What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-06 · 46 added, 37 removed, 102 unchanged (45% of the section changed)

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We have reported positive results from two Phase 3 clinical trials evaluating the effect of sotagliflozin on long-term outcomes related to cardiovascular death and heart failure in approximately 10,500 and 1,200 patients, respectively.

We are now working towards an application for regulatory approval to market sotagliflozin for heart failure and seeking a strategic collaboration for the commercialization of sotagliflozin, if approved.

We are now preparing an application for regulatory approval to market sotagliflozin for heart failure in the United States and, if approved, for the commercial launch of sotagliflozin in the United States.

We have reported positive results from three Phase 3 clinical trials evaluating the effect of sotagliflozin on type 1 diabetes in approximately 800, 800 and 1,400 patients, respectively.

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We seek to collaborate with other pharmaceutical and biotechnology companies with respect to drug discovery or the development and commercialization of certain of our drug candidates, particularly with respect to commercialization in territories outside the United States or commercialization in the United States for indications treated by primary care physicians, or when the collaboration may otherwise provide us with access to expertise and resources that we do not possess internally or are complementary to our own.

We have derived substantially all of our revenues from strategic collaborations and other research and development collaborations and technology licenses, as well as from commercial sales of our XERMELO product following its commercial launch in February 2017 until our sale of XERMELO and related assets to TerSera in September 2020.

Our collaborations and strategic alliances include arrangements with TerSera Therapeutics LLC, under which we are eligible to receive milestone and royalty payments relating to XERMELO in biliary tract cancer, and with Genentech, Inc., under which we are eligible to receive milestone and royalty payments relating to its UTTR1147a (IL-22 Fc) biotherapeutic drug candidate.

We have derived substantially all of our revenues from strategic collaborations and other research and development collaborations and technology licenses, as well as from commercial sales of XERMELO following our commercial launch of the product in February 2017 until our sale of XERMELO and related assets to TerSera in September 2020.

To date, we have generated a substantial portion of our revenues from a limited number of sources.

Our operating results and, in particular, our ability to generate additional revenues are dependent on many factors, including the success of our ongoing nonclinical and clinical development efforts and ability to obtain necessary regulatory approvals of the drug candidates which are the subject of such efforts;

TerSera’s ability to successfully develop and commercialize XERMELO for biliary tract cancer and our receipt of milestone payments and royalties from such efforts;

the ability of our collaborators and licensees to successfully develop and commercialize products and our receipt of milestone payments and royalties from such efforts;

our success in establishing new collaborations and licenses, particularly for the commercialization of sotagliflozin for heart failure;

and general and industry-specific economic conditions which may affect research and development expenditures.

Future revenues from our sale of XERMELO to TerSera are uncertain because they depend on the achievement of milestones and payment of royalties we earn from TerSera’s development and commercialization of XERMELO in biliary tract cancer.

Future revenues from our collaborations and strategic licenses are uncertain because they depend on the achievement of milestones and payment of royalties we earn from the development and commercialization efforts of our collaborators and licensees.

Our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of our potential future collaborators and licensees, and to negotiate agreements that we believe are in our long-term best interests.

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Because of these and other factors, our operating results have fluctuated in the past and are likely to do so in the future, and we do not believe that period-to-period comparisons of our operating results are a good indication of our future performance.

Since our inception, we have incurred significant losses and, as of March 31, 2021, we had an accumulated deficit of $1.4 billion.

Since our inception, we have incurred significant losses and, as of June 30, 2021, we had an accumulated deficit of $1.4 billion.

Our losses have resulted principally from costs incurred in research and development, selling, general and administrative costs associated with our operations, and non-cash stock-based compensation expenses associated with stock options and restricted stock units granted to employees and consultants.

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Results of Operations

Total revenues and dollar and percentage changes as compared to the corresponding period in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended March 31,

Total revenues and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Total revenues $ 0.2 $ 9.2 $ 0.3 $ 17.2

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Percentage decrease (97) % (98) %

• Net product revenue – Net product revenue for the three months ended March 31, 2020 was $7.9 million.

• Net product revenue – Net product revenue for the three months ended June 30, 2020 was $9.0 million, and for the six months ended June 30, 2020 was $16.9 million.

We sold XERMELO and related assets to TerSera on September 8, 2020.

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Revenue recognition policies require estimates of the aforementioned sales allowances each period.

