. Stockholder activism, including a proxy
contest, could give rise to perceived uncertainties as to our future direction, adversely affect our relationships with key executives and business partners,
and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to
activist stockholder matters. Any of these impacts could materially and adversely affect our business and operating results. Further, the market price of our
common stock could be subject to significant fluctuation or otherwise be adversely affected by stockholder activism.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on principal members of our executive team. While we have entered into employment agreements or offer letters with each
of our executive officers, any of them could leave our employment at any time, as all of our employees are “at will” employees. We do not maintain “key
person” insurance for any of our executives or other employees. Recruiting and retaining other qualified employees for our business, including scientific
and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue.
We also experience competition from universities and research institutions for the hiring of scientific and clinical personnel. As a result, competition for
skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition
among numerous pharmaceutical and biotechnology companies for similar personnel. In addition, failure of any of our clinical studies may make it more
challenging to recruit and retain qualified personnel. If we are unable to successfully recruit key employees or replace the loss of services of any executive
or key employee, it may adversely affect the progress of our research, development and commercialization objectives.
In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development
and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting
or advisory contracts with
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other entities that may limit their availability to us, which could also adversely affect the progress of our research, development and commercialization
objectives.
We recently reduced the size of our organization, and we may experience difficulties as a result of this downsizing.
In December 2019 we announced a reduction in workforce of approximately 60% and have proceeded with additional cost cutting measures. This
has resulted in a decrease in our managerial, clinical, and operational resources resulting in significant additional responsibilities for our remaining
management and employees. We may not be able to effectively manage our downsized operations with the remaining workforce, which may result in
weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of additional employees and reduced productivity
among remaining employees. If our management is unable to effectively manage our downsized operations, our ability to generate and/or grow revenues
could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our
product candidates and compete effectively will depend, in part, on our ability to effectively manage our downsized operations and any future growth.
Significant disruptions of information technology systems or breaches of data security could materially adversely affect our business, results of
operations and financial condition.
We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent on information
technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store and transmit confidential
information, including intellectual property, proprietary business information and personal information. It is critical that we do so in a secure manner to
maintain the confidentiality and integrity of such confidential information. We have established physical, electronic and organizational measures to
safeguard and secure our systems to prevent a data compromise, and rely on commercially available systems, software, tools, and monitoring to provide
security for our information technology systems and the processing, transmission and storage of digital information. We have also outsourced elements of
our information technology infrastructure, and as a result a number of third-party vendors may or could have access to our confidential information. Our
internal information technology systems and infrastructure, and those of our current and any future collaborators, contractors and consultants and other
third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and
electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to
systems inside our organization.
The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign
governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the
world have increased. In addition, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches,
which could lead to the loss of confidential information or other intellectual property. The costs to us to mitigate network security problems and security
vulnerabilities could be significant, and our efforts to address these problems may not be successful, and these problems could result in unexpected
interruptions, delays, cessation of service and other harm to our business and our competitive position. If such an event is to occur and cause interruptions
in our operations or our vendors, it may result in a material disruption of our product development programs and our reputation could be materially
damaged. We could also be exposed to a risk of loss or litigation and potential liability, which could materially adversely affect our business, results of
operations and financial condition.
Changes in and failures to comply with United States and foreign privacy and data protection laws, regulations and standards may adversely affect our
business, operations and financial performance.
We are subject to or affected by numerous federal, state and foreign laws and regulations, as well as regulatory guidance, governing the collection,
use, disclosure, retention, and security of personal data, such as
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information that we collect about patients and healthcare providers in connection with clinical trials in the United States and abroad. The global data
protection landscape is rapidly evolving, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future.
This evolution may create uncertainty in our business, affect our or our vendors’ ability to operate in certain jurisdictions or to collect, store, transfer use
and share personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us.
The cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any failure or perceived failure by us to
comply with federal, state or foreign laws or regulation, our internal policies and procedures or our contracts governing our processing of personal
information could result in negative publicity, diversion of management time and effort and proceedings against us by governmental entities or others. In
many jurisdictions, enforcement actions and consequences for noncompliance are rising.
In the United States, HIPAA imposes, among other things, certain standards relating to the privacy, security, transmission and breach reporting of
individually identifiable health information. Certain states have also adopted comparable privacy and security laws and regulations, some of which may be
more stringent than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating
potentially complex compliance issues for us and our future customers and strategic partners. In the event that we are subject to HIPAA or other United
States privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial
condition. Our operations abroad may also be subject to increased scrutiny or attention from data protection authorities. Many countries in these regions
have established or are in the process of establishing privacy and data security legal frameworks with which we, our customers, or our vendors must
comply. For example, the EU has adopted the General Data Protection Regulation (EU) 2016/679, or GDPR, which went into effect in May 2018 and
introduces strict requirements for processing the personal information of EU subjects, including clinical trial data. The GDPR is likely to increase
compliance burdens on us, including by mandating potentially burdensome documentation requirements and granting certain rights to individuals to
control how we collect, use, disclose, retain and process information about them. The processing of sensitive personal data, such as physical health
condition, may impose heightened compliance burdens under the GDPR and is a topic of active interest among foreign regulators. In addition, the GDPR
provides for robust regulatory enforcement and fines for a noncompliant company. As we continue to expand into other foreign countries and jurisdictions,
we may be subject to additional laws and regulations that may affect how we conduct business.
Risks Relating to Owning Our Common Stock
An active trading market for our common stock may not continue and the market price for our common stock may decline in value.
Our common stock has historically been listed on the Nasdaq Capital Market under the symbol “CBAY” and in the second quarter of 2018 it began
trading on the Nasdaq Global Select Market. Historically, trading volume for our common stock has been limited. The historical trading prices of our
common stock on the Nasdaq Capital Market and the Nasdaq Global Select Market may not be indicative of the price levels at which our common stock
will trade in the future, and we cannot predict the extent to which investor interest in us generally will continue to support an active public trading market
for our common stock or how liquid will be that public market.
We may be subject to securities litigation, which is expensive and could divert management attention.
Our share price is volatile, and in the past, companies that have experienced volatility in the market price of their stock have been subject to
securities class action litigation. We may be the target of this type of litigation. 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.
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Our stock price is volatile, and our stockholders’ investment in our stock could decline in value.
The historical trading price of our common stock has been volatile. Our stock price may continue to be subject to wide fluctuations in response to a
variety of factors, including:
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adverse or inconclusive results or delays in preclinical testing or clinical trials;
inability to obtain additional funding;
any delay in filing an Investigational New Drug (IND) application or NDA for any of our future product candidates and any adverse
development or perceived adverse development with respect to the FDA’s review of an IND or NDA;
failure to maintain our existing collaborations or enter into new collaborations;
failure of our collaboration partners to elect to develop or commercialize product candidates under our collaboration agreements or the
termination of any programs under our collaboration agreements;
failure by us or our licensors and collaboration partners to prosecute, maintain or enforce our intellectual property rights;
failure to successfully develop and commercialize our future product candidates;
changes in laws or regulations applicable to future products;
changes in the structure of payment systems;
inability to obtain adequate product supply for our future product candidates or the inability to do so at acceptable prices;
adverse regulatory decisions;
introduction of new products, services or technologies by our competitors;
failure to meet or exceed financial projections we may provide to the public;
failure to meet or exceed the estimates and projections of the investment community;
the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us, our collaboration partners or our
competitors;
announcements of significant or potential equity or debt sales by us;
announcements of clinical trial plans or results by us;
disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for
our technologies;
additions or departures of key scientific or management personnel;
significant lawsuits, including patent or stockholder litigation;
changes in the market valuations of similar companies;
sales of our common stock by us or our stockholders in the future; and
trading volume of our common stock.
In addition, companies trading in the stock market in general have experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our
common stock, regardless of our actual operating performance.
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Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in
additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
Significant additional capital may be needed in the future to continue our product development efforts, in particular clinical trial, and operations. To
the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock,
convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If in the future we sell
common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. These sales may also result in new
investors gaining rights superior to our existing stockholders. Pursuant to our equity incentive plans, our management is authorized to grant stock options
and other equity-based awards to our employees, directors and consultants. The number of shares available for future grant under our equity incentive
plans as of February 29, 2020 was 2,722,567 shares.
We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.
We do not anticipate paying cash dividends in the future. As a result, only appreciation of the price of our common stock, which may never occur,
will provide a return to stockholders. Investors seeking cash dividends should not invest in our common stock.
We may be subject to securities litigation, which is expensive and could divert management attention.
Our share price is volatile, and in the past, companies that have experienced volatility in the market price of their stock have been subject to
securities class action litigation. We may be the target of this type of litigation in the future. 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.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and our bylaws may delay or prevent an acquisition of us. In addition, these
provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for
stockholders to replace members of our board of directors, who are responsible for appointing the members of our management team. In addition, we are
governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits, with some exceptions, stockholders owning in
excess of 15% of our outstanding voting stock from merging or combining with us. Finally, our charter documents establish advance notice requirements
for nominations for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings. Although we believe these
provisions together provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would
apply even if the offer may be considered beneficial by some stockholders.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our corporate office is located in Newark, California. Our office lease for that facility terminates on January 15, 2024 and has an option to extend
the lease for an additional five years. We believe that our current facilities are sufficient for our needs for the foreseeable future.
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Item 3. Legal Proceedings
We are not a party to any legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Common Equity
Our common stock is listed on the Nasdaq Global Select Market under the symbol “CBAY”. As of February 29, 2020, there were approximately
227 holders of record of our common stock, although there are a substantially greater number of “beneficial holders”, whose shares are held of record by
banks, brokers and other financial institutions in “street name”.
PART II
Dividend Policy
We have never declared or paid any cash dividends to our stockholders. Our board of directors will make any future decisions regarding dividends.
We currently intend to retain and use any future earnings, if any, for the development and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends. Even if our board of directors decides to
pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors that the board of directors may deem relevant.
Item 6. Selected Financial Data
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Some of the statements under in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-
looking statements. These forward-looking statements are based on management’s beliefs and assumptions and on information currently available to our
management and involve significant elements of subjective judgment and analysis. Words such as “may,” “will,” “should,” “could,” “would,” “expect,”
“plan,” “anticipate,” “believe,” “estimate,” “project,” “potential,” “seek,” “target,” “goal,” “intend,” variations of such words, and similar
expressions are intended to identify forward-looking statements. Our actual results and the timing of events may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a difference include those discussed under the caption “Special Note
Regarding Forward Looking Statements” and in “Risk Factors” and elsewhere in this Annual Report on Form 10-K. These and many other factors could
affect our future financial and operating results. We undertake no obligation to update any forward-looking statement to reflect events after the date of this
Annual Report.
Overview
CymaBay Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing and providing access to innovative therapies for
patients with liver and other chronic diseases with high unmet medical need.
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Our lead product candidate, seladelpar, is a potent and selective agonist of peroxisome proliferator activated receptor delta (PPARd), a nuclear
receptor that regulates genes directly or indirectly involved in the synthesis of bile acids/sterols, metabolism of lipids and glucose, inflammation and
fibrosis. We have been developing seladelpar for the treatment of:
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primary biliary cholangitis (PBC), an autoimmune disease that causes progressive destruction of the bile ducts in the liver resulting in impaired
bile flow (cholestasis) and inflammation
nonalcoholic steatohepatitis (NASH), a prevalent and serious chronic liver disease caused by excessive fat accumulation in the liver that results
in inflammation and cellular injury that can progress to fibrosis and cirrhosis, and potentially liver failure and death
primary sclerosing cholangitis (PSC), a rare, chronic cholestatic liver disease characterized by diffuse inflammation and fibrosis of the
intrahepatic and extrahepatic bile ducts.
Seladelpar
Primary Biliary Cholangitis (PBC)
In October 2018, we commenced enrollment of a global, Phase 3 registration study to evaluate seladelpar in patients with PBC and completed
enrollment in October 2019. Data from two Phase 2 studies of seladelpar in PBC established seladelpar’s anti-cholestatic and anti-inflammatory effects
and identified doses we believe have the potential to offer patients improved efficacy and better tolerability over the only approved second-line treatment
available today. In addition to reductions in markers of cholestasis including alkaline phosphatase (AP), seladelpar also improved inflammatory and
metabolic markers with patients experiencing decreases in levels of transaminases, high sensitivity C-reactive protein, and low-density lipoprotein
cholesterol. Many PBC patients suffer from pruritus, or itching, which can significantly impact their quality of life. Based on data from our Phase 2
studies, and unlike the only approved second-line treatment currently available, seladelpar has not been associated with drug-induced pruritus.
Data from our completed our first Phase 2 High Dose and our ongoing second Phase 2 Low Dose studies of seladelpar in patients with PBC have
established seladelpar’s anti-cholestatic and anti-inflammatory effects. In November 2018, we released updated data from the Phase 2 Low Dose study
that continued to show sustained anti-cholestatic and anti-inflammatory effects with no worsening of pruritus through 52 weeks. Specifically, efficacy data
was released on the first set of patients treated for 52 weeks and safety data on patients that received at least one dose of seladelpar in the study. Eligible
PBC patients with either an inadequate response or intolerance to ursodeoxycholic acid (UDCA) were randomized to daily seladelpar at 5 or 10 mg. After
12 weeks, patients on 5 mg could escalate to 10 mg if their AP treatment goal was not met (5/10 mg group). The primary efficacy outcome was the AP %
change from baseline. At 52 weeks, the mean decreases in AP were -47% and -46% in the 5/10 and 10 mg groups, respectively. A key secondary outcome
was the composite response measured at week 52 where a responder was defined as a patient with AP <1.67 x ULN, ≥15% decrease in AP, and total
bilirubin ≤ULN. At 52 weeks, 59% and 71% of patients met the composite endpoint in the 5/10 and 10 mg groups, respectively. The anti-cholestatic effect
of seladelpar was further substantiated with normalization of AP levels at 52 weeks in 24% and 29% of patients in the 5/10 and 10 mg groups,
respectively. Treatment with seladelpar also demonstrated a robust anti-inflammatory activity with median transaminase decreases of -31% and -33% in
the 5/10 and 10 mg groups, respectively.
