ASSEMBLY BIOSCIENCES, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The interim condensed consolidated financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission on March 4, 2020 (2019 Annual Report). In addition to historical information, this discussion and analysis 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 (the Exchange Act). These forward-looking statements are subject to risks and uncertainties, including those set forth under “Part I. Item 1A. Risk Factors” in our 2019 Annual Report, “Part II. Item 1A. Risk Factors” in this report, and elsewhere in this report, that could cause actual results to differ materially from historical results or anticipated results. Overview We are a clinical-stage biotechnology company developing innovative therapeutics targeting chronic hepatitis B virus (HBV) infection and disorders associated with the microbiome. Our HBV Cure program is focused on advancing a new class of potent, oral core inhibitors that have the potential to increase cure rates for chronically infected patients. Our Microbiome program is developing novel oral live microbial biotherapeutic candidates with our fully integrated platform, including a robust process for strain identification and selection, current Good Manufacturing Practice (cGMP) manufacturing expertise and targeted delivery to the lower gastrointestinal tract with the GEMICEL® technology. Like most companies, the spread of the novel coronavirus, SARS-CoV-2, which causes coronavirus disease (COVID-19), and the ongoing COVID-19 pandemic has affected certain aspects of our business. As further detailed below, those effects have been primarily limited to where and how our employees work in our labs and offices. To date, our current and future planned clinical trials and pre-clinical studies have not been subject to significant impact as a result of the COVID-19 pandemic. Business Highlights During the third quarter of 2020, we continued to grow our business and advance our development pipeline of product candidates in both our HBV Cure and Microbiome programs. Key highlights and accomplishments during the quarter, as well as upcoming milestones and subsequent events include: HBV Cure Program • Vebicorvir (VBR or ABI-H0731 (H0731)), our lead core inhibitor product candidate in the HBV Cure program : o Continuation of our ongoing open-label extension study, ABI-H0731-211 (Study 211), and transition of patients who achieve agreed-upon stopping criteria off therapy. Study 211 is the first clinical trial with a core inhibitor to stop therapy and monitor for sustained virologic response (SVR) in patients with chronic HBV infection. Patients who stopped therapy in Study 211 have not achieved meaningful SVR rates as 39 of 41 patients have now relapsed. We continue to collect and analyze Study 211 data and intend to submit more detailed findings to a future medical meeting. o Presentation of additional interim analyses on HBeAg positive and negative patients from Study 211 at the European Association for the Study of the Liver’s (EASL) Digital International Liver Congress TM . o Continuation of a study, ABI-H0731-205, evaluating treatment intensification with VBR in patients with chronic HBV infection who are only partially virologically suppressed on nucleos(t)ide analog reverse transcriptase inhibitor (NrtI) therapy alone after at least a year of treatment. o End-of-Phase 2 Meeting with National Medical Products Administration, Center for Drug Evaluation, China, in July 2020 with agreement on Phase 3 registrational program for chronic suppressive therapy. 23 • ABI-H2158 (H2158), our second -generation core inhibitor product candidate in the HBV Cure program : o Continuation of a Phase 2 clinical study, ABI-H2158-201, using a 300 mg dose of H2158. o Presentation of detailed data on the final dose-ranging cohorts of the Phase 1b portion of the Phase 1a/1b clinical study of H2158 at EASL 2020. • ABI-H3733 (H3733), our third core inhibitor product candidate in the HBV Cure program : o Continuation of a Phase 1 clinical study, ABI-H3733-101, to evaluate safety, tolerability, and pharmacokinetics (PK) of H3733 in healthy subjects. • Upcoming HBV presentations at the American Association for the Study of Liver Diseases (AASLD) Annual Meeting (The Liver Meeting®), November 13 to 16, 2020: o “Analysis of the longer-term safety profile of the hepatitis B virus core inhibitor ABI-H0731 in an open-label extension study”; o “Persistently detectable serum HBV pgRNA is associated with subsequent hepatocellular carcinoma development in chronic HBV patients receiving chronic NrtI treatment”; o “Amino acid substitutions in the inhibitor binding pocket of HBV core protein confer differential changes in susceptibility to three generations of HBV core inhibitors”; and o “Changes in viral antigens are more strongly associated with HBV pgRNA than HBV DNA