• Royalties and other revenue – Royalty revenue for the three months ended March 31, 2020 was $0.1 million from the product sales of XERMELO by Ipsen in countries outside the United States.

• Royalties and other revenue – Royalties and other revenues for the three months ended June 30, 2021 increased 31% to $0.2 million, and for the six months ended June 30, 2021 decreased 13% to $0.26 million as compared to the corresponding periods in 2020 primarily due to milestone payments from a licensing agreement.

Royalties and other revenues for the three months ended June 30, 2020 were $0.2 million, and for the six months ended June 30, 2020 were $0.3 million, primarily from royalties of product sales of XERMELO by Ipsen in countries outside the United States.

Cost of Sales

Cost of sales consists of third-party manufacturing costs, freight and indirect overhead costs associated with sales of XERMELO.

Cost of sales was $0.6 million for the three months ended March 31, 2020 and included $0.4 million of amortization of intangible assets relating to XERMELO.

Cost of sales was $0.7 million for the three months ended June 30, 2020, and was $1.3 million for the six months ended June 30, 2020, and included $0.4 million and $0.9 million, respectively, of amortization of intangible assets relating to XERMELO.

Research and Development Expenses

Research and development expenses and dollar and percentage changes as compared to the corresponding period in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended March 31,

Research and development expenses and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Total research and development expense $ 10.3 $ 57.3 $ 22.9 $ 112.5

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Research and development expenses consist primarily of third-party and other services principally related to nonclinical and clinical development activities, salaries and other personnel-related expenses, stock-based compensation expense, and facility and equipment costs.

• Third-party and other services – Third-party and other services for the three months ended March 31, 2021 decreased 84% to $7.2 million as compared to the corresponding period in 2020 primarily due to decreases in external clinical development costs relating to sotagliflozin subsequent to the wind down of the activities beginning in March 2020.

• Third-party and other services – Third-party and other services for the three months ended June 30, 2021 decreased 89% to $5.5 million, and for the six months ended June 30, 2021 decreased 87% to $12.7 million, as compared to the corresponding periods in 2020 primarily due to decreases in external clinical development costs relating to sotagliflozin subsequent to the wind down of the activities beginning in March 2020.

Third-party and other services relate principally to our clinical trial and related development activities, such as nonclinical and clinical studies and contract manufacturing.

• Personnel – Personnel costs for the three months ended March 31, 2021 decreased 48% to $2.9 million as compared to the corresponding period in 2020, primarily due to lower employee salaries and benefit costs as a result of the reduction in force of our personnel in September 2020.

• Personnel – Personnel costs for the three months ended June 30, 2021 decreased 51% to $2.2 million, and for the six months ended June 30, 2021 decreased 49% to $5.1 million, as compared to the corresponding periods in 2020, primarily due to lower employee salaries and benefit costs as a result of the reduction in force of our personnel in September 2020.

Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

• Stock-based compensation – Stock-based compensation expense for the three months ended March 31, 2021 decreased 41% to $1.3 million as compared to the corresponding period in 2020, primarily due to cancellation of unvested share-based awards as a result of the reduction in force of our personnel in September 2020.

• Facilities and equipment – Facilities and equipment costs for the three months ended March 31, 2021 and 2020 was $0.3 million and $0.7 million, respectively.

• Other – Other costs for the three months ended March 31, 2021 decreased 38% to $0.9 million as compared to the corresponding period in 2020, primarily due to lower costs of travel.

• Stock-based compensation – Stock-based compensation expenses for the three months ended June 30, 2021 decreased 39% to $1.2 million, and for the six months ended June 30, 2021 decreased 40% to $2.5 million, as compared to the corresponding periods in 2020, primarily due to cancellation of unvested share-based awards as a result of the reduction in force of our personnel in September 2020.

• Facilities and equipment – Facilities and equipment costs for the three months ended June 30, 2021 decreased 39% to $0.4 million, and for the six months ended June 30, 2021 decreased 45% to $0.7 million, as compared to the corresponding periods in 2020, primarily due to lower depreciation expense subsequent to the sale of our facilities in December 2020.

• Other – Other costs for the three months ended June 30, 2021 decreased 27% to $1.0 million, and for the six months ended June 30, 2021 decreased 33% to $1.9 million, as compared to the corresponding periods in 2020, primarily due to lower costs of insurance and travel.