A 26-week analysis from the study was also shared on the effect of seladelpar on pruritus, or itching, which is a common clinical symptom of PBC
that adversely effects a patient’s quality of life. After 26 weeks, the median changes in the pruritus visual analog scale (VAS) was -50% and -55% in the 5
/10 and 10 mg groups, respectively. These data suggest that seladelpar is not associated with drug-induced pruritus and support further evaluation of
seladelpar’s potential benefit on pruritus.
In February 2019, the FDA granted seladelpar Breakthrough Therapy Designation for the treatment of early stage PBC, and in October 2016,
seladelpar received EMA PRIority MEdicines (PRIME) designation for the
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treatment of PBC. In November 2016, the FDA granted orphan drug designation to seladelpar for the treatment of PBC, and in September 2017, the
EMA’s Committee for Orphan Medicinal Products (COMP) granted orphan drug designation to seladelpar for the treatment of PBC.
Nonalcoholic Steatohepatitis (NASH)
In February 2019, we completed enrollment of a placebo-controlled Phase 2b proof-of-concept study to evaluate seladelpar at three doses in
biopsy-proven NASH. The primary efficacy outcome is the change from baseline in liver fat content at 12 weeks measured by magnetic resonance
imaging using the proton density fat fraction method (MRI-PDFF). The study also includes pathology assessments of liver biopsy samples at baseline
and at 52 weeks to examine the potential of seladelpar treatment to resolve NASH and/or decrease fibrosis. In preclinical studies, Seladelpar was found
to reverse NASH pathology, decrease fibrosis, inflammation, hepatic lipids and reverse insulin resistance in the foz/foz mouse which is a diabetic obese
model of NASH.
Primary Sclerosing Cholangitis (PSC)
In June 2019, we initiated a Phase 2 randomized, placebo-controlled, dose-ranging study of seladelpar in patients with PSC to enroll approximately
100 patients at 60 sites globally. Seladelpar at doses of 5, 10, and 25 mg once daily will be studied versus placebo in a 1:1:1:1 randomization. The
primary efficacy outcome will be the relative change in alkaline phosphatase (AP) from baseline at 24 weeks. At the time of study termination, 1 subject,
randomized to placebo was enrolled.
Recent Developments in the Seladelpar Program
In November 2019, we announced that the termination of our Phase 2b study of seladelpar in subjects with NASH and our Phase 2 study of
seladelpar in patients with PSC due to histological observations discovered during planned liver biopsies. In December 2019, we announced the
termination of our ongoing studies of seladelpar in subjects with PBC. Our overall PBC program remains on hold as we continue our investigation of the
histological observations and continue our discussions with the FDA.
We estimate our overall cash burn will be between $30 million and $50 million for the six months ending June 30, 2020. Of this total, we expect
between $20 million to $35 million will be used to fund clinical study close-out, patient monitoring, and seladelpar investigation activities.
Strategic Options Review
Following the announcement of the histological observations in our NASH Phase 2 study in November 2019 and the subsequent termination of our
ongoing seladelpar clinical trials in November and December 2019, we commenced a process to evaluate strategic alternatives to maximize stockholder
value. This includes a comprehensive evaluation of possible mergers and business combinations, a sale of part or all of our assets, collaboration and
licensing agreements, dissolution and liquidation of our assets, and/or continuing development of our internal programs.
Arhalofenate
Arhalofenate is a dual-acting anti-inflammatory and uric acid lowering agent. In 2016, we entered into an exclusive licensing agreement granting
Kowa Pharmaceuticals America, Inc. (Kowa) the rights to develop and commercialize arhalofenate in the U.S. (including all possessions and territories)
as a treatment for gout. Under the terms of the agreement with Kowa, we received an upfront payment of $5.0 million, and in January 2018 we received a
$5.0 million milestone payment for the initiation of a study evaluating the pharmacokinetics of arhalofenate in subjects with renal impairment. We were
also entitled to receive additional milestone payments based upon the achievement of specific development and sales milestones and royalties on future
sales of
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arhalofenate products. On October 24, 2018, we received a notice from Kowa terminating the license agreement for the development of arhalofenate,
effective on January 22, 2019. As a result of the termination, the rights licensed to Kowa through the agreement reverted to us on the termination date
and we are no longer eligible to receive additional milestone payments or royalties from Kowa.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these
consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the
reporting periods. We base our estimates on historical experience and on various other factors that we believe to be materially reasonable under the
circumstances, the results of which form our basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources, and evaluate our estimates on an ongoing basis. Actual results may materially differ from those estimates under different
assumptions or conditions.
While we describe our significant accounting policies in more detail in Note 2 of our consolidated financial statements included in this Annual
Report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation and understanding of our
consolidated financial statements.
Restructuring Charges
We recognize restructuring charges related to reorganization plans that have been committed to by us and when liabilities have been incurred. In
connection with these activities, we record restructuring charges at fair value for, a) contractual employee termination benefits when obligations are
associated to services already rendered, rights to such benefits have vested, and payment of benefits is probable and can be reasonably estimated, b)
one-time employee termination benefits when we have committed to a plan of termination, the plan identifies the employees and their expected
termination dates, the details of termination benefits are complete, it is unlikely changes to the plan will be made or the plan will be withdrawn and
communication to such employees has occurred, and c) contract termination costs when a contract is terminated before the end of its term.
One-time employee termination benefits are recognized in their entirety when communication has occurred and future services are not required. If
future services are required, the costs are recorded ratably over the remaining period of service. Contract termination costs to be incurred over the
remaining contract term without economic benefit are recorded in their entirety when the contract is canceled.
The recognition of restructuring charges requires us to make certain judgments and estimates regarding the nature, timing and amount of costs
associated with the planned reorganization plan. To the extent the actual results differ from its estimates and assumptions, we may be required to revise
the estimates of future accrued restructuring liabilities, requiring the recognition of additional restructuring charges or the reduction of accrued
restructuring liabilities previously recognized. Such changes to previously estimated amounts may be material to our consolidated financial statements.
Changes in the estimates of the restructuring charges are recorded in the period in which the change is determined.
At the end of each reporting period, we evaluate the remaining accrued restructuring balances to ensure that no excess accruals are retained and
the utilization of the provisions are for their intended purpose in accordance with developed restructuring plans.
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Research and Development Expenses and Related Prepayments and Accruals
Research and development expenses consist of costs incurred in identifying, developing, and testing product candidates. These expenses consist
primarily of costs for research and development personnel, including related stock-based compensation; contract research organizations (CRO) and
other third parties that assist in managing, monitoring, and analyzing clinical trials; investigator and site fees; laboratory services; consultants; contract
manufacturing services; non-clinical studies, including materials; and allocated expenses, such as depreciation of assets, and facilities and information
technology that support research and development activities. Research and development costs are expensed as incurred unless there is an alternative
future use in other research and development projects.
As part of the process of preparing our consolidated financial statements, we are required to estimate certain research and development expenses.
This process involves reviewing contracts, reviewing the terms of our license agreements, communicating with our vendors and 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
either when we have prepaid or when we have not yet been invoiced or otherwise notified of actual cost. Although certain of our vendors require us to
prepay in advance of services rendered, the majority of our service providers invoice us monthly in arrears for services performed. We make estimates
of prepayments to amortize or expenses to be accrued as of each balance sheet date in our consolidated financial statements based on facts and
circumstances known to us at that time. Such payments are evaluated for current or noncurrent classification based on when they will be realized.
Additionally, if expectations change such that we do not expect goods to be delivered or services to be rendered, such prepayments are charged to
expense. Examples of estimated amortized or accrued research and development expenses include fees to:
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contract research organizations and other service providers in connection with clinical studies;
contract manufacturers in connection with the production of clinical trial materials; and
vendors in connection with preclinical development activities.
We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple
research institutions and contract research organizations that conduct and manage clinical studies 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 and expense recognition. Payments under some of
these contracts depend on factors such as the successful screening and enrollment of patients and the completion of clinical trial milestones. In either
amortizing or 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 our estimate, we adjust the related prepayment or accrual
accordingly. 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 our reporting changes in estimates in any particular period. Adjustments to prior period estimates have not been material for the years
ended December 31, 2019 and 2018.
Stock-Based Compensation
We measure stock-based compensation cost at the grant date, based on the estimated fair-value of the awards, and we recognize as an expense the
portion that we ultimately expect to vest as an expense over the related vesting periods, net of estimated forfeitures. We estimate the grant-date fair
value based of stock options using the Black-Scholes option pricing model and recognize compensation expense over the service period using the
straight-line attribution method. For performance-based stock options, we evaluate the probability of achieving each performance-based condition at
each reporting date. We begin to recognize the expense when it is deemed probable that a performance-based condition will be met using the
accelerated attributed method over the requisite service period.
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The Black-Scholes option-pricing model requires the input of subjective assumptions. These variables include, but are not limited to, our stock
price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. We estimate expected volatility based
on our own historical volatility supplemented by a review of historical volatilities of industry peers. We have, due to insufficient historical data, used
the “simplified method” to determine the expected life of stock options granted with a service condition. Because our employee stock options have
characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect fair
value estimates, in management’s opinion, the existing models may not provide a reliable single measure of the fair value of our employee stock. In
addition, management continually assesses the assumptions and methodologies used to calculate the estimated fair value of stock-based compensation.
Circumstances may change and additional data may become available over time, which could result in changes to the assumptions and methodologies,
and which could materially impact our fair value determination, as well as our stock-based compensation expense.
Results of Operations
General
To date, we have not generated any income from operations. As of December 31, 2019, we have an accumulated deficit of $625.9 million,
primarily as a result of expenditures for research and development and general and administrative expenses from inception to that date. While we have
generated revenue from a past license arrangement, we will not generate any future revenue from that license agreement. Further, we have terminated
all of the clinical trials of seladelpar, and as a result all of our product candidates are at an early stage of development and will require additional work
before they can be licensed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future
and there can be no assurance that we will ever generate sufficient revenue to achieve and sustain profitability. As stated above, following the
announcement of the histological observations in our NASH Phase 2 study in November 2019, we commenced a process to evaluated strategic
alternatives to maximize shareholder value. If we are unable to raise additional funds or pursue one or more strategic alternatives, we may continue to
reduce our expenditures in order to preserve our cash. Further cost-cutting measures that we may make may not be sufficient to enable us to meet our
cash requirements, and they may negatively affect our business and our ability to derive any value from our product candidates. Until we can generate a
sufficient amount of product revenue, which we may never do, we will need to finance future cash needs through potential collaborative, partnering or
other strategic arrangements, as well as through public or private equity offerings, debt financings or a combination of the foregoing.
The discussion below generally highlights year-to-year comparisons between 2019 and 2018. Discussions of year-to-year comparisons between
2018 and 2017 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis” in Part II Item 7 of
our Annual Report on Form 10-K for the fiscal year December 31, 2018, filed with the SEC on February 28, 2019.
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Our results of operations for the years ended December 31, 2019 and 2018 are presented below (in thousands):
Operating expenses:
Research and development
General and administrative
Restructuring charges
Total operating expenses
Loss from operations
Other income (expense):
Interest income, net
Loss on extinguishment of debt
Other expense, net
Net loss
Year Ended
December 31,
2019
2018
Change
2019 vs. 2018
$ 83,837
19,238
5,075
108,150
(108,150)
5,342
—
—
$(102,808)
$ 58,124
14,381
—
72,505
(72,505)
3,652
(407)
(3,288 )
$(72,548)
25,713
4,857
5,075
35,645
(35,645)
1,690
407
3,288
(30,260)
Operating Expenses
Operating expenses consist of research and development expenses and general and administrative expenses and restructuring charges as presented
in the table below (in thousands):
Operating expenses:
Research and development
General and administrative
Restructuring charges
Total operating expenses
Research & Development Expenses
Year Ended
December 31,
2019
2018
$ 83,837
19,238
5,075
$108,150
$58,124
14,381
—
$72,505
Change
2019 vs. 2018
25,713
4,857
5,075
35,645
Conducting research and development is central to our business model. We expect that our research and development expenses for the year
ending December 31, 2020 to be significantly less than prior years due to our decision to terminate all of our ongoing seladelpar-related clinical trials.
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For the years ended December 31, 2019 and 2018, research and development expenses were $83.8 million and $58.1 million, respectively, and
are detailed in the table below (in thousands):
Project costs:
Seladelpar PBC clinical studies
Seladelpar NASH clinical studies
Seladelpar PSC clinical studies
Seladelpar drug manufacturing & development
Seladelpar other studies
Non-seladelpar studies
Total project costs
Internal research and development costs
Total research and development
Our project costs consist primarily of:
Year Ended
December 31,
2019
2018
Change
2019 vs. 2018
$37,907
10,445
4,189
9,235
2,442
361
64,579
19,258
$83,837
$21,009
15,614
—
5,759
1,181
184
43,747
14,377
$58,124
16,898
(5,169 )
4,189
3,476
1,261
177
20,832
4,881
25,713
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expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials
and a substantial portion of our preclinical activities;
the cost of acquiring and manufacturing clinical trial and other materials; and
other costs associated with development activities, including additional studies.
Internal research and development costs consist primarily of salaries and related fringe benefits costs for our employees (such as workers’
compensation and health insurance premiums), stock-based compensation charges, travel costs, and overhead expenses. Internal costs generally benefit
multiple projects and are not separately tracked per project.
Comparison of Years Ended December 31, 2019 and 2018
Total project costs increased by $20.8 million to $64.5 million from $43.7 million for the years ended December 31, 2019 and 2018, respectively.
Project costs for the year ended December 31, 2019 primarily consisted of seladelpar-related clinical trial expenses. These increases were driven by
ongoing enrollment activities related to our PBC Phase 3 clinical trial, startup activities related to our PSC Phase 2 clinical trial, and other
NDA-enabling studies. The increased number and size of our clinical trials and the preparation of registration batches also resulted in higher
manufacturing costs to support these activities. The overall increase in project costs was partially offset by decreased costs on our fully enrolled NASH
Phase 2b study.
Internal research and development costs increased by $4.9 million to $19.3 million from $14.4 million for the years ended December 31, 2019
and 2018, respectively, primarily due to higher employee compensation-related expenses as we hired additional clinical, scientific and regulatory
personnel to support our expanding clinical development activities.