in studies of VBR and NrtI in treatment-naïve patients with chronic HBV infection.” • Triple Combination HBV Studies : o Entry into a Clinical Trial Collaboration Agreement (Triple Combination Collaboration Agreement) with Arbutus to evaluate VBR in combination with Arbutus’ proprietary GalNAc delivered RNAi compound AB-729 and NrtI therapy for the treatment of patients with chronic HBV infection. o Initiation of a Phase 2 triple combination study evaluating the addition of interferon to VBR and NrtI expected in the first half of 2021. Microbiome Program • Continuation of process identifying strategic alternatives to continue development of the Microbiome programs following the return of rights to such programs from Allergan Pharmaceuticals International Limited (Allergan) upon termination of the Research, Development, Collaboration and License Agreement (Allergan Agreement). Corporate Highlights • Appointment of Gina Consylman to our Board of Directors (the Board) and the Board’s Audit Committee. HBV Cure Program Over 250 million people worldwide are chronically infected with HBV. Our HBV Cure program is pursuing multiple drug candidates that inhibit the HBV lifecycle and block the generation of covalently closed circular DNA (cccDNA), with the aim of increasing the current low cure rate for patients with HBV. We have discovered several novel core inhibitors, which are small molecules that directly target and allosterically modulate the HBV core protein. 24 Vebicorvir VBR, our lead core inhibitor product candidate in the HBV Cure program, is licensed from Indiana University. The conduct of the Phase 2 studies, Study 201 and 202, is now complete, and our open-label extension study, Study 211, is ongoing. We continue to present interim updates on our clinical studies at conferences, including EASL 2020 in August 2020 and AASLD 2020 in November 2020. The stopping criteria for transitioning patients off therapy in Study 211 were discussed with our lead investigators and reviewed and agreed upon by the FDA. All patients who met the stopping criteria are off treatment and being observed for SVR. Patients who stopped therapy in Study 211 have not achieved meaningful SVR rates as 39 of 41 patients have now relapsed. We continue to collect and analyze Study 211 data and intend to submit more detailed findings to a future medical meeting. When enrolled patients are unable to come to the clinic as a result of the COVID-19 pandemic, study drug is shipped to their homes, and sites conduct telehealth visits. All currently enrolled patients are continuing with normal study visits, and we continue to monitor for a potential impact of the COVID-19 pandemic on the study. ABI-H2158 H2158, our second-generation core inhibitor product candidate in the HBV Cure program, was internally discovered and developed and is chemically distinct from VBR. We reported the final data from dose-ranging cohorts of the Phase 1b portion of the Phase 1a/1b dose-ranging clinical study at EASL 2020. Based on data from the Phase 1b dose-ranging study, we initiated a Phase 2 clinical study in June 2020 using a 300 mg dose of H2158. This study will be conducted in approximately ten countries in Asia, North America and Europe. While we will continue to monitor the situation closely, at this time, we do not expect our timelines for this study to be significantly impacted by the COVID-19 pandemic. ABI-H3733 H3733, our third core inhibitor product candidate in the HBV Cure program, has completed Investigational New Drug (IND) enabling studies. H3733 has a novel chemical scaffold separate from both H0731 and H2158. We presented a preclinical profile of this candidate in the first quarter of 2019. In the first quarter of 2020, we initiated a Phase 1 clinical study to evaluate safety, tolerability and PK following single ascending dose and multiple ascending dose administration of H3733 in healthy subjects in New Zealand. After a short delay in enrollment of the study due to the government-mandated shutdown of all clinical studies unrelated to COVID-19, we resumed enrollment during the second quarter of this year. This delay did not have a significant impact on our clinical development timelines for H3733 . Other Product Candidates In addition to our three clinical-stage product candidates, our research discovery team is actively focused on identifying and developing additional product candidates for our HBV Cure program. Collaboration Agreements China HBV Collaboration Agreement In July 2020, we entered into a Collaboration Agreement with BeiGene, granting BeiGene an exclusive, royalty-bearing license to develop and commercialize products containing VBR, H2158 and H3733 (the BeiGene Agreement) in the People’s Republic of China, Hong Kong, Taiwan and Macau (the Territory). Under the BeiGene Agreement, we and BeiGene will collaborate on development activities with respect to the licensed products in accordance with a mutually agreed upon development plan. A registrational study is expected to initiate in the first half of 2021 and will initially focus on vebicorvir in combination with NrtI as chronic suppressive therapy. 