Selling, General and Administrative Expenses

Selling, general and administrative expenses and dollar and percentage changes as compared to the corresponding period in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended March 31,

Selling, general and administrative expenses and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Total selling, general and administrative expense $ 7.9 $ 14.1 $ 16.2 $ 28.8

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Selling, general and administrative expenses consist primarily of personnel costs to support our research and development activities, professional and consulting fees, stock-based compensation expense, and facility and equipment costs.

• Personnel – Personnel costs for the three months ended March 31, 2021 decreased 58% to $3.2 million as compared to the corresponding period in 2020, primarily due to lower employee salaries and benefit costs as a result of the reduction in force of our personnel in September 2020.

• Personnel – Personnel costs for the three months ended June 30, 2021 decreased 65% to $2.4 million, and for the six months ended June 30, 2021 decreased 61% to $5.5 million, as compared to the corresponding periods in 2020, primarily due to lower employee salaries and benefit costs as a result of the reduction in force of our personnel in September 2020.

Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

• Professional and consulting fees – Professional and consulting fees for the three months ended March 31, 2021 decreased 16% to $2.4 million as compared to the corresponding period in 2020, primarily due to lower marketing expenses, partially offset by higher legal fees.

• Stock-based compensation – Stock-based compensation expense for the three months ended March 31, 2021 decreased 31% to $1.6 million as compared to the corresponding period in 2020, primarily due to cancellation of unvested share-based awards as a result of the reduction in force of our personnel in September 2020.

• Facilities and equipment – Facilities and equipment costs for the three months ended March 31, 2021 and 2020 were $0.3 million and $0.5 million, respectively.

• Other – Other costs for the three months ended March 31, 2021 decreased 50% to $0.8 million as compared to the corresponding period in 2020, primarily due to decreases in travel expenses due to the COVID-19 pandemic.

• Professional and consulting fees – Professional and consulting fees for the three months ended June 30, 2021 decreased 13% to $2.8 million, and for the six months ended June 30, 2021 decreased 14% to $5.2 million, as compared to the corresponding periods in 2020, primarily due to lower marketing expenses, partially offset by higher legal fees.

• Stock-based compensation – Stock-based compensation expenses for the three months ended June 30, 2021 decreased 31% to $1.6 million, and for the six months ended June 30, 2021 decreased 31% to $3.2 million, as compared to the corresponding periods in 2020, primarily due to cancellation of unvested share-based awards as a result of the reduction in force of our personnel in September 2020.

• Facilities and equipment – Facilities and equipment costs for the three months ended June 30, 2021 decreased 19% to $0.4 million, and for the six months ended June 30, 2021 decreased 26% to $0.7 million, as compared to the corresponding periods in 2020, primarily due to lower property taxes and depreciation expense subsequent to the sale of our facilities in December 2020.

• Other – Other costs for the three months ended June 30, 2021 decreased 41% to $0.8 million, and for the six months ended June 30, 2021 decreased 46% to $1.6 million, as compared to the corresponding periods in 2020, primarily due to decreases in travel and training expenses due to the COVID-19 pandemic.

Impairment Loss on Buildings

In July 2020, our subsidiary, Lex-Gen Woodlands, L.P., entered into a real estate purchase and sale agreement to sell our facilities in the Woodlands, Texas.

We recognized an impairment loss of $1.6 million as a result of writing down the buildings to the estimated net selling price.

Interest Expense and Interest and Other Income, Net

Interest Expense .

Interest expense decreased 97% to $0.2 million for the three months ended March 31, 2021, primarily due to the $150 million payoff of the BioPharma term loan in September 2020 and the $75.8 million exchange of convertible notes in September and October 2020.

Interest expense for the three and six months ended June 30, 2021 decreased 97% to $0.2 million, and $0.3 million, respectively, as compared to the corresponding periods in 2020, primarily due to our repayment of our $150 million BioPharma term loan in September 2020 and our exchange of $75.8 million in aggregate principal amount of Convertible Notes in September and October 2020.

Interest and Other Income, Net.

Interest and other income, net for the three months ended March 31, 2021 decreased 95% from $1.0 million in the corresponding period in 2020.

Interest and other income, net for each of the three and six months ended June 30, 2021 was $0.1 million, and for the three and six months ended June 30, 2020 was $0.6 million and $1.6 million, respectively.

Net Loss and Net Loss per Common Share

Net loss and Net loss per Common Share.