General and Administrative Expenses
General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, and accounting
services, rent, and other general operating expenses not otherwise included in research and development. We expect our general and administrative
expenses for the year ending December 31, 2020 to decrease significantly in comparison to prior years due to the reductions in headcount during the
fourth quarter of 2019 and the first quarter of 2020.
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Comparison of Years Ended December 31, 2019 and 2018
General and administrative expenses increased by $4.8 million to $19.2 million, from $14.4 million, for the years ended December 31, 2019 and
2018, respectively. The increase was driven primarily by higher employee compensation and other administrative expenses incurred to support our
expanding operations during 2019.
Restructuring Charges
In December 2019, we announced a restructuring plan to reduce our workforce by approximately 60%. This reduction in workforce was
primarily due to results from our Phase 2b clinical trials from our studies of seladelpar in NASH. For the year ended December 31, 2019, we have
incurred in aggregate $5.1 million of restructuring charges.
Restructuring charges consist of personnel-related costs, including severance costs, employee-related benefits, supplemental one-time termination
payments, and non-cash share-based compensation expense related to the acceleration of stock options. Restructuring charges also includes contract
termination costs (including costs to terminate agreements with our contract manufacturers that we had previously contracted with for clinical supplies).
In the fourth quarter of 2019, we completed a reduction in force and incurred $5.1 million in restructuring charges. Substantially all of the cash
payments are expected to be paid out by the end of 2020.
We may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the
workforce reduction. See Note 13 in the consolidated financial statements for more information.
Other Income (Expense)
Interest income, net consists primarily of interest income from our marketable securities offset in part by interest expense related to our loan
facility. In connection with the early payoff of our term loan facility in June 2018, we recognized a $0.4 million loss on the extinguishment of debt.
Other expense, net consists of gains and losses resulting from the remeasurement of our warrant liabilities at fair value. Other income (expense) is
detailed below (in thousands):
Other income (expense):
Interest income, net
Loss on extinguishment of debt
Other expense, net
Total other income (expense)
Year Ended
December 31,
2019
2018
Change
2019 vs. 2018
$5,342
—
—
$5,342
$ 3,652
(407)
(3,288)
(43)
$
1,690
407
3,288
5,385
Comparison of Years Ended December 31, 2019 and 2018
Interest income, net increased to $5.3 million from $3.7 million, for the years ended December 31, 2019 and 2018, respectively. The change of
$1.6 million was due to higher interest earned on our investments portfolio and the extinguishment of our term loan in the second quarter of 2018.
Other expense, net decreased $3.3 million to none from $3.3 million for the years ended December 31, 2019 and 2018, respectively. The loss in
the year ended December 31, 2018 was driven by a loss on remeasurement of our warrant liabilities at fair value, partially offset by a gain on expiration
of unexercised warrants and the resulting extinguishment of the associated warrant liability in September 2018. We had no activity related to warrants
in the year ended December 31, 2019.
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Income Taxes
As of December 31, 2019, we had federal net operating loss carryforwards of $435.9 million and state net operating loss carryforwards of
$224.5 million to offset future taxable income, if any. In addition, we had federal research and development tax credit carryforwards of $9.8 million,
federal orphan drug tax credit carryforwards of $18.1 million, and state research and development tax credit carryforwards of $5.3 million. If not
utilized, the federal net operating losses for the years beginning before January 1, 2018 of $255.7 million will expire beginning in 2024 through 2037,
and the federal net operating losses for the tax years beginning after January 1, 2018 of $180.2 million will be carried forward indefinitely (subject to
certain utilization limitations). The state net operating loss carryforwards will expire beginning in 2028 through 2039. The federal research and
development and federal orphan drug tax credit carryforwards will expire beginning in 2020 through 2039, and the state tax credit will carry forward
indefinitely. Interest and penalties for the years ended December 31, 2019 and 2018 were not material. Current federal and state tax laws include
substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change. Even if the carryforwards are
available, they may be subject to annual limitations, lack of future taxable income, or future ownership changes that could result in the expiration of
the carryforwards before they are utilized. At December 31, 2019, we recorded a 100% valuation allowance against our deferred tax assets of
approximately $141.9 million, as our management believes it is more likely than not that they will not be fully realized.
Liquidity and Capital Resources
We have financed our operations primarily through the sale of equity securities, licensing fees, issuance of debt and collaborations with third
parties. As of December 31, 2019, cash, cash equivalents and marketable securities totaled $190.9 million, compared to $178.7 million at
December 31, 2018. Historical summaries of sales of our equity securities are noted below followed by overviews of sources of liquidity from our
licensing and debt arrangements.
Equity Financings
On February 1, 2018, pursuant to our $200.0 million shelf registration statement on Form S-3, we completed the issuance of 13,340,000 shares
of our common stock at a public offering price of $10.80 per share, which we refer to as our February 2018 public offering. Net proceeds to us in
connection with the February 2018 public offering were approximately $135.5 million after deducting underwriting discounts, commissions and other
offering expenses.
On December 28, 2018, we filed a $200.0 million shelf registration statement on Form S-3 that was declared effective in February 2019. Our
existing $200.0 million shelf registration statement was also terminated on the effective date.
On March 8, 2019, pursuant to a shelf registration statement on Form S-3, we issued 8,000,000 shares of our common stock at $12.50 per share
in an underwritten public offering, which we refer to as the March 2019 public offering. On March 11, 2019, the underwriters fully exercised their
option to purchase additional shares resulting in the issuance of an additional 1,200,000 shares. Net proceeds from the March 2019 public offering
were approximately $107.7 million after deducting underwriting discounts, commissions and other offering expenses.
Licensing & Collaboration Fees
In 2016, we entered into an exclusive licensing agreement granting Kowa Pharmaceuticals America, Inc. the rights to develop and
commercialize arhalofenate in the U.S. (including all possessions and territories). Under the terms of the agreement with Kowa, we received an
upfront payment of $5.0 million, and in January 2018 we received a $5.0 million milestone payment for the initiation of a study evaluating the
pharmacokinetics of arhalofenate in subjects with renal impairment.
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On October 24, 2018, we received a notice from Kowa terminating the license agreement for the development of arhalofenate. The termination
was effective as of January 22, 2019. As a result of the termination, the rights licensed to Kowa through the agreement reverted to us on the termination
date and we are no longer eligible to receive additional milestone payments or royalties from Kowa. As of the time of the receipt of Kowa’s notice to
terminate, all remaining variable consideration under the license agreement had been fully constrained and all performance obligations had been
satisfied.
2015 Term Loan Facility
On August 7, 2015, we entered into a Loan and Security Agreement (the 2015 Term Loan Facility). At the closing, we also agreed to pay a
facility fee of 1.00% of the 2015 Term Loan Facility commitment. In addition, we issued warrants exercisable for a total of 114,436 shares of our
common stock to the lenders at an exercise price of $2.84 per share, and with a term of ten years.
On June 4, 2018, we repaid in full the outstanding balance of the 2015 Term Loan Facility of $4.2 million plus a final fee of $0.7 million and a
prepayment penalty of $0.1 million. In conjunction with this prepayment, we recorded a $0.4 million loss on early extinguishment of this debt. As of
December 31, 2018, we had no further obligations under the 2015 Term Loan Facility and all warrants previously issued in connection with it had been
exercised.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods indicated below (in thousands):
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash Flows from Operating Activities
Year Ended
December 31,
2019
$ (97,911)
(34,347)
108,132
$ (24,126)
2018
$ (54,936)
(54,111)
134,988
$ 25,941
Net cash used in operating activities for the year ended December 31, 2019 increased by $43.0 million to $97.9 million as compared to
$54.9 million in the prior year. The increase in cash used was primarily due to a $30.3 million increase in our net loss resulting from our expanding
drug development activities, substantially higher prepayments made to our clinical research organization partners, and other changes in working capital.
Cash Flows from Investing Activities
Net cash used in investing activities was $34.3 million for the year ended December 31, 2019 compared to $54.1 million in the prior year. The
overall decrease in cash used in 2019 was due to a decrease in net purchases of marketable securities, as proceeds from our investments increased faster
than our purchases.
Cash Flows from Financing Activities
Net cash provided by financing activities was $108.1 million for the year ended December 31, 2019 compared to $135.0 million in the prior year.
The decrease was primarily due to net proceeds of $107.7 million received from the March 2019 public equity offering compared to net proceeds of
$135.5 million in the prior year equity offering.
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Capital Requirements
We have incurred operating losses since inception and had an accumulated deficit of $625.9 million at December 31, 2019. As of December 31,
2019, we had cash, cash equivalents and marketable securities of approximately $190.9 million, which we believe is sufficient to fund our current
operating plan into 2021.
As noted above, in November 2019, the Phase 2b study of seladelpar in subjects with NASH and our Phase 2 study of seladelpar in patients with
PSC were terminated following the discovery of histological observations during planned liver biopsies. Furthermore, in December 2019, the ongoing
studies of seladelpar in subjects with PBC were terminated. To conserve our cash resources, we substantially reduced our workforce in the fourth
quarter of 2019. Our overall PBC program remains on hold as we continue our investigation of the histological observations and continue our
discussions with the FDA. In addition, following the announcement of the histological observations, we commenced a review of strategic alternatives to
maximize stockholder value. This includes a comprehensive evaluation of possible mergers and business combinations, a sale of part or all of our
assets, collaboration and licensing agreements, dissolution and liquidation of our assets, and/or continuing development of our internal programs.
Off Balance Sheet Arrangements
As of December 31, 2019, we had no off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K under the Exchange Act)
that create potential material risks for us and that are not recognized on our consolidated balance sheets.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The disclosure required in this Item is included in Item 15, which information is incorporated by reference here.
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
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the
Exchange Act, and the rules and regulations thereunder, is recorded, processed, summarized and reported within the time periods specified in the SEC’s
rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and principal
financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures
Based on the evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), our
chief executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, the design and operation of
our disclosure controls and procedures were effective at the reasonable assurance level.
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Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is a process designed by, or under the supervision of, our President and Chief Executive Officer and our Vice President, Finance 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 and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Under the supervision and with the participation of our management, including our President and Chief Executive Officer and Vice President,
Finance, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in “Internal
Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this
evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
controls are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not
absolute, assurance that the objectives of our disclosure control system are met.
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2019, that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of Independent Registered Public Accounting Firm
Our independent registered public accounting firm, Ernst & Young LLP, has audited our Consolidated Financial Statements included in Item 8 of
this Annual Report on Form 10-K and have issued a report on our internal control over financial reporting as of December 31, 2019. Their report on the
audit of internal control over financial reporting appears below.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of CymaBay Therapeutics, Inc.
Opinion on Internal Control over Financial Reporting
We have audited CymaBay Therapeutics, Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (“the
COSO criteria”). In our
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opinion, CymaBay Therapeutics, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive
loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes and our report dated
March 16, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a
public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
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 the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Redwood City, California
March 16, 2020
Item 9B. Other Information
None.
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Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item is incorporated herein by reference to our proxy statement for our 2020 annual meeting of stockholders, or
the 2020 Proxy Statement, provided that if the 2020 Proxy Statement is not filed within 120 days after the end of the fiscal year covered by this Annual
Report on Form 10-K, the omitted information will be included in an amendment to this Annual Report on Form 10-K filed not later than the end of
such 120-day period.
Code of Business Conduct
Our Code of Business Conduct and Ethics applies to all officers, directors and employees, including our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our Code of Business Conduct and
Ethics can be found on our website, http://ir.cymabay.com/governance-docs. The contents of our website are not a part of this Annual Report on Form
10-K. 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.
A copy of our Code of Business Conduct and Ethics can be found on our website, http://ir.cymabay.com/governance-docs. The contents of our
website are not a part of this Annual Report on Form 10-K.
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.
Item 11. Executive Compensation
Reference is made to the information to be included under the heading “Executive Compensation” in our 2020 Proxy Statement, which
information is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be set forth in our 2020 Proxy Statement under the caption “Security Ownership of Certain Beneficial
Owners and Management” and is incorporated herein by reference.
Equity Compensation Plan Information
Information concerning our equity compensation plans will be set forth in our 2020 Proxy Statement under the caption “Securities Authorized for
Issuance under Equity Compensation Plans — Equity Compensation Plan Information” and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be set forth in our 2020 Proxy Statement under the captions “Transactions with Related Persons” and
“Information Regarding the Board of Directors and Corporate Governance — Independence of the Board of Directors” and is incorporated herein by
reference.
Item 14. Principal Accountant Fees and Services
The information required by this item will be set forth in our 2020 Proxy Statement under the caption “Principal Accountant Fees and Services”
in the proposal under the caption “Ratification of Selection of Independent Registered Public Accounting Firm” and is incorporated herein by
reference.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Documents filed as part of this report
1. Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018
Notes to Consolidated Financial Statements
Page
70
71
72
73
74
75
2. Financial Statement Schedules
Financial statement schedules have been omitted in this report because they are not applicable, not required under the instructions, or the
information requested is set forth in the financial statements or related notes thereto.
(b) List of Exhibits
The following exhibits are included herein or incorporated herein by reference:
Exhibit
No.
3.1
3.2
4.1
4.2
10.1*
10.2*
10.3*
10.4*
Amended and Restated Certificate of Incorporation. (Filed with the SEC as Exhibit 3.1 to our Amendment No. 2 to Registration
Statement on Form 10, filed with the SEC on October 17, 2013, SEC File No. 000-55021.)
Amended and Restated By-Laws. (Filed with the SEC as Exhibit 3.2 to our Amendment No. 2 to Registration Statement on Form
10, filed with the SEC on October 17, 2013, SEC File No. 000-55021.)
Description of Document
Reference is made to Exhibits 3.1 and 3.2.
Description of Common Stock
2003 Equity Incentive Plan. (Filed with the SEC as Exhibit 10.1 to our Registration Statement on Form 10, filed with the SEC on
August 12, 2013, SEC File No. 000-55021.)
Form of 2003 Equity Incentive Plan Stock Option Agreement. (Filed with the SEC as Exhibit 10.2 to our Registration Statement on
Form 10, filed with the SEC on August 12, 2013, SEC File No. 000-55021.)
Form of 2003 Equity Incentive Plan Early Exercise Stock Option Agreement. (Filed with the SEC as Exhibit 10.3 to our
Registration Statement on Form 10, filed with the SEC on August 12, 2013, SEC File No. 000-55021.)
Amended 2013 Equity Incentive Plan. (Filed with the SEC as Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC
on June 7, 2018, SEC File No. 001-36500.)
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Exhibit
No.
10.5*
10.6*
10.7
10.8#
10.9
10.10
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
21.1
23.1
Description of Document
Form of Option Grant Notice and Option Agreement under the 2013 Equity Incentive Plan. (Filed with the SEC as Exhibit 10.26 to
our Amendment No. 2 to Registration Statement on Form 10, filed with the SEC on October 17, 2013, SEC File No. 000-55021.)
Form of Incentive Award Grant Notice under the 2013 Equity Incentive Plan. (Filed with the SEC as Exhibit 10.22 to our Form 10-
K, filed with the SEC on March 31, 2014, SEC File No. 000-55021.)
Form of CymaBay Indemnity Agreement. (Filed with the SEC as Exhibit 10.7 to our Form 10-K, filed with the SEC on March 15,
2018, SEC File No 001-36500.)
PPAR-d License Agreement, dated June 20, 2006, by and between Metabolex, Inc. and Janssen Pharmaceutical NV. (Filed with the
SEC as Exhibit 10.1 to our Form 8-K, filed with the SEC on January 12, 2018, SEC File No. 001-36500.)
Lease, dated November 8, 2013, between CymaBay Therapeutics, Inc. and BMR-Pacific Research Center, L.P. (Filed with the SEC
as Exhibit 10.27 to our Form 10-Q, filed with the SEC on November 25, 2013, SEC File No. 000-55021.)
First Amendment to Lease, dated April 16, 2018, between CymaBay Therapeutics, Inc. and BMR-Pacific Research Center, LP.
(Filed with the SEC as Exhibit 10.1 to our Form 10-Q, filed with the SEC on May 8, 2018, SEC File No. 001-36500.)
Offer Letter, dated December 6, 2013, between CymaBay Therapeutics, Inc. and Sujal Shah. (Filed with the SEC as Exhibit 10.24 to
our Form 10-K, filed with the SEC on March 31, 2014, SEC File No. 000-55021.)
Offer Letter, dated November 21, 2013, between CymaBay Therapeutics, Inc. and Charles A. McWherter. (Filed with the SEC as
Exhibit 10.26 to our Form 10-K, filed with the SEC on March 31, 2014, SEC File No. 000-55021.)
Offer Letter, dated February 28, 2014, between CymaBay Therapeutics, Inc. and Pol Boudes. (Filed with the SEC as Exhibit 10.27
to our Form S-1, filed with the SEC on April 8, 2014, SEC File No. 333-195127.)
Offer Letter, dated August 2, 2017, between CymaBay Therapeutics, Inc. and Daniel Menold. (Filed with the SEC as Exhibit 10.4 to
our Form 10-Q, filed with the SEC on August 10, 2017, SEC File No. 001-36500.)
Offer Letter, dated September 4, 2018, between CymaBay Therapeutics, Inc. and Paul Quinlan. (Filed with the SEC as Exhibit 10.1
to our Form 10-Q, filed with the SEC on November 6, 2018, SEC File No. 001-36500.)
Offer Letter, dated September 4, 2018, between CymaBay Therapeutics, Inc. and Klara Dickinson. (Filed with the SEC as Exhibit
10.16 to our Form 10-K, filed with the SEC on February 28, 2019, SEC File No. 001-36500.)
Non-Employee Director Compensation Program. (Filed with the SEC as Exhibit 10.17 to our Form 10-K, filed with the SEC on
February 28, 2019, SEC File No. 001-36500.)
Offer letter, dated June 18, 2019, between CymaBay Therapeutics, Inc. and Janet Dorling. (Filed with the SEC as Exhibit 10.1 to our
Form 10-Q, filed with the SEC on August 7, 2019, SEC File No. 001-36500.)
List of subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
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Exhibit
No.
24.1
31.1
31.2
32.1
Description of Document
Power of Attorney. (incorporated by reference to the signature page of this Annual Report on Form 10-K).
Certification of President and Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13-a-14(a) or Rule 15(d)-14(a) of
the Exchange Act.
Certification of Vice President, Finance (Principal Financial Officer) pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
Certification of President and Chief Executive Officer (Principal Executive Officer) and Vice President, Finance (Principal Financial
Officer) pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Document
104
*
#
Cover Page Interactive Data File (formatted as inline XBRL and contained in exhibit 101)
Indicates management contract or compensatory plan.
Portions of this exhibit have been omitted pursuant to a grant of confidential treatment, which portions were omitted and filed separately with the
Securities and Exchange Commission.
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CymaBay Therapeutics, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018
Notes to Consolidated Financial Statements
69
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71
72
73
74
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of CymaBay Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CymaBay Therapeutics, Inc. (“the Company”) as of December 31, 2019 and
2018, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the
period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the
results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated March 16, 2020 expressed
an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the 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 consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits
included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1994.
Redwood City, California
March 16, 2020
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CymaBay Therapeutics, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts and par value)
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Accrued interest receivable
Prepaid research and development expenses
Other prepaid expenses
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued research and development expenses
Accrued restructuring
Other accrued liabilities
Total current liabilities
Long-term portion of operating lease liability
Other liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value: 10,000,000 shares authorized; no shares issued and outstanding
Common stock, $0.0001 par value: 100,000,000 shares authorized; 68,882,459 and 59,456,493 shares issued and
outstanding as of December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to the consolidated financial statements.
71
December 31,
2019
2018
$ 24,869 $
166,076
687
9,910
1,381
202,923
2,409
235
160
$ 205,727 $
48,995
129,669
304
1,670
924
181,562
2,905
—
2,280
186,747
$
2,503 $
9,218
3,193
2,722
17,636
1,743
—
19,379
1,973
8,588
—
3,854
14,415
—
1,914
16,329
—
—
7
812,133
80
(625,872)
186,348
$ 205,727 $
6
693,534
(58)
(523,064)
170,418
186,747
Table of Contents
CymaBay Therapeutics, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share information)
Operating expenses:
Research and development
General and administrative
Restructuring charges
Total operating expenses
Loss from operations
Other income (expense):
Interest income
Interest expense
Loss on extinguishment of debt
Other expense, net
Total other income (expense)
Net loss
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities
Other comprehensive income (loss)
Comprehensive loss
Basic net loss per common share
Diluted net loss per common share
Weighted average common shares outstanding used to calculate basic net loss per common share
Weighted average common shares outstanding used to calculate diluted net loss per common share
$
$
$
$
$
See accompanying notes to the consolidated financial statements.
72
Year Ended
December 31,
2019
2018
83,837 $
19,238
5,075
108,150
(108,150)
5,342
—
—
—
5,342
(102,808) $
58,124
14,381
—
72,505
(72,505 )
3,988
(336 )
(407 )
(3,288)
(43)
(72,548 )
138
138
(102,670) $
(1.53 ) $
(1.53 ) $
(14)
(14)
(72,562 )
(1.25 )
(1.26 )
57,808,254
57,838,299
67,033,046
67,033,046
Table of Contents
CymaBay Therapeutics, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share and per share information)
Common Stock
Shares
44,408,796
Amount
4
$
Additional
Paid-in
Capital
$ 535,503
Accumulated
Other
Comprehensive
Income (Loss)
(44)
$
Accumulated
Deficit
$ (450,516)
Total
Stockholders’
Equity
$
84,947
Balances as of December 31, 2017
Issuance of common stock upon exercise of
warrants
956,845
—
11,929
Issuance of common stock upon exercise of
stock options
Stock-based compensation expense
Issuance of common stock, net of $8,553
issuance costs
Net loss
Net unrealized loss on marketable securities
Balances as of December 31, 2018
Issuance of common stock upon exercise of
stock options
Stock-based compensation expense
Issuance of common stock, net of $7,254
issuance costs
Net loss
Net unrealized gain on marketable securities
Balances as of December 31, 2019
750,852
—
—
—
3,571
7,013
13,340,000
—
—
59,456,493
2
—
—
6
$
135,518
—
—
$ 693,534
225,966
—
—
—
386
10,468
9,200,000
—
—
68,882,459
1
—
—
7
$
107,745
—
—
$ 812,133
$
$
—
—
—
—
—
(14)
(58)
—
—
—
—
138
80
—
—
—
—
(72,548 )
—
$ (523,064)
—
—
—
(102,808)
—
$ (625,872)
11,929
3,571
7,013
135,520
(72,548 )
(14)
170,418
386
10,468
107,746
(102,808)
138
186,348
$
$
See accompanying notes to the consolidated financial statements.
73
Table of Contents
CymaBay Therapeutics, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Stock-based compensation expense
Accelerated vesting of stock-based compensation expense due to restructuring
Net accretion and amortization of investments in marketable securities
Non-cash interest associated with debt discount accretion
Loss on extinguishment of debt
Change in fair value of warrant liability
Gain on extinguishment of warrant liability
Accretion of tenant improvement allowance
Changes in assets and liabilities:
Receivable from collaboration
Interest receivable and other current assets
Prepaid research and development and other prepaid expenses
Other assets
Accounts payable
Accrued restructuring
Accrued liabilities
Accrued interest payable
Net cash used in operating activities
Investing activities
Purchases of property and equipment
Purchases of marketable securities
Proceeds from maturities of marketable securities
Proceeds from sale of marketable securities
Net cash used in investing activities
Financing activities
Proceeds from issuance of common stock, net of issuance costs
Proceeds from issuance of common stock pursuant to equity award plans
Proceeds from issuance of common stock upon exercise of warrants
Repayment of facility loan principal
Payment of fees to extinguish facility loan
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures
Cash paid for amounts included in the measurement of lease liabilities
Cash paid for interest
Supplemental non-cash investing and financing activities
Issuance of common stock upon warrant exercises
Operating lease right-of-use assets obtained in exchange for lease liabilities
Lessor funded lease incentives included in property and equipment
Accrued property and equipment
See accompanying notes to the consolidated financial statements.
74
Year Ended December 31,
2019
2018
$ (102,808) $ (72,548 )
572
9,558
910
(2,237)
—
—
—
—
—
—
(383 )
(8,697)
2,120
530
3,193
(669 )
—
(97,911 )
105
7,013
—
(1,945)
148
407
3,710
(422 )
(263 )
5,000
(178 )
(1,386)
(1,646)
662
—
6,450
(43)
(54,936 )
(315 )
(290,893)
252,881
3,980
(34,347 )
(529 )
(276,382)
222,800
—
(54,111 )
107,746
386
—
—
—
108,132
(24,126 )
48,995
24,869
$
135,520
3,571
2,550
(6,527)
(126 )
134,988
25,941
23,054
48,995
$
$
$
$
628
—
—
231
$
—
152
—
—
9,379
—
2,256
156
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
CymaBay Therapeutics, Inc. (the Company or CymaBay) is a clinical-stage biopharmaceutical company focused on developing and providing
access to innovative therapies for patients with liver and other chronic diseases with high unmet medical need. The Company’s key clinical development
candidate is seladelpar (MBX-8025). Seladelpar is currently being developed for the treatment of the liver diseases primary biliary cholangitis (PBC),
primary sclerosing cholangitis (PSC) and nonalcoholic steatohepatitis (NASH). The Company was incorporated in Delaware in October 1988 as Transtech
Corporation. The Company’s headquarters and operations are located in Newark, California and it operates in one segment.
Liquidity
The Company has incurred net operating losses and negative cash flows from operations since its inception. During the year ended December 31,
2019, the Company incurred a net loss of $102.8 million and used $97.9 million of cash in operations. At December 31, 2019, the Company had an
accumulated deficit of $625.9 million.
Historically, the Company has incurred substantial research and development expenses in the course of studying its product candidates in clinical
trials. To date, none of the Company’s product candidates have been approved for marketing and sale, and the Company has not recorded any revenue
from product sales. Generally, the Company’s ability to achieve profitability is dependent on its ability to successfully develop, acquire or in-license
additional product candidates, conduct clinical trials for those product candidates, obtain regulatory approvals, and support commercialization activities
for those product candidates. Any products developed will require approval of the U.S. Food and Drug Administration (FDA) or a foreign regulatory
authority prior to commercial sale. The regulatory approval process is expensive, time-consuming, and uncertain, and any denial or delay of approval
could have a material adverse effect on the Company. Even if approved, the Company’s products may not achieve market acceptance and will face
competition from both generic and branded pharmaceutical products.
More recently, in the fourth quarter of 2019, the Company terminated its ongoing clinical trials in PBC, PSC, and NASH and placed the further
development of seladelpar on clinical hold pending further investigation and review of certain histological observations seen in NASH patients and
pending additional discussions with the FDA. In parallel with this review, the Company also commenced a process to evaluate all potential ways to
maximize stockholder value including possible mergers and business combinations, a sale of part or all of the Company’s assets, collaboration and
licensing agreements, dissolution and liquidation of the Company’s assets, and/or continuing development of internal programs.
As of December 31, 2019, the Company had cash, cash equivalents and marketable securities totaling $190.9 million. While the Company completes
its clinical review and FDA discussions and evaluates additional ways to maximize shareholder value, cash is considered sufficient to fund the Company’s
currently scaled-back operating plan into 2021. Once the Company’s future business strategy is confirmed, its future liquidity and capital resource needs
could be impacted by numerous factors, including but not limited to, funding requirements associated with a merger, collaboration, or licensing
arrangement and/or the incurrence of costs associated with the continued development of internal programs as well as costs to wind down current
seladelpar clinical trials. The Company has historically obtained and, if needed, expects to obtain additional financing to fund its business strategy through
future equity offerings; debt financing; one or more possible licenses, collaborations or other similar arrangements with respect to development and/or
commercialization rights of the Company’s product candidates; or a combination of the above. It is unclear if or when any such transactions will occur, on
satisfactory terms or at all. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and its
ability to pursue its business strategies. If adequate funds are not available to the Company, it could have a material adverse effect on the Company’s
business, results of operations, and financial condition.
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Table of Contents
2. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements are comprised of the accounts of CymaBay and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries or investments accounted
for under the equity method.
These consolidated statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(U.S. GAAP), which requires management to make informed estimates and assumptions that impact the amounts and disclosures reported in the
consolidated financial statements and accompanying notes. Certain reclassifications have been made to the prior period amounts to conform to the current
year presentation. “Prepaid research and development expenses” and “Other prepaid expenses”, which previously were reported as “Prepaid expenses” on
the consolidated balance sheet, are now reported as separate line items.
Accounting estimates and assumptions are inherently uncertain. Management bases its estimates on historical experience and on assumptions
believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate
future outcomes, and management must select an amount that falls within that range of reasonable estimates. Actual results could differ materially from
those estimates and assumptions. The Company believes a higher level of judgment is involved in determining and in estimating the valuation of stock-
based compensation, accrued clinical expenses, restructuring liabilities, and equity instrument valuations. These estimates form the basis for making
judgments about the carrying values of assets and liabilities when these values are not readily apparent from other sources. Estimates are assessed each
reporting period and updated to reflect current information and any changes in estimates will generally be reflected in the period first identified.
Fair Value of Financial Instruments
The Company’s financial instruments during the periods reported consist of cash and cash equivalents, marketable securities, accounts receivable,
prepaid expenses, other current assets, accounts payable, and accrued expenses. Fair value estimates of these instruments are made at a specific point in
time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment. The
carrying amounts of financial instruments such as cash and cash equivalents, accounts receivable, prepaid expenses, other current assets, accounts payable,
accrued expenses, and accrued interest payable approximate the related fair values due to the short maturities of these instruments.
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 at the measurement date. Assets and liabilities that are
measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes
the use of observable inputs and maximizes the use of unobservable inputs and is as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.
Level 3—Inputs that are significant to the fair value measurement and are unobservable (i.e. supported by little market activity), which requires the
reporting entity to develop its own valuation techniques and assumptions.
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The following tables present the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis using the
above input categories (in thousands):
Cash equivalents:
Money market funds
Total cash equivalents
Short-term investments:
U.S. and foreign commercial paper
U.S. and foreign corporate debt securities
Asset-backed securities
U.S. treasury securities
Total short-term investments
Total assets measured at fair value
Cash equivalents:
Money market funds
U.S. and foreign commercial paper
Total cash equivalents
Short-term investments:
U.S. and foreign commercial paper
U.S. and foreign corporate debt securities
Asset-backed securities
U.S. treasury securities
Total short-term investments
Total assets measured at fair value
Level 1
$18,597
18,597
—
—
—
—
—
$18,597
Level 1
$39,481
—
39,481
—
—
—
—
—
$39,481
As of December 31, 2019
Level 2
Level 3
$ —
—
51,102
56,729
39,788
18,457
166,076
$166,076
$ —
—
—
—
—
—
—
$ —
As of December 31, 2018
Level 2
Level 3
$ —
6,469
6,469
51,627
34,634
25,472
17,936
129,669
$136,138
$ —
—
—
—
—
—
—
—
$ —
Total
$ 18,597
18,597
51,102
56,729
39,788
18,457
166,076
$184,673
Total
$ 39,481
6,469
45,950
51,627
34,634
25,472
17,936
129,669
$175,619
The Company estimates the fair value of its money market funds, corporate debt, asset backed securities, commercial paper and U.S. treasury
securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation
models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair
value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities;
prepayment/default projections based on historical data; and other observable inputs.
There were no transfers between fair value measurement levels for any periods presented.
Historically, the Company held a Level 3 liability associated with common stock warrants that were issued in connection with the Company’s
financings completed in September and October 2013, January 2014, and August 2015. The warrants were accounted for as liabilities until either they
were exercised or expired in September 2018.
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The following tables set forth a summary of the changes in the fair value of the Company’s liabilities measured using Level 3 inputs (in thousands):
Balance, beginning of period
Change in fair value
Settlement of financial instruments
Extinguishment of financial instruments
Balance, end of period
Year Ended
December 31,
2019
$—
—
—
—
$—
2018
$ 6,091
3,710
(9,379)
(422 )
$ —
See Note 3 for further discussion regarding the carrying value of the Company’s financial instruments.
Cash, Cash Equivalents, and Marketable Securities
The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash
and cash equivalents consist of deposits with commercial banks in checking, interest-bearing, demand money market accounts and commercial paper.
The Company invests excess cash in marketable securities with high credit ratings that are classified in Level 1 and Level 2 of the fair value
hierarchy. These securities consist primarily of corporate debt, commercial paper, asset-backed securities, and U.S. treasury securities and are classified as
“available-for-sale.” The Company considers marketable securities as short-term investments if the maturity date is less than or equal to one year from the
balance sheet date. The Company considers marketable securities as long-term investments if the maturity date is in excess of one year of the balance sheet
date.
Realized gains and losses from the sale of marketable securities, if any, are calculated using the specific-identification method. Realized gains and
losses and declines in value judged to be other-than- temporary are included in interest income or expense in the consolidated statements of operations and
comprehensive loss. Unrealized holding gains and losses are reported in accumulated other comprehensive loss in the consolidated balance sheets. To date,
the Company has not recorded any impairment charges on its marketable securities related to other-than-temporary declines in market value. In
determining whether a decline in market value is other-than-temporary, various factors are considered, including the cause, duration of time and severity of
the impairment, any adverse changes in the investees’ financial condition, and the Company’s intent and ability to hold the security for a period of time
sufficient to allow for an anticipated recovery in market value.
Concentration of Credit Risk
Cash, cash equivalents, and marketable securities consist of financial instruments that potentially subject the Company to a concentration of credit
risk to the extent of the fair value recorded on the balance sheet. The Company invests cash that is not required for immediate operating needs primarily in
highly liquid instruments that bear minimal risk. The Company has established guidelines relating to the quality, diversification, and maturities of
securities to enable the Company to manage its credit risk. The Company is exposed to credit risk in the event of a default by the financial institutions
holding its cash, cash equivalents and investments and issuers of investments to the extent recorded on the consolidated balance sheets.
Certain materials and key components that the Company utilizes in its operations are obtained through single suppliers. Since the suppliers of key
components and materials must be named in an NDA filed with the FDA for a product, significant delays can occur if the qualification of a new supplier is
required. If delivery of material from the Company’s suppliers were interrupted for any reason, the Company may be unable to supply any of its product
candidates for clinical trials.
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Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are calculated using
the straight-line method, and the costs are amortized over the estimated useful lives of the respective assets, generally three to seven years. Leasehold
improvements are amortized over the shorter of the useful lives or the non-cancelable term of the related lease. Maintenance and repair costs are charged
as expense in the consolidated statements of operations and comprehensive loss as incurred.
Long-Lived Assets
The Company reviews the carrying value long-lived assets, including right-of-use operating lease assets, for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. If a change in circumstance occurs, the
Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If
cash flows cannot be separately and independently identified for a single asset, the Company will determine whether impairment has occurred for the
group of assets for which the Company can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash
flows, the Company measures any impairment by comparing the fair value of the asset or asset group to its carrying value. There were no indicators of
impairment of long-lived assets for any periods presented.
Leases
The Company has one lease, a non-cancelable operating lease agreement for its corporate offices. Prior to January 1, 2019, the Company
recognized related rent expense on a straight-line basis over the term of the lease. Incentives granted under the Company’s facilities lease, including
allowances for leasehold improvements and rent holidays, were recognized as reductions to rental expense on a straight-line basis over the term of the
lease. Deferred rent consisted of the difference between cash payments and the rent expense recognized.
Subsequent to the adoption of the new leasing standard on January 1, 2019, the Company recognizes a lease asset for its right to use the underlying
asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement is or contains a lease at contract
inception. Operating leases are included in operating lease right-of-use assets, other accrued liabilities, and long-term portion of operating lease liabilities
in our consolidated balance sheet at December 31, 2019. Operating lease right-of-use assets and liabilities are recognized at the lease commencement
date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its
incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate represents the interest
rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease.
The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods where it is
reasonably assured the Company will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if
the lessor controls the exercise of that option.
The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Lease expense is recognized on a
straight-line basis over the expected lease term. The Company has elected to not separate lease and non-lease components for its leased assets and
accounts for all lease and non-lease components of its agreements as a single lease component.
Research and Development Expenses
Research and development expenses consist of costs incurred in identifying, developing, and testing product candidates. These expenses consist
primarily of costs for research and development personnel, including related stock-based compensation; contract research organizations (CRO) and other
third parties that assist in managing,
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monitoring, and analyzing clinical trials; investigator and site fees; laboratory services; consultants; contract manufacturing services; non-clinical studies,
including materials; and allocated expenses, such as depreciation of assets, and facilities and information technology that support research and
development activities. Research and development costs are expensed as incurred, including expenses that may or may not be reimbursed under research
and development funding arrangements. Payments made prior to the receipt of goods or services to be used in research and development are recorded as
prepaid assets until the goods are received or services are rendered. Such payments are evaluated for current or long-term classification based on when
they will be realized. Additionally, if expectations change such that the Company does not expect goods to be delivered or services to be rendered, such
prepayments are charged to expense.
The Company records expenses related to clinical studies and manufacturing development activities based on its estimates of the services received
and efforts expended pursuant to contracts with multiple CROs and manufacturing vendors that conduct and manage these activities on its 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 the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense.
Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In
amortizing or accruing service fees, the Company estimates the time period over which services will be performed, enrollment of subjects, number of sites
activated 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
Company’s estimate, the Company will adjust the accrued or prepaid expense balance accordingly. To date, there have been no material differences from
the Company’s estimates to the amounts actually incurred.
Restructuring Charges
The Company recognizes restructuring charges related to reorganization plans that have been committed to by management and when liabilities
have been incurred. In connection with these activities, the Company records restructuring charges at fair value for, a) contractual employee termination
benefits when obligations are associated to services already rendered, rights to such benefits have vested, and payment of benefits is probable and can be
reasonably estimated, b) one-time employee termination benefits when management has committed to a plan of termination, the plan identifies the
employees and their expected termination dates, the details of termination benefits are complete, it is unlikely changes to the plan will be made or the plan
will be withdrawn and communication to such employees has occurred, and c) contract termination costs when a contract is terminated before the end of
its term.
One-time employee termination benefits are recognized in their entirety when communication has occurred and future services are not required. If
future services are required, the costs are recorded ratably over the remaining period of service. Contract termination costs to be incurred over the
remaining contract term without economic benefit are recorded in their entirety when the contract is canceled.
The recognition of restructuring charges requires the Company to make certain judgments and estimates regarding the nature, timing and amount of
costs associated with the planned reorganization plan. To the extent the Company’s actual results differ from its estimates and assumptions, the Company
may be required to revise the estimates of future accrued restructuring liabilities, requiring the recognition of additional restructuring charges or the
reduction of accrued restructuring liabilities already recognized. Such changes to previously estimated amounts may be material to the consolidated
financial statements. Changes in the estimates of the restructuring charges are recorded in the period the change is determined.
At the end of each reporting period, the Company evaluates the remaining accrued restructuring balances to ensure that no excess accruals are
retained, and the utilization of the provisions are for their intended purpose in accordance with developed restructuring plans.
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Stock-Based Compensation
Employee and director stock-based compensation is measured at fair value on the grant date of the award. Compensation cost is recognized as
expense on a straight-line basis over the vesting period for options and on an accelerated basis for stock options with performance conditions, net of
estimated forfeitures. For stock options with performance conditions, the Company evaluates the probability of achieving performance conditions at each
reporting date. The Company begins to recognize the expense when it is deemed probable that the performance conditions will be met. The Company uses
the Black-Scholes option-pricing model to determine the fair value of stock option awards. The determination of fair value for stock-based awards using an
option-pricing model requires management to make certain assumptions regarding subjective input variables such as expected term, dividends, volatility
and risk-free rate. The Company is also required to make estimates as to the probability of achieving the specific performance criteria. If actual results are
not consistent with the Company’s assumptions and judgments used in making these estimates, the Company may be required to increase or decrease
compensation expense, which could be material to the Company’s results of operations.
Equity awards granted to non-employees are valued using the Black-Scholes option-pricing model. Stock-based compensation expense for
nonemployee services has historically been subject to remeasurement at each reporting date as the underlying equity instruments vest and was recognized
as an expense over the period during which services are received. Upon the adoption of Accounting Standards Update (“ASU”) 2018-07, Compensation –
Stock Compensation on January 1, 2019, the valuation was fixed at the implementation date and will be recognized as an expense on a straight-line basis
over the remaining service period.
Common Stock Warrant Liabilities
Historically, the Company’s outstanding common stock warrants issued in connection with certain equity and debt financings that occurred in 2013
through 2015 were classified as liabilities in the accompanying consolidated balance sheets because of certain contractual terms that preclude equity
classification. All outstanding warrants related to these financings had been exercised or had expired by September 30, 2018. Upon expiration, the
remaining fair value of the liability was extinguished and credited to other (expense) income, net in the Company’s consolidated statement of operations.
Prior to expiration, the Company estimated the fair value of common stock warrants at each reporting period until the exercise of the warrants, at which
time the liability was revalued and reclassified to stockholders’ equity. The determination of fair value of these common stock warrants required
management to make certain assumptions regarding subjective input variables such as timing, probability and valuation impact of certain potential
strategic events, expected term, dividends, expected volatility and risk-free interest rates.
Income Taxes
The Company utilizes the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and the tax bases of assets and liabilities and are measured using enacted tax rates and laws that will
be in effect when the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in
the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that all or part of a deferred tax asset will not
be realized. When the Company establishes or reduces the valuation allowance related to the deferred tax assets, the provision for income taxes will
increase or decrease, respectively, in the period such determination is made.
The accounting guidance for uncertainty in income taxes prescribes a recognition threshold and measurement attribute criteria for the financial
recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more
likely than not to be sustained upon examination based on the technical merits of the position.
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The Company is required to file federal and state income tax returns in the United States. The preparation of these income tax returns requires the
Company to interpret the applicable tax laws and regulations in effect that could affect the amount of tax paid to these jurisdictions.
The Company records interest related to income tax reserves, if any, as interest expense, and any penalties would be recorded as other expense in the
consolidated statements of operations and comprehensive loss. There was no interest or penalties related to income tax reserves during the years ended
December 31, 2019 or 2018.
Comprehensive Loss
Comprehensive loss includes net loss and net unrealized gains and losses on marketable securities, which are presented in a single continuous
statement. Other comprehensive (loss) gain is also disclosed in the consolidated balance sheets and statements of stockholders’ equity in accumulated
other comprehensive income (loss), and is stated net of related tax effects, if any.
Net Loss Per Common Share
Basic net loss per share of common stock is based on the weighted average number of shares of common stock outstanding equivalents during the
period. Diluted net loss per share of common stock is calculated as the weighted average number of shares of common stock outstanding adjusted to
include the assumed exercises of stock options and common stock warrants, if dilutive.
The calculation of diluted loss per share also requires that, to the extent the average market price of the underlying shares for the reporting period
exceeds the exercise price of the common stock warrants and the presumed exercise of such securities are dilutive to earnings (loss) per share for the
period, adjustments to net income or net loss used in the calculation are required to remove the change in fair value of the common stock warrant liability
for the period. Likewise, adjustments to the denominator are required to reflect the related dilutive shares.
In all periods presented, the Company’s outstanding stock options were excluded from the calculation of net loss per share because the effect would
be antidilutive.
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share amounts):
Year Ended December 31,
2018
2019
Numerator:
Net loss allocated to common stock—basic
Adjustment for revaluation and extinguishment of common stock warrants
Net loss allocated to common stock—diluted
$
$
(102,808)
—
(102,808)
$
$
(72,548)
(422)
(72,970)
Denominator:
Weighted average number of common stock shares outstanding—basic
Dilutive securities:
Common stock warrants
Weighted average number of common stock shares outstanding—diluted
Net loss per share—basic
Net loss per share—diluted
67,033,046
57,808,254
—
67,033,046
(1.53)
$
(1.53)
$
30,045
57,838,299
(1.25)
$
(1.26)
$
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The following table shows the total outstanding securities considered anti-dilutive and therefore excluded from the computation of diluted net loss
per share (in thousands):
Common stock options
Incentive awards
Total
Recently Adopted Accounting Pronouncements
ASU 2016-02 and 2018-11
Year Ended
December 31,
2019
6,727
101
6,828
2018
5,593
130
5,723
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires the recognition of lease liabilities and
right-of-use (ROU) assets on the balance sheet arising from lease transactions at the lease commencement date and the disclosure of key information about
leasing arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an additional transition
method in which the new lease standard is applied at the adoption date and recognized as a cumulative-effect adjustment to retained earnings without
adjustment to comparative periods. The amendment has the same effective date and transition requirements as the new lease standard.
The Company adopted this standard on January 1, 2019 using the modified retrospective approach and elected the package of practical expedients
permitted under transition guidance, which allowed the Company to carry forward its historical assessments of: 1) whether contracts are or contain leases,
2) lease classification and 3) initial direct costs. The Company did not elect the practical expedient allowing the use-of-hindsight which would require the
Company to reassess the lease term of its leases based on all facts and circumstances through the effective date and did not elect the practical expedient
pertaining to land easements as this is not applicable to the current contract portfolio. The Company elected the post-transition practical expedient to not
separate lease components from nonlease components for all existing lease classes. The Company also elected a policy of not recording leases on its
condensed consolidated balance sheets when the leases have a term of 12 months or less and the Company is not reasonably certain to elect an option to
purchase the leased asset.
The adoption of this standard resulted in the recognition of a ROU asset and lease liabilities of $0.2 million and $2.5 million, respectively, and the
derecognition of the deferred rent balance of $2.3 million as of January 1, 2019. The adoption of the standard had no impact on the Company’s condensed
consolidated statements of operations and comprehensive loss or to its cash flows from or used in operating, financing, or investing activities on its
condensed consolidated statements of cash flows. No cumulative-effect adjustment within accumulated deficit was required to be recorded as a result of
adopting this standard.
ASU 2018-08
On January 1, 2019 the Company adopted ASU No. 2018-08, Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting
Guidance for Contributions Received and Contributions Made (ASU No. 2018-08), which is intended to clarify and improve the scope and the accounting
guidance for contributions received and contributions made. The amendments in ASU No. 2018-08 assist entities in (1) evaluating whether transactions
should be accounted for as contributions (nonreciprocal transaction) within the scope of Topic 958, Not-for-Profit Entities, or as exchange (reciprocal)
transactions subject to other guidance and (2) determining whether a contribution is conditional. This amendment applies to all entities that make or
receive grants or contributions. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial
statements.
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ASU 2018-07
On January 1, 2019, the Company adopted ASU 2018-07, Compensation – Stock Compensation (Topic 718). This update simplifies the accounting
for share-based payments to non-employees by aligning it with the accounting guidance for share-based payments for employees. The ASU expands the
scope of Topic 718, Compensation – Stock Compensation, which currently only includes share-based payments issued to employees, to also include
share-based payments issued to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and
employees is substantially aligned. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial
statements.
Recently Issued Accounting Pronouncements
ASU 2018-18
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and
Topic 606. The guidance clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic
606 when the collaborative arrangement participant is a customer. The amendment will be effective for the Company on January 1, 2020. The Company
does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
ASU 2018-15
In August 2018, the FASB issued ASU No. 2018-15, Intangibles (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement
that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new standard
also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting
arrangement. The amendment will be effective for the Company on January 1, 2020. The Company does not expect the adoption of this standard to have a
material impact on its consolidated financial statements.
ASU 2018-13
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement which modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain
disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new
disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring
Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs
used to develop Level 3 fair value measurements. The amendment will be effective for the Company on January 1, 2020. The Company does not expect
the adoption of this standard to have a material impact on its consolidated financial statements.
ASU 2016-13
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, an amendment which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The
amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss”
model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment
also requires that credit losses related to available-for-sale debt
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securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment
model. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and
Leases (Topic 842), which deferred the adoption deadline for smaller reporting companies to fiscal years beginning after December 15, 2022, including
interim periods within those fiscal years. Early adoption is permitted and entities are required to use a modified retrospective approach, with certain
exceptions. The Company intends to adopt the standard on January 1, 2023 and will assess potential effects of the guidance prior to the adoption date.
3. Marketable Securities
Marketable available-for-sale securities as of December 31, 2019 and 2018 consist of the following (in thousands):
As of December 31, 2019:
Cash equivalents:
Money market funds
U.S. and foreign commercial paper
Total cash equivalents
Short-term investments:
U.S. and foreign commercial paper
U.S. and foreign corporate debt securities
Asset-backed securities
U.S. treasury securities
Total short-term investments
Total marketable securities
As of December 31, 2018:
Cash equivalents:
Money market funds
U.S. and foreign commercial paper
Total cash equivalents
Short-term investments:
U.S. and foreign commercial paper
U.S. and foreign corporate debt securities
Asset-backed securities
U.S. treasury securities
Total short-term investments
Total marketable securities
Amortized
Cost
$ 18,597
—
18,597
51,102
56,691
39,756
18,447
165,996
$184,593
Amortized
Cost
$ 39,481
6,469
45,950
51,627
34,668
25,494
17,938
129,727
$179,677
Gross
Unrealized
Gains
$ —
—
—
—
38
33
9
80
80
$
Gross
Unrealized
Gains
$ —
—
—
—
—
—
—
—
$ —
Gross
Unrealized
Losses
$ —
—
—
—
—
—
—
—
$ —
Gross
Unrealized
Losses
$ —
—
—
—
(34)
(22)
(2 )
(58)
(58)
$
Estimated
Fair Value
$ 18,597
—
18,597
51,102
56,729
39,789
18,456
166,076
$184,673
Estimated
Fair Value
$ 39,481
6,469
45,950
51,627
34,634
25,472
17,936
129,669
$175,619
The Company’s commercial paper and corporate debt securities consist of U.S. and foreign securities, from issuers in various sectors including
finance and industry. The Company’s asset-backed securities are collateralized by credit card receivables and have investment-grade ratings.
As of December 31, 2019 and 2018, the remaining contractual maturities of the Company’s commercial paper, corporate debt securities, asset-
backed securities, and U.S. treasury securities were less than 1 year. There
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were no realized gains and losses for the years ended December 31, 2019 and 2018. None of these investments have been in a continuous unrealized loss
position for more than 12 months as of December 31, 2019 and 2018.
See Note 2 for further information regarding the fair value of the Company’s financial instruments.
4. Certain Balance Sheet Items
Property and equipment consist of the following (in thousands):
Leasehold improvements
Office and computer equipment
Purchased software
Furniture and fixtures
Total
Less accumulated depreciation and amortization
Property and equipment, net
December 31,
2019
$2,430
290
44
430
3,194
(785 )
$2,409
2018
$2,417
214
44
360
3,035
(130 )
$2,905
Depreciation expense for the years ended December 31, 2019 and 2018 was approximately $0.8 million and $0.1 million, respectively, and was
recorded in both research and development expense and general and administrative expense in the consolidated statements of operations and
comprehensive loss.
Other accrued liabilities consist of the following (in thousands):
Accrued compensation
Operating lease liability
Accrued professional fees and other
Deferred rent
Other accrued liabilities
5. Collaboration and License Agreements
Kowa Pharmaceuticals America, Inc.
December 31,
2019
$2,013
407
302
—
$2,722
2018
$2,759
—
670
425
$3,854
On December 30, 2016, the Company entered into a license agreement with Kowa. Pursuant to the license agreement, the Company granted to Kowa
an exclusive license, and right to sublicense, certain patent rights and technology related to arhalofenate. Under the license agreement, Kowa agreed to pay
the Company a non-refundable upfront payment of $5.0 million upon contract execution. Kowa also agreed to pay the Company $5.0 million upon
initiation of a study evaluating the pharmacokinetics of arhalofenate in subjects with renal impairment, which occurred during the quarter ended
December 31, 2017 and payment was received in January 2018. Additional payments of up to $195.0 million could have been earned based upon the
achievement of other specific development and sales milestones.
On October 24, 2018, the Company received a notice of Kowa’s intent to terminate the license agreement for the development of arhalofenate. The
termination was effective on January 22, 2019. As a result of the termination, the rights licensed to Kowa through the agreement revert to the Company on
the termination date and the Company is no longer eligible to receive additional milestone payments or royalties from Kowa. As of the time of the receipt
of Kowa’s notice to terminate, all remaining variable consideration under the license agreement had been fully constrained and all performance obligations
had been satisfied.
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Janssen Pharmaceutical NV and Janssen Pharmaceuticals, Inc.
In June 2006, the Company entered into an exclusive worldwide, royalty-bearing license to seladelpar and certain other PPARd compounds (the
PPARd Products) with Janssen Pharmaceutical NV (Janssen NV), with the right to grant sublicenses to third parties to make, use and sell such PPARd
Products. Under the terms of the agreement, the Company has full control and responsibility over the research, development and registration of any
PPARd Products and is required to use diligent efforts to conduct all such activities. Janssen NV has the sole responsibility for the preparation, filing,
prosecution, maintenance of, and defense of the patents with respect to, the PPARd Products. Janssen NV has a right of first negotiation under the
agreement to license PPARd Products from the Company in the event that the Company elects to seek a third party corporate partner for the research,
development, promotion, and/or commercialization of such PPARd Products. Under the terms of the agreement Janssen NV is entitled to receive up to an
8% royalty on net sales of PPARd Products. No amounts were incurred or accrued for this agreement as of and for the years ended December 31, 2019 and
2018.
In June 2010, the Company entered into two development and license agreements with Janssen Pharmaceuticals, Inc. (Janssen), a subsidiary of
Johnson and Johnson, to further develop and discover undisclosed metabolic disease target agonists for the treatment of Type 2 diabetes and other
disorders and received a one-time nonrefundable technology access fee related to the agreements. The Company received a termination notice from
Janssen, effectively ending these development and licensing agreements in early April 2015. In December 2015, the Company exercised an option
pursuant to the terms of one of the original agreements to continue work to research, develop and commercialize compounds with activity against an
undisclosed metabolic disease target. Janssen granted the Company an exclusive, worldwide license (with rights to sublicense) under the Janssen
know-how and patents to research, develop, make, have made, use, offer for sale and sell such compounds. The Company has full control and
responsibility over the research, development and registration of any products developed and/or discovered from the metabolic disease target and is
required to use diligent efforts to conduct all such activities.
DiaTex, Inc.
In June 1998, the Company entered into a license agreement with DiaTex, Inc. (DiaTex) relating to products containing halofenate, its enantiomers,
derivatives, and analogs (the licensed products). The license agreement provides that DiaTex and the Company are joint owners of all of the patents and
patent applications covering the licensed products and methods of producing or using such compounds, as well as certain other know-how (the covered IP).
As part of the license agreement, the Company received an exclusive worldwide license, including as to DiaTex, to use the covered IP to develop and
commercialize the licensed products. The Company also retained the right to sub-license the covered IP. The license agreement contains a $2,000 per
month license fee as well as a requirement to make additional payments for development achievements and royalty payments on any sales of licensed
products. DiaTex is entitled to up to $0.8 million for the future development of arhalofenate, as well as royalty payments on commercial sales of products
containing arhalofenate. In December 2016, the agreement was amended by the parties to change the timing of a specified development milestone. No
development payments were made or due as of and for the years ended December 31, 2019 and 2018 and no royalties have been paid to date.
6. Term Loan
On August 7, 2015, the Company entered into a Loan and Security Agreement (the 2015 Term Loan Facility) pursuant to which it refinanced its
existing term loan facility for an aggregate amount of up to $15.0 million. On June 4, 2018, the Company repaid in full the outstanding balance of the 2015
Term Loan Facility of $4.2 million plus a final fee of $0.7 million and a prepayment penalty of $0.1 million. In conjunction with this prepayment, the
Company recorded a $0.4 million loss on early of extinguishment of this debt.
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7. Commitments and Contingencies
Indemnification
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and
provide for general indemnification, including indemnification associated with product liability or infringement of intellectual property rights. The
Company’s exposure under these agreements is unknown because it involves future claims that may be made against the Company that may be, but have
not yet been, made. To date, the Company has not paid any claims or been required to defend any action related to these indemnification obligations,
and no amounts have been accrued in the accompanying consolidated balance sheets related to these indemnification obligations.
The Company has agreed to indemnify its officers and directors for losses and costs incurred in connection with certain events or occurrences,
including advancing money to cover certain costs, subject to certain limitations. The maximum potential amount of future payments the Company could be
required to make under this indemnification is unlimited; however, the Company maintains insurance policies that may limit its exposure and may enable
it to recover a portion of any future amounts paid. Assuming the applicability of coverage, the willingness of the insurer to assume coverage, and subject to
certain retention, loss limits, and other policy provisions, the Company believes the fair value of these indemnification obligations is not material.
Accordingly, the Company has not recognized any liabilities relating to these obligations as of December 31, 2019 and 2018. No assurances can be given
that the covering insurers will not attempt to dispute the validity, applicability, or amount of coverage without expensive litigation against these insurers, in
which case the Company may incur substantial liabilities as a result of these indemnification obligations.
8. Leases
The Company has one operating lease pertaining to 17,698 square feet of corporate office space in Newark, California pursuant to a lease agreement
that commenced January 16, 2014 and was amended on April 16, 2018. At December 31, 2019 the Company’s lease portfolio had a weighted average
remaining term of 4.1 years, with an option to extend for an additional 5 years. The lease requires monthly lease payments that are subject to annual
increases throughout the lease term. The optional period has not been considered in the determination of the right-of-use assets or lease liabilities
associated with this lease as the Company did not consider it reasonably certain it would exercise the option.
The Company cannot determine the implicit rate in its lease, and therefore the Company uses its incremental borrowing rate as the discount rate
when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease
commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency
environment. The Company used an incremental borrowing rate as of the date of adoption for leases that commenced prior to January 1, 2019. The
weighted average discount rate for the Company’s lease portfolio at December 31, 2019 was 12.6%.
For the years ended December 31, 2019 and 2018, the Company incurred $0.5 million and $0.4 million, respectively, of lease costs included in
operating expenses in the condensed consolidated statements of income and comprehensive income in relation to its operating lease, a portion of which
was variable rent expense and not included within the measurement of the Company’s operating ROU assets and lease liabilities. The variable rent expense
consists primarily of the Company’s proportionate share of operating expenses, property taxes, and insurance and is classified as lease expense due to the
Company’s election to not separate lease and non-lease components. Short-term lease costs were not material. At December 31, 2019, the Company’s
operating lease right-of-use asset totaled $0.2 million, and the operating lease liability totaled $2.1 million. The short-term portion of the operating lease
liability was $0.4 million and is contained within other accrued liabilities on the balance sheet, with the remaining $1.7 million liability reported on the
balance sheet as long-term portion of operating lease liability.
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As of December 31, 2019, the maturities of the Company’s operating lease liabilities were as follows (in thousands):
Year ending December 31,
2020
2021
2022
2023
2024
Total undiscounted future minimum lease payments
Less: Imputed interest
Total operating lease liability
Less: Current portion of operating lease liability (included in other accrued
liabilities)
Long-term portion of operating lease liability
Operating
Leases
647
667
686
707
30
$ 2,737
587
$ 2,150
407
$ 1,743
9. Stockholders’ Equity
The Company is authorized to issue 10,000,000 shares of preferred stock as of December 31, 2019 and 2018, respectively. The Company is
authorized to issue 100,000,000 shares of common stock as of December 31, 2019 and 2018, respectively.
As of December 31, 2019 and 2018, the Company had reserved shares of authorized but unissued common stock as follows:
Equity incentive plan
Total reserved shares of common stock
Sale of Common Stock
December 31,
2019
9,143,863
9,143,863
2018
6,991,570
6,991,570
On February 1, 2018, pursuant to a $200.0 million shelf registration statement on Form S-3, the Company completed the issuance of 13,340,000
shares of its common stock at $10.80 per share, which the Company refers to as the February 2018 public offering. Net proceeds in connection with the
February 2018 public offering were approximately $135.5 million after deducting underwriting discounts, commissions and other offering expenses.
On December 28, 2018, the Company filed a $200.0 million shelf registration statement on Form S-3 that was declared effective in February 2019.
The Company’s existing $200.0 million shelf registration statement was also terminated on the effective date.
On March 8, 2019, pursuant to a shelf registration statement on Form S-3, the Company issued 8,000,000 shares of its common stock at $12.50 per
share in an underwritten public offering (referred to as the March 2019 public offering). On March 11, 2019, the underwriters fully exercised their option
to purchase additional shares resulting in the issuance of an additional 1,200,000 shares. Net proceeds to the Company from the March 2019 public
offering were approximately $107.7 million after deducting underwriting discounts, commissions and other offering expenses.
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Common Stock Warrants
In connection with a 2013 financing and the Company’s private placement of common stock and warrants in September 2013, October 2013 and
January 2014, the Company issued five-year warrants to purchase 1,741,788 shares of the Company’s common stock at an exercise price of $5.75 per
share (referred to as the 2013 financing warrants). The Company also issued seven-year warrants to purchase 121,739 shares of the Company’s common
stock to certain lenders at an exercise price of $5.00 per share in September 2013. Finally, in connection with the 2015 loan facility, the Company issued
ten-year warrants to purchase 114,436 shares of its common stock to its lenders at an exercise price of $2.84 per share (referred to as the lender warrants).
The 2013 financing warrants contain anti-dilution provisions that are contingent on the occurrence of a major transaction which precludes them from
being indexed to the Company’s common stock and also do not meet other criteria for equity classification. Such provisions could also result in the
settlement of the 2013 financing warrants for more shares of common stock than the Company has authorized. Due to these provisions, the Company is
required to account for the 2013 financing warrants and the lender warrants as liabilities at fair value. Accordingly, the Company recorded the warrants at
fair value upon issuance and remeasured them at fair value at each balance sheet date until they were exercised or expired.
During the year ended December 31, 2018, the Company’s warrants were remeasured using Level 3 inputs involving a Black-Scholes option-pricing
model, the inputs for which include: the exercise price of the warrants; the market price of the underlying common shares; a risk-free interest rate based on
the rates for U.S. treasury zero-coupon bonds with maturities similar to those of the remaining contractual term of the warrants; an assumed dividend yield
of zero based on the Company’s expectation that it will not pay dividends in the foreseeable future; an expected term based on the remaining contractual
term of the warrants; and expected volatility based upon the Company’s historical volatility. The significant unobservable input used in measuring the fair
value of the common stock warrant liabilities is the expected volatility. Significant increases in volatility would result in a higher fair value measurement.
The resulting increase in warrant liability fair value of $3.7 million for the year ended December 31, 2018 was recorded as revaluation losses in other
(expense) income, net in the Company’s consolidated statement of operations and comprehensive loss.
During the year ended December 31, 2018, 443,505 warrants were exercised for cash proceeds of $2.6 million and 938,300 warrants were cashless
exercised for 513,340 shares of the Company’s common stock.
On September 30, 2018, 79,150 of remaining unexercised warrants expired, resulting in the recognition of a $0.4 million gain on extinguishment of
the related warrant liability. As of December 31, 2019 and 2018, no warrants were outstanding.
10. Stock Plan and Stock-Based Compensation
Stock Plan
In September 2013, the Company’s stockholders approved the 2013 Equity Incentive Plan (the 2013 Plan), under which shares of common stock are
reserved for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit
awards, performance stock awards, performance cash awards and other stock awards by the Company. These awards may be granted to employees,
members of the Board of Directors, and consultants. The 2013 Plan has a term of ten years and replaced the 2003 Equity Incentive Plan, which had similar
terms. The 2013 Plan permits the Company to (i) grant incentive stock options to directors and employees at not less than 100% of the fair value of
common stock on the date of grant; (ii) grant nonqualified options to employees, directors, and consultants at not less than 85% of fair value; (iii) award
stock bonuses; and (iv) grant rights to acquire restricted stock at not less than 85% of fair value. Options generally vest over a four year period and have a
term of ten years. Options granted to 10%
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stockholders have a maximum term of five years and require an exercise price equal to at least 110% of the fair value on the date of grant. The exercise
price of all options granted to date has been at least equal to the fair value of common stock on the date of grant. The share reserve under the 2013 Plan
will automatically increase on January 1st of each year, for a period of not more than ten years, in an amount equal to 5% of the total number of shares of
capital stock outstanding on December 31st of the preceding calendar year, unless the Board determines otherwise prior to December 31st of such calendar
year.
Stock Plan Activity
As of December 31, 2019, there were 2,315,727 shares available for grant under the 2013 Plan. In accordance with the provisions of the 2013 Plan,
the Board of Directors reduced the automatic share increase in the share reserve on January 1, 2020 to zero shares.
The following table summarizes activity in the Company’s stock option grants, including performance options:
Outstanding as of December 31, 2018
Options granted
Options exercised
Options forfeited
Options expired
Outstanding as of December 31, 2019
Vested and expected to vest as of December 31, 2019
Exercisable as of December 31, 2019
Shares
Subject to
Outstanding
Options
5,593,132
2,775,360
(223,631)
(1,127,078)
(291,088)
6,726,695
6,726,695
3,769,835
Weighted
Average
Exercise
Price of
Options
7.68
$
8.25
1.67
8.63
9.42
7.88
7.88
6.87
$
$
Weighted
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value (in
thousands)
$
$
7.39
7.39
6.47
$
$
$
369
369
328
The total intrinsic value of options exercised was $0.4 million and $4.9 million, for the years ended December 31, 2019 and 2018, respectively.
Vested and Unvested Awards
The total fair value of options vested was $9.9 million and $7.0 million for the years ended December 31, 2019 and 2018, respectively.
As of December 31, 2019, unamortized employee and non-employee stock-based compensation expense of $15.0 million is expected to be
recognized over a weighted average period of 2.4 years.
Incentive Awards
In December 2013, January 2014, and April 2014, as permitted by the 2013 Plan, the Company issued certain incentive awards to directors,
employees and a consultant which are subject to 252,752 shares of the Company’s common stock and are exercisable at a weighted average price of $5.21
per share when vested. The Company may determine at its option whether to settle exercised awards in shares of common stock or in cash. Each
recipient’s incentive award defines the number of common shares that may be acquired upon exercise provided the Company chooses to settle in shares.
For awards settled in cash, the Company must pay the recipient the excess of the fair market value of the Company’s common stock on the date of exercise
over the exercise price paid by the recipient multiplied by the number of shares the recipient would be entitled to receive had the award been settled in
shares of the Company’s common stock.
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Pursuant to their terms, the incentive awards have a term of 10 years and were initially scheduled to vest 100% on the second anniversary of their
grant date. However, as a result of the approval by the Company’s stockholders of a 500,000 share increase to the 2013 Plan’s share reserve in June 2014,
the incentive awards were automatically modified to vest monthly over four years effective from their grant date. The Company recognized the value of
the incentive awards over the remaining four year vesting period which ended in the first quarter of 2018.
The Company recorded no stock-based compensation expense in the year ended December 31, 2019 pertaining to its incentive awards and an
insignificant amount in the year ended December 31, 2018. Incentive awards outstanding totaled 101,441 and 129,776 as of December 31, 2019 and 2018,
respectively.
Options Granted to Nonemployees
The Company has issued options to purchase shares of common stock to certain scientific advisors and consultants. The stock options have various
exercise prices, a term of ten years, and vest over periods up to forty-eight months. No options were granted to these advisors and consultants in 2019 and
the Company granted options to purchase 10,000 shares of common stock in 2018. As of December 31, 2019, options to purchase 9,646 shares of common
stock remained unvested. The Company recorded $0.1 million of expense in the years ended December 31, 2019 and 2018, respectively, related to these
options and awards.
Stock-Based Compensation Expense
Stock-based compensation expense is included in the consolidated statements of operations and comprehensive loss and is as follows (in thousands):
Research and development
General and administrative
Restructuring charges
Total stock-based compensation expense
Year Ended
December 31,
2019
$ 4,361
5,197
910
$10,468
2018
$2,760
4,253
—
$7,013
Valuation Assumptions
The following table presents the weighted-average assumptions the Company used in the Black-Scholes option-pricing model to derive the grant
date fair values of stock options granted in each of the years presented along with the resulting estimated weighted-average grant date fair values per share:
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Weighted-average grant date fair value per share
Year Ended
December 31,
2019
6.2
76%
2.13%
— %
$5.60
2018
6.2
77%
2.62%
— %
$8.14
Expected Term
The Company does not believe it can currently place reliance on its historical exercise and post-vesting termination activity to provide accurate data
for estimating the expected term. Therefore, for stock option grants
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made during the years ended December 31, 2019 and 2018, the Company has opted to use the simplified method for estimating the expected term, which is
an average of the contractual term of the options and its ordinary vesting period. The expected term represents the period of time that options are expected
to be outstanding.
Expected Volatility
As the Company has limited trading history for its common stock, the expected stock price volatility for the Company’s common stock was
estimated by considering the volatility rates of similar publicly traded peer entities within the life sciences industry. The Company will continue to apply
this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.
Risk-Free Interest Rate
The risk-free interest rate assumption was based on U.S. treasury instruments with constant maturities whose term was consistent with the expected
term of stock options granted by the Company.
Expected Dividend Yield
The Company has never declared or paid cash dividends and does not plan to pay cash dividends in the foreseeable future. Consequently, the
Company uses an expected dividend yield of zero.
11. 401(k) Plan
The Company provides a qualified 401(k) savings plan for its employees. All employees are eligible to participate, provided they meet the
requirements of the plan. As is permitted under the plan, the Company has elected to match employee contributions up to $750 and accordingly matching
contributions totaling an insignificant amount were made in the years ended December 31, 2019 and 2018.
12. Income Taxes
No provision for U.S. income taxes exists due to tax losses incurred in all periods presented. All losses incurred were U.S. based. Significant
components of the Company’s deferred tax assets are as follows (in thousands):
Deferred tax assets:
Federal and state net operating loss carryforwards
Federal and state research and development tax credit carryforwards
Capitalized research and development
Stock based compensation
Other
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Other
Total deferred tax liabilities
Valuation allowance
Net deferred tax assets
December 31
2019
2018
$ 107,213
25,661
4,725
3,562
1,199
142,360
(372 )
(49)
(421 )
(141,939)
$
—
$ 85,571
18,590
10,466
2,848
1,499
118,974
(622 )
—
(622 )
(118,352)
—
$
Realization of the net deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which is uncertain. Based on the
weight of available positive and negative objective evidence,
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management believes it more likely than not that the Company’s deferred tax assets are not realizable. Accordingly, the net deferred tax assets have been
fully offset by a valuation allowance. The net valuation allowance increased by $23.6 million and $29.5 million during the years ended December 31,
2019 and 2018, respectively.
The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax provision (in thousands):
Income tax benefit at federal statutory tax rate
Change in valuation allowance
State income taxes, net of federal benefit
Research credits
Other
Income tax (benefit) expense
December 31
2019
$(21,589)
23,587
3,810
(6,555)
747
$ —
2018
$(15,235)
29,501
(10,112)
(4,717)
563
$ —
Pursuant to Internal Revenue Code (IRC), Section 382 and 383, use of the Company’s U.S. federal and state net operating loss and research and
credit carryforwards may be limited in the event of a cumulative change in ownership of more than 50.0% within a three-year period. The Company
completed an analysis under IRC Sections 382 and 383 through December 21, 2007 and determined that the Company’s net operating losses and research
and development credits were subject to limitations due to changes in ownership through December 31, 2007. The net operating loss carryforwards
reflected in the deferred tax assets at December 31, 2019 have been adjusted to reflect Section 382 limitations resulting from that change. The Company
has been in a net operating loss position since 2008. The Company has not performed any additional analysis for IRC Sections 382 and 383 and there is a
risk that additional changes in ownership could have occurred since December 31, 2007. If a change in ownership were to have occurred, additional net
operating loss and tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset
schedule with a corresponding reduction in the valuation allowance.
As of December 31, 2019, the Company had federal net operating loss carryforwards of $435.9 million and state net operating loss carryforwards of
$224.5 million to offset future taxable income, if any. In addition, the Company had federal research and development tax credit carryforwards of
$9.8 million, federal orphan drug tax credit carryforwards of $18.1 million, and state research and development tax credit carryforwards of $5.3 million. If
not utilized, the federal net operating losses for the years beginning before January 1, 2018 of $255.7 million will expire beginning in 2024 through
2037, and the federal net operating losses for the tax years beginning after January 1, 2018 of $180.2 million will be carried forward indefinitely (subject to
certain utilization limitations). The state net operating loss carryforwards will expire beginning in 2028 through 2039. The federal research and
development and federal orphan drug tax credit carryforwards will expire beginning in 2020 through 2039, and the state tax credit will carry forward
indefinitely. Interest and penalties for the years ended December 31, 2019 and 2018 were not material.
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The following table summarizes activity related to the Company’s gross unrecognized tax benefits (in thousands):
Balances as of December 31, 2017
Increases related to prior year tax positions
Increases related to 2018 tax positions
Balances as of December 31, 2018
Increases related to prior year tax positions
Increases related to 2019 tax positions
Balances as of December 31, 2019
Total
$3,295
6
1,283
$4,584
83
1,719
$6,386
The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate assuming the Company continues to
maintain a full valuation allowance position. Based on prior year’s operations and experience, the Company does not expect a significant change to its
unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next year for unexpected or
unusual items for items that arise in the ordinary course of business.
The Company files income tax returns in the U.S. federal and California jurisdictions and is not currently under examination by federal, state, or
local taxing authorities for any open tax years. Due to net operating loss carryforwards, all years remain open for income tax examination by tax authorities
in the U.S. and states in which the Company files tax returns.
13. Restructuring
In December 2019, the Company commenced a reorganization plan to reduce its operating costs and better align its workforce with the needs of its
business following the Company’s November 25, 2019 announcement that it had halted clinical development of seladelpar. As of December 31, 2019, the
restructuring liability is included in current liabilities on the consolidated balance sheet.
The Company incurred aggregate restructuring charges of approximately $5.1 million for the year ended December 31, 2019. Restructuring charges
incurred under this plan primarily consisted of employee termination benefits and contract termination costs primarily associated with nonrefundable
prepayments and exit fees relating to third-party manufacturers that the Company contracted with for clinical supplies. Employee termination benefits
include severance costs, employee-related benefits, supplemental one-time termination payments, and non-cash share-based compensation expense related
to the acceleration of stock options. Charges and other costs related to the workforce reduction and structure realignment are presented as restructuring
charges in the consolidated statements of operations and comprehensive loss. Substantially all cash payments are expected to be paid out by the end of
2020. The Company may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the
restructuring.
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The following table summarizes the accrued restructuring liabilities and utilization by cost type associated with the restructuring activities during the
year ended December 31, 2019 (in thousands):
Balances as of January 1, 2019
Restructuring charges
Reductions for cash payments
Balances as of December 31, 2019
Termination
Benefits
$
$
—
2,912
(132 )
2,780
Contract
Termination
Costs
$
$
—
413
—
413
Total
$ —
3,325
(132 )
$3,193
The Company also recognized $1.8 million in restructuring charges related to $0.9 million of nonrefundable prepaid research and development costs
for clinical trial materials no longer expected be delivered and $0.9 million of accelerated vesting for stock-based compensation for executives subject to
the reorganization plan.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or Section 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.
March 16, 2020
Date
CymaBay Therapeutics, Inc.
Registrant
/s/ Sujal Shah
Sujal Shah
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sujal Shah and Daniel
Menold, as his true and lawful attorney-in-fact and agent, with full power of substitution for him, and in his name in any and all capacities, to sign any and
all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, and any of them or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the
capacities indicated on the date set forth below:
Name and Signature
/s/ Sujal Shah
Sujal Shah
/s/ Daniel Menold
Daniel Menold
/s/ Robert J. Wills
Robert J. Wills, Ph.D.
/s/ Kurt von Emster
Kurt von Emster, CFA
/s/ Caroline Loewy
Caroline Loewy
/s/ Paul F. Truex
Paul F. Truex
Title
Date
President, Chief Executive Officer and Director
March 16, 2020
(Principal Executive Officer)
Vice President, Finance
(Principal Financial Officer)
Director
Director
Director
Director
97
March 16, 2020
March 16, 2020
March 16, 2020
March 16, 2020
March 16, 2020
DESCRIPTION OF COMMON STOCK
Exhibit 4.2
Our authorized capital stock consists of 100,000,000 shares of common stock, $0.0001 par value per share, and 10,000,000 shares of preferred
stock, $0.0001 par value per share. A description of material terms and provisions of our certificate of incorporation and bylaws affecting the rights of
holders of our capital stock is set forth below. The description is intended as a summary, and is qualified in its entirety by reference to our certificate of
incorporation and the bylaws.
Common stock
Voting Rights. Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of the
stockholders, including the election of directors. The certificate of incorporation and by-laws do not provide for cumulative voting rights in connection with
election of directors unless, at the time of such election, we are subject to Section 2115(b) of the California General Corporation Law. The affirmative vote
of holders of 66 2/3% of the voting power of all of the then-outstanding shares of capital stock, voting as a single class, will be required to amend certain
provisions of our amended and restated certificate of incorporation, including provisions relating to amending our amended and restated bylaws, and
removal of directors.
Dividends. Subject to preferences that may be applicable to any then outstanding preferred stock, the holders of outstanding shares of common stock
may receive dividends, if any, as may be declared from time to time by the Board of Directors out of legally available funds. We have never issued a
dividend on shares of its common stock and has no intention to do so in the future.
Liquidation. In the event we of liquidate, dissolve or wind up, the assets legally available for distribution shall be distributed ratably to the holders of
shares of common stock and preferred stock, subject to the satisfaction of any liquidation preference granted to the holders of any outstanding shares of
preferred stock.
Rights and Preferences. Holders of common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking
fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Fully Paid and Nonassessable. All outstanding shares of common stock are fully paid and nonassessable.
Anti-takeover effects of provisions of our certificate of incorporation and bylaws and Delaware law
Certificate of incorporation and bylaws. Our amended and restated certificate of incorporation and amended and restated bylaws, include a number
of provisions that may deter or impede hostile takeovers or changes of control or management. These provisions include:
Issuance of undesignated preferred stock. Our Board of Directors has the authority, without further action by the stockholders, to issue up to
10,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our Board of
Directors. The existence of authorized but unissued shares of preferred stock enables our Board of Directors to make it more difficult or to discourage an
attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise.
Board of Directors vacancies. Our amended and restated certificate of incorporation and amended and restated bylaws authorize only our Board of
Directors to fill vacant directorships. In addition, the number of directors constituting our Board of Directors may be set only by resolution adopted by a
majority vote of our entire Board of Directors. These provisions prevent a stockholder from increasing the size of our Board of Directors and gaining
control of our Board of Directors by filling the resulting vacancies with its own nominees.
Stockholder action; special meetings of stockholders. Our amended and restated certificate of incorporation provides that our stockholders may not
take action by written consent, but may only take action at annual or special meetings of our stockholders. Stockholders will not be permitted to cumulate
their votes for the election of directors unless required by applicable law. Our amended and restated bylaws provide that only the chairman of our Board of
Directors, chief executive officer or a majority of our Board of Directors may call special meetings of our stockholders.
Advance notice requirements for stockholder proposals and director nominations. Our amended and restated bylaws provide advance notice
procedures for stockholders seeking to bring business before our annual meeting of stockholders, or to nominate candidates for election as directors at our
annual meeting of stockholders. Our amended and restated bylaws also specify certain requirements as to the form and content of a stockholder’s notice.
These provisions may make it more difficult for our stockholders to bring matters before our annual meeting of stockholders or to nominate directors at
annual meetings of stockholders.
We designed these provisions to enhance the likelihood of continued stability in the composition of our Board of Directors and its policies, to
discourage certain types of transactions that may involve an actual or threatened acquisition of us, and to reduce our vulnerability to an unsolicited
acquisition proposal. We also designed these provisions to discourage certain tactics that may be used in proxy fights. However, these provisions could
have the effect of discouraging others from making tender offers for our shares and, as a consequence, they may also reduce fluctuations in the market
price of our shares that could result from actual or rumored takeover attempts.
Section 203 of the Delaware General Corporation Law
We are subject to Section 203 of the DGCL, which prohibits a Delaware corporation from engaging in a business combination with any interested
stockholder for a period of three years following the date the person became an interested stockholder, with the following exceptions:
•
•
before such date, the Board of Directors of the corporation approved either the business combination or the transaction that resulted in the
stockholder becoming an interested holder;
upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the
voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (a) by persons who
are directors and also officers and (b) pursuant to employee stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; and
•
on or after such date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of the
stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
In general, Section 203 of the DGCL defines business combination to include the following:
•
•
•
•
•
any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder;
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the
corporation beneficially owned by the interested stockholder; and
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits by or through
the corporation.
Section 203 of the DGCL defines an “interested stockholder” as an entity or person who, together with the entity’s or person’s affiliates and
associates, beneficially owns, or is an affiliate of the corporation and within three years prior to the time of determination of interested stockholder status
did own, 15% or more of the outstanding voting stock of the corporation. A Delaware corporation may “opt out” of these provisions with an express
provision in its certificate of incorporation. We have not opted out of these provisions, which may as a result, discourage or prevent mergers or other
takeover or change of control attempts of us.
List of Subsidiaries
Exhibit 21.1
State or Jurisdiction in
Which Incorporated or
Organized
Name of Subsidiary
CymaBay UK, Ltd.
CymaBay Ireland, Limited
CymaBay Canada, Ltd.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
(1)
(2)
Registration Statement (Form S-3 No. 333-229082) of CymaBay Therapeutics, Inc., and
Registration Statements (Form S-8 Nos. 333-195211, 333-198289, 333-202941, 333-210453, 333-216905, 333-223687, 333-226741, and
333-229953) pertaining to the Metabolex, Inc. 2003 Equity Incentive Plan, and the CymaBay Therapeutics, Inc. 2013 Equity Incentive Plan;
of our reports dated March 16, 2020, with respect to the consolidated financial statements of CymaBay Therapeutics, Inc. and the effectiveness of internal
control over financial reporting of CymaBay Therapeutics, Inc. included in this Annual Report (Form 10-K) of CymaBay Therapeutics, Inc. for the year
ended December 31, 2019.
Exhibit 23.1
/s/ Ernst & Young LLP
Redwood City, California
March 16, 2020
I, Sujal Shah, certify that:
CERTIFICATIONS
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this Form 10-K of CymaBay Therapeutics, Inc.;
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;
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;
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)
b)
c)
d)
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;
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;
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
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)
b)
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
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 16, 2020
/s/ Sujal Shah
Sujal Shah
President and Chief Executive Officer
(Principal Executive Officer)
I, Daniel Menold, certify that:
CERTIFICATIONS
Exhibit 31.2
1.
2.
3.
4.
5.
a)
b)
I have reviewed this Form 10-K of CymaBay Therapeutics, Inc.;
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;
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;
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)
b)
c)
d)
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;
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;
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
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
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):
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
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 16, 2020
/s/ Daniel Menold
Daniel Menold
Vice President, Finance
(Principal Accounting Officer)
CERTIFICATION
Exhibit 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Sujal Shah., President and Chief Executive Officer and Daniel Menold, Vice
President, Finance of CymaBay Therapeutics, Inc. (the “Company”), hereby certifies that, to the best of his knowledge:
1.
2.
The Company’s Annual Report on Form 10-K for the period ended December 31, 2019, to which this Certification is attached as Exhibit 32.1
(the “Annual Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
In Witness Whereof, the undersigned have set their hands hereto as of the 16th day of March, 2020.
/s/ Sujal Shah
Sujal Shah
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Daniel Menold
Daniel Menold
Vice President, Finance
(Principal Financial Officer)
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of CymaBay Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.