25 Pursuant to the terms of the BeiGene Agreement , BeiGene paid us an upfront amount of $40 .0 million, and we are eligible to receive up to approximately $500 .0 million in milestone payments, comprised of up to $11 3.8 million in development and regulatory and $385 .0 million in net sales milestone payments. In addition, we are eligible to receive tiered royalties at percentages ranging from the mid-teens to the low 30s of net sales. BeiGene has also agreed to pay all development and regulatory costs up to an aggregate of $45 .0 million in the territory for VBR, H2158 and H3733 . Following this initial investment, we and BeiGene will share development costs for the T erritory equally. The BeiGene Agreement also contains provisions such as representations and warranties of the parties, terms as to governance of the collaboration, commercialization and regulatory responsibilities of the parties, and manufacturing and supply, including potential adjustments in the event supply costs exceed certain levels. In addition, during the term of the BeiGene Agreement, neither party will commercialize any competing products in the Territory. If, after H2158 and H3733 reach the end of Phase 2 clinical trials, we and BeiGene are unable to mutually agree on the terms of a Phase 3 global study, BeiGene may elect to terminate the BeiGene Agreement solely as it relates to that compound, as applicable. Such a termination would result in us regaining all rights to the applicable compound in the Territory. In addition, BeiGene may terminate the BeiGene Agreement for convenience at any time upon 90 days’ advance written notice to us. The BeiGene Agreement also contains customary provisions for termination by either party, including in the event of breach of the BeiGene Agreement, subject to cure. Triple Combination HBV Collaboration In August 2020, we entered into the Triple Combination Collaboration Agreement, pursuant to which we and Arbutus will conduct a randomized, multi-center, open-label Phase 2 clinical trial to explore the safety, PK and antiviral activity of the triple combination of VBR, AB-729 and an NrtI compared to the double combinations of VBR with an NrtI and AB-729 with an NrtI. This clinical trial is projected to initiate in the first half of 2021 and enroll approximately 60 virologically suppressed patients with HBeAg negative or positive chronic HBV infection. Microbiome Program In recent years, there has been increasing scientific evidence suggesting the therapeutic potential of the human microbiome—the billions of microbes living in and on people—to impact health and disease. Our Microbiome program builds upon experience reported in the literature of successfully treating various disease indications with fecal microbiota transplants and seeks to provide a pharmacologically relevant therapy using a “drug like” approach that delivers targeted and specific microbiome therapies in an oral capsule. Our Microbiome program consists of a fully integrated platform that includes a biological-function-based strain isolation, identification, characterization and selection process, methods for strain purification and growth under conditions compliant with cGMP requirements, and a licensed patented delivery system, GEMICEL®, which is designed to allow for targeted oral delivery of live biologic and conventional therapies to the lower GI tract. ABI-M201 Our Microbiome program’s lead candidate, M201, is in a multi-center, randomized, double-blind, placebo-controlled Phase 1b clinical trial to evaluate its safety and efficacy in patients with mildly to moderately active ulcerative colitis (UC) who are being treated with mesalamine. The study’s primary objective is safety and tolerability, and its secondary objectives focus on the effect of M201 treatment on disease activity measures in patients with UC. This Phase 1b study is ongoing. Enrollment had been delayed due to the COVID-19 pandemic and the limitations placed on some trial sites to conduct certain procedures as part of the patient screening process. Enrollment has resumed, and we continue to monitor the situation closely. When enrolled patients are unable to come to the clinic, study drug or placebo is shipped to their homes and sites are conducting telehealth monitoring and home health nurse visits. Preclinical data from the M201 program was selected for presentation as a poster at Digestive Disease Week (DDW) in May 2020; however, DDW 2020 was cancelled due to the COVID-19 pandemic. 26 M201 was initially developed as part of the Allergan Agreement , which provide d for the development and commercialization of microbiome gastrointestinal programs. While we explore strategic alternatives for continued development of our Microbiome programs, the Phase 1b study of M201 will continue despite the termination of the Allergan Agreement . See “— Allergan Agreement .” Additional Product Candidates Using our microbiome platform capabilities, we are also exploring additional product candidates for other disease indications, including Crohn’s disease and irritable bowel syndrome in connection with the Allergan Agreement, as well as immune-mediated and metabolic disorders and oncology, which indications we will pursue either internally or in collaboration with other third parties. Preclinical data from our immuno-oncology microbiome program was presented as an e-poster at AACR in June 2020. Allergan Agreement In May 2020, AbbVie Inc. (AbbVie) completed its acquisition of Allergan. In June 2020, AbbVie notified us that it decided to terminate the Allergan Agreement. This decision was not based on any efficacy, safety or other data related to collaboration programs. On October 10, 2020, the termination became effective, and we regained worldwide rights to all microbiome candidates subject to the collaboration, including M201. We have begun exploring strategic alternatives to continue development of the Microbiome programs following the return of the related intellectual property rights. Operations We currently have corporate and administrative offices and research laboratory space in South San Francisco, California and research, development and small-scale manufacturing activities in Groton, Connecticut. We also currently have an administrative office and research laboratory space in Shanghai, China and a regulatory office in Beijing, China. Since our inception, we have had no revenue from product sales and have funded our operations principally through equity financings and collaborations. Our operations to date have been primarily limited to organizing and staffing our company, licensing our product candidates, discovering and developing our product candidates, establishing small-scale manufacturing capabilities for certain of our product candidates, maintaining and improving our patent portfolio and raising capital. We have generated significant losses to date, and we expect to continue to generate losses as we continue to develop our product candidates. As of September 30, 2020, we had an accumulated deficit of $462.2 million. Because we do not generate revenue from any of our product candidates, our losses will continue as we further develop, seek regulatory approval for and commercialize our product candidates. As a result, our operating losses are likely to be substantial over the next several years as we continue the development of our product candidates and thereafter if none are approved or successfully launched. We are unable to predict the extent of any future losses or when we will become profitable, if at all. In mid-March 2020, as a result of the COVID-19 pandemic, six San Francisco Bay Area counties announced a shelter-in-place order, restricting all residents to their homes, with few exceptions. Within a week, both California and Connecticut issued state-wide stay-at-home orders. As a biotechnology company, we were exempt from such orders. California’s state-wide and local orders remain in place. Connecticut’s order expired in May 2020. Because of the exemptions described above, there has not been any significant interruption to date of essential activities at our offices, including work in our laboratories in both South San Francisco and Groton with proper protections and procedures in place. While we have experienced some shipping delays or shortages of personal protective equipment (PPE) that are important to maintaining normal workflows in our laboratories, we have been able to continue our critical research activities through schedule shifts, use of PPE on-hand and reallocation of certain resources that allow our employees to practice “social distancing” and comply with applicable laws. Notwithstanding the expiration of Connecticut’s stay-at-home order, substantially all of our U.S.-based non-research employees at both our South San Francisco and Groton facilities have been working from their homes since mid-March 2020. Clinical study-related impacts of the COVID-19 pandemic to date have been limited to short enrollment delays for our Phase 1 study of H3733 and our Phase 1b study of M201. We cannot currently predict the specific extent, duration or full impact that the COVID-19 pandemic will have on our ongoing and planned research efforts, clinical trials and other business operations. We continue to monitor the situation regularly for additional potential delays, or modifications to our ongoing and planned trials and, if circumstances warrant, we may adjust our budget and operating plan. 27 Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States (U.S. GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. We evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation, on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and significant estimates are detailed in our 2019 Annual Report. Our critical accounting policies and significant estimates have not changed from those previously disclosed in our 2019 Annual Report, except for those accounting subjects discussed in the section of Note 2 to the unaudited condensed consolidated financial statements titled Adoption of Recent Accounting Pronouncements included in this Quarterly Report on Form 10-Q. Results of Operations Comparison of the Three Months Ended September 30, 2020 and 2019 Collaboration Revenue The following table summarizes the period-over-period changes in our collaboration revenue (in thousands, except for percentages): Three Months Ended September 30, $ Change % Change 2020 2019 2020 vs. 2019 2020 vs. 2019 Collaboration revenue $ 34,611 $ 4,231 $ 30,380 718 % Collaboration revenue for the three months ended September 30, 2020 includes the recognition of $31.0 million recognized for the transfer of the VBR License upon entering into the BeiGene Agreement as well as reimbursements incurred under the Allergan Agreement. Research and Development Expense The following table summarizes the period-over-period changes in our research and development expenses (in thousands, except for percentages): Three Months Ended September 30, $ Change % Change Program/Description 2020 2019 2020 vs. 2019 2020 vs. 2019 HBV Cure program $ 18,700 $ 14,735 $ 3,965 27 % Microbiome program (1) 8,241 7,001 1,240 18 % Total research and development expenses $ 26,941 $ 21,736 $ 5,205 24 % (1) Expenses presented for the Microbiome program exclude collaboration revenue related to expense reimbursements under the Allergan Agreement as discussed in Note 8 to the Condensed Consolidated Financial Statements. 28 Research and development expense s were $ 26.9 million for the three months ended September 30, 2020 compared to $ 21.7 million for the same period in 2019 . The increase was due to an increase of $ 4.0 million in research and development expenses related to the HBV Cure program and an increase of $ 1.2 million in research and development expenses related to the Microbiome program. These increases were primarily due to increases in clinical activities, chemistry and manufacturing control activities to support VBR, 2158, 3733 and microbiome clinical trials and increased salary and benefits due to additional employees. Research and development expenses include non-cash stock-based compensation expenses of $ 2.8 million for the three months ended September 30, 2020 and $ 2.5 million for the same period in 2019 . General and Administrative Expense The following table summarizes the period-over-period changes in our general and administrative expenses (in thousands, except for percentages): Three Months Ended September 30, $ Change % Change 2020 2019 2020 vs. 2019 2020 vs. 2019 General and administrative expenses $ 11,689 $ 8,488 $ 3,201 38 % General and administrative expense consists primarily of salaries, consulting fees and other related costs, professional fees for legal services, accounting and tax services, insurance and travel expenses, as well as stock-based compensation expense associated with equity awards to our employees, consultants, and directors. General and administrative expenses were $11.7 million for the three months ended September 30, 2020 compared to $8.5 million for the same period in 2019. The increase was primarily due to an increase of $2.7 million in professional fees due to the amortized incremental contract costs associated with entering into the BeiGene Agreement, $0.3 million in equipment rental, $0.4 million in stock-based compensation expense and $0.1 million in salary and benefits due to additional employees. These increases were partially offset by a decrease of $0.2 million in travel related expenses due to state and local laws restricting travel in response to the COVID-19 pandemic. General and administrative expenses include non-cash stock-based compensation expenses of $3.3 million for the three months ended September 30, 2020 and $2.9 million for the same period in 2019. Comparison of the Nine Months Ended September 30, 2020 and 2019 Collaboration Revenue The following table summarizes the period-over-period changes in our collaboration revenue (in thousands, except for percentages): Nine Months Ended September 30, $ Change % Change 2020 2019 2020 vs. 2019 2020 vs. 2019 Collaboration revenue $ 78,068 $ 11,197 $ 66,871 597 % Collaboration revenue for the nine months ended September 30, 2020 includes the recognition of $31.0 million recognized for the transfer of the VBR License upon entering into the BeiGene Agreement. It also includes the remaining deferred revenue balance and reimbursements incurred under the Allergan Agreement, for which AbbVie (formerly Allergan pre-acquisition) gave written notice of termination in June 2020. Research and Development Expense The following table summarizes the period-over-period changes in our research and development expenses (in thousands, except for percentages): Nine Months Ended September 30, $ Change % Change Program/Description 2020 2019 2020 vs. 2019 2020 vs. 2019 HBV Cure program $ 50,337 $ 42,589 $ 7,748 18 % Microbiome program (1) 22,977 20,552 2,425 12 % Total research and development expenses $ 73,314 $ 63,141 $ 10,173 16 % 29 (1) Expenses presented for the Microbiome program exclude collaboration revenue related to expense reimbursements under the Allergan Agreement as discussed in Note 8 to the Condensed Consolidated Financial Statements. Research and development expenses were $73.3 million for the nine months ended September 30, 2020 compared to $63.1 million for the same period in 2019. The increase was due to an increase of $7.7 million in research and development expenses related to the HBV Cure program and an increase of $2.4 million in research and development expenses related to the Microbiome program. These increases were primarily due to increases in clinical activities, chemistry and manufacturing control activities to support VBR, 2158, 3733 and microbiome clinical trials and increased salary and benefits due to additional employees. Research and development expenses include non-cash stock-based compensation expenses of $8.3 million for both the nine months ended September 30, 2020 and 2019. General and Administrative Expense The following table summarizes the period-over-period changes in our general and administrative expenses (in thousands, except for percentages): Nine Months Ended September 30, $ Change % Change 2020 2019 2020 vs. 2019 2020 vs. 2019 General and administrative expenses $ 29,888 $ 22,085 $ 7,803 35 % General and administrative expense consists primarily of salaries, consulting fees and other related costs, professional fees for legal services, accounting and tax services, insurance and travel expenses, as well as the stock-based compensation expense associated with equity awards to our employees, consultants, and directors. General and administrative expenses were $29.9 million for the nine months ended September 30, 2020 compared to $22.1 million for the same period in 2019. The increase was primarily driven by an increase of $2.7 million in professional fees due to the amortized incremental contract costs associated with entering into the BeiGene Agreement, $1.3 million in salary and benefits, $4.1 million in stock-based compensation expense, $0.4 million in equipment rental and $0.1 million in recruitment expenses due to additional employees partially offset by a decrease of $0.7 million in travel related expenses due to state and local laws restricting travel in response to the COVID-19 pandemic. General and administrative expenses include non-cash stock-based compensation expenses of $9.8 million for the nine months ended September 30, 2020 and $5.7 million for the same period in 2019. Stock-based compensation expense for the nine months ended September 30, 2019 includes the reversal of previously recognized expense of $3.6 million related to forfeited awards resulting from the departure of one of the Company’s former officers during the period. Liquidity and Capital Resources Sources of Liquidity As a result of our significant research and development expenditures and the lack of any FDA-approved products to generate product sales revenue, we have not been profitable and have generated operating losses since we were incorporated in October 2005. We have funded our operations through September 30, 2020 principally through equity financings, raising an aggregate of $546.4 million in net proceeds, and strategic collaborations, raising an aggregate of $90.0 million through upfront payments. Cash Flows for the Nine Months Ended September 30, 2020 and 2019 The following table summarizes our cash flow activities (in thousands): Nine Months Ended September 30, Cash provided by (used in): 2020 2019 Operating activities $ (37,688 ) $ (63,539 ) Investing activities 47,355 44,704 Financing activities $ 1,912 $ 2,231 30 Net Cash from Operating Activities Net cash used in operating activities was $37.7 million for the nine months ended September 30, 2020. This was primarily due to a $22.7 million net loss, $0.1 million of accretion of discount of marketable securities and a decrease of $36.8 million of operating assets and liabilities, which includes the recognition of the remaining deferred revenue balance of $36.0 million as revenue during the nine months ended September 30, 2020 in connection with AbbVie’s decision to terminate the Allergan Agreement as discussed in Note 8. These decreases were partially offset by $18.1 million non-cash expense recorded for stock-based compensation, $3.5 million of amortization of operating lease right-of-use (ROU) assets and $0.4 million of depreciation and amortization expense. Net cash used in operating activities was $63.5 million for the nine months ended September 30, 2019. This was primarily due to a $70.6 million net loss, $1.5 million of accretion of discount of marketable securities and a decrease of $9.3 million of operating assets and liabilities, which were offset by $14.0 million non-cash expense recorded for stock-based compensation, $3.3 million of amortization of operating lease ROU assets and $0.4 million of depreciation and amortization expense. Net Cash from Investing Activities Net cash provided by investing activities for the nine months ended September 30, 2020 was $47.4 million due to $165.3 million of redemptions of marketable securities and $35.6 million of sale of marketable securities, which were partially offset by the purchase of $153.0 million of marketable securities and $0.5 million of property and equipment. Net cash provided by investing activities for the nine months ended September 30, 2019 was $44.7 million primarily due to $166.9 million of redemptions of marketable securities and $28.7 million of sale of marketable securities, which were partially offset by the purchase of $149.3 million of marketable securities and $1.5 million of property and equipment. Net Cash from Financing Activities Net cash provided by financing activities for the nine months ended September 30, 2020 was $1.9 million resulting from the exercise of stock options to purchase 172,779 shares of common stock and the issuance of 42,266 shares of common stock under our ESPP. Net cash provided by financing activities for the nine months ended September 30, 2019 was $2.2 million resulting from the exercise of stock options to purchase 243,481 shares of common stock and the issuance of 36,804 shares of common stock under our ESPP. Funding Requirements We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research, development and clinical studies of our product candidates and pursue our intellectual property strategy. Furthermore, we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. We monitor our cash needs and the status of the capital markets on a continuous basis. From time to time, we opportunistically raise capital and have done so numerous times by issuing equity securities, most recently in December 2019. We intend to continue to raise capital when and as needed and at the time and in the manner most advantageous to us. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact our ability to access capital as and when needed. 31 We expect that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including: • the scope, progress, timing, results and costs of our ongoing drug discovery, nonclinical development, laboratory testing and clinical studies of our product candidates and any additional clinical studies we may conduct in the future; • the extent to which we further acquire or in-license other product candidates and technologies; • our ability to manufacture, and to contract with third parties to manufacture, adequate supplies of our product candidates for our clinical studies and any eventual commercialization; • the costs, timing and outcome of regulatory review of our product candidates; • the costs and timing of recruiting additional employees to support the growth of our business; • the costs of preparing, filing and prosecuting patent applications in the United States and abroad, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and • our ability to establish and maintain collaborations on favorable terms, if at all. Identifying potential product candidates and conducting nonclinical testing and clinical studies is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of therapeutics that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financings to achieve our business objectives. Adequate additional financings may not be available to us on acceptable terms, or at all. 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 and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common 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 or declaring dividends. If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. 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 future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Off-Balance Sheet Arrangements None. Contractual Obligations There were no material changes in our commitments under contractual obligations as disclosed in our 2019 Annual Report. 32 Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to our quantitative and qualitative disclosures about market risk as compared to the quantitative and qualitative disclosures about market risk described in our 2019 Annual Report.