Net loss was $21.0 million, or $0.15 per share, in the three months ended March 31, 2021 as compared to $66.6 million, or $0.63 per share, in the corresponding period in 2020.

Net loss was $18.1 million, or $0.13 per share, in the three months ended June 30, 2021 as compared to $69.1 million, or $0.65 per share, in the corresponding period in 2020.

Net loss was $39.0 million, or $0.27 per share, in the six months ended June 30, 2021 as compared to $135.7 million, or $1.27 per share, in the corresponding period in 2020.

Our quarterly operating results have fluctuated in the past and are likely to do so in the future, and we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance.

Liquidity and Capital Resources

We have financed our operations from inception primarily through sales of common and preferred stock, contract and milestone payments we received under our strategic and other collaborations, target validation, database subscription and technology license agreements, product sales, government grants and contracts, and financing under debt and lease arrangements.

We have also financed certain of our research and development activities under our agreements with Symphony Icon, Inc.

As of March 31, 2021, we had $141.4 million in cash, cash equivalents and short-term investments.

We have financed our operations from inception primarily through sales of common and preferred stock, contract and milestone payments we received under our collaborations and strategic licenses, target validation, database subscription and technology license agreements, product sales, government grants and contracts, and financing under debt and lease arrangements.

We have also financed certain of our research and development activities under financing arrangements with Symphony Icon, Inc.

As of June 30, 2021, we had $118.5 million in cash, cash equivalents and short-term investments.

As of December 31, 2020, we had $152.3 million in cash, cash equivalents and short-term investments.

We used cash of $25.2 million from operations in the three months ended March 31, 2021.

We used cash of $47.0 million from operations in the six months ended June 30, 2021.

This consisted primarily of the net loss for the period of $39.0 million and a net decrease in operating liabilities net of assets of $13.8 million, partially offset by non-cash charges of $5.6 million related to stock-based compensation expense.

Investing activities used cash of $17.7 million in the three months ended March 31, 2021, primarily due to net purchases of investments.

Financing activities provided cash of $14.3 million, primarily as a result of $16.9 million net proceeds from the sale of common stock under an Open Market Sale agreement, which was partially offset by $2.7 million used to repurchase common stock.

Investing activities used cash of $3.6 million in the six months ended June 30, 2021, primarily due to net purchases of investments and $1.0 million of asset purchases.

Financing activities provided cash of $14.2 million, primarily as a result of $16.9 million net proceeds from the sale of common stock under our Open Market Sale Agreement SM with Jefferies LLC which was partially offset by $2.7 million used to repurchase common stock.

Other commitments.

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In December 2020, our subsidiary, Lex-Gen Woodlands, L.P., sold our facilities in The Woodlands, Texas for $11.9 million.

Concurrent with such sale, we entered into a leaseback agreement with respect to 38,000 square feet of such facilities for a period of up to six months, with monthly gross rent payments of $101,000.

In February 2021, we leased a 25,000 square-foot office space in The Woodlands, Texas to which we plan to relocate our corporate offices.

Concurrent with such sale, we entered into a leaseback agreement with respect to 38,000 square feet of such facilities for a period of up to six months, with monthly gross rent payments of $101,000, which ended on June 15, 2021.

In February 2021, we leased a 25,000 square-foot office space in The Woodlands, Texas and in June 2021, we relocated our corporate offices.

The term of the sublease extends from March 1, 2021 through August 31, 2025, and provides for escalating yearly base rent payments starting at $506,000 and increasing to $557,000 in the final year of the lease.

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Our future capital requirements will be substantial and will depend on many factors, including the success of our ongoing nonclinical and clinical development efforts and the ability to obtain necessary regulatory approvals of the drug candidates which are the subject of such efforts;

TerSera’s ability to successfully develop and commercialize XERMELO for biliary tract cancer and our receipt of milestone payments and royalties from such efforts;

the ability of our collaborators and licensees to successfully develop and commercialize products and our receipt of milestone payments and royalties from such efforts;

our success in establishing new collaborations and licenses, particularly for the commercialization of sotagliflozin for heart failure;

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We currently do not hedge interest rate exposure or hold any derivative financial instruments in our investment portfolio.

We had approximately $141.4 million in cash and cash equivalents and short-term investments as of March 31, 2021.

We had approximately $118.5 million in cash and cash equivalents and short-term investments as of June 30, 2021.

We believe that the working capital available to us will be sufficient to meet our cash requirements for at least the next 12 months.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis