Mirum Pharmaceuticals, Inc. 10-Q

Item 1. Financial Statements. Mirum Pharmaceuticals, Inc. Condensed Consolidated Balance Sheets (In thousands, except share and per share data) September 30, December 31, 2020 2019 (Unaudited) (Note 2) Assets Current assets: Cash and cash equivalents $ 48,778 $ 11,970 Short-term investments 84,971 104,690 Prepaid expenses and other current assets 4,402 2,703 Total current assets 138,151 119,363 Long-term investments — 23,292 Property and equipment, net 1,349 1,372 Operating lease right-of-use assets 2,029 2,361 Other assets 336 324 Total assets $ 141,865 $ 146,712 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 5,177 $ 3,351 Accrued expenses 12,999 9,328 Operating lease liabilities 616 397 Total current liabilities 18,792 13,076 Operating lease liabilities, noncurrent 2,788 3,251 Other liabilities 30 36 Total liabilities 21,610 16,363 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of September 30, 2020 and December 31, 2019, respectively; zero shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; and liquidation value of $0 as of September 30, 2020 and December 31, 2019, respectively — — Common stock, $0.0001 par value; 200,000,000 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 25,500,340 shares issued and 25,210,885 shares outstanding, excluding 289,455 shares subject to repurchase as of September 30, 2020; 22,989,987 shares issued and 22,600,338 shares outstanding, excluding 389,649 shares subject to repurchase as of December 31, 2019 3 2 Additional paid-in capital 256,048 200,119 Accumulated deficit (135,968 ) (69,901 ) Accumulated other comprehensive income 172 129 Total stockholders’ equity 120,255 130,349 Total liabilities and stockholders’ equity $ 141,865 $ 146,712 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 1 Mirum Pharmaceuticals, Inc. Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Operating expenses: Research and development $ 15,984 $ 12,159 $ 51,879 $ 28,611 General and administrative 5,732 3,708 15,466 7,474 Total operating expenses 21,716 15,867 67,345 36,085 Loss from operations (21,716 ) (15,867 ) (67,345 ) (36,085 ) Other income (expense): Interest income 237 785 1,391 1,485 Other income (expense), net (30 ) (5 ) (109 ) (1 ) Net loss before provision for income taxes (21,509 ) (15,087 ) (66,063 ) (34,601 ) Provision for (benefit from) income taxes (3 ) — 4 — Net loss $ (21,506 ) $ (15,087 ) $ (66,067 ) $ (34,601 ) Net loss per share, basic and diluted $ (0.86 ) $ (0.84 ) $ (2.65 ) $ (4.47 ) Weighted-average shares of common stock outstanding, basic and diluted 25,132,916 17,996,065 24,965,178 7,745,241 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 Mirum Pharmaceuticals, Inc. Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (In thousands) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net loss $ (21,506 ) $ (15,087 ) $ (66,067 ) $ (34,601 ) Other comprehensive gain (loss): Unrealized gain (loss) on available-for-sale investments (151 ) 77 39 123 Cumulative translation adjustments 5 (7 ) 4 (25 ) Comprehensive loss $ (21,652 ) $ (15,017 ) $ (66,024 ) $ (34,503 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Mirum Pharmaceuticals, Inc. Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) (In thousands, except share and per share data) Preferred Stock Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders’ Shares Amount Shares Amount Capital Deficit Income (Loss) Equity Balance as of December 31, 2019 — $ — 22,600,338 $ 2 $ 200,119 $ (69,901 ) $ 129 $ 130,349 Issuance of common stock in follow-on public offering, net of issuance costs of $3,342 — — 2,400,000 1 44,658 — — 44,659 Restricted common stock vested in the period — — 33,398 — — — — — Stock-based compensation — — — — 2,573 — — 2,573 Net loss — — — — — (21,310 ) — (21,310 ) Other comprehensive loss — — — — — — (153 ) (153 ) Balance as of March 31, 2020 — $ — 25,033,736 $ 3 $ 247,350 $ (91,211 ) $ (24 ) $ 156,118 Issuance of common stock in connection with common stock option exercises — — 4,203 — 25 — — 25 Restricted common stock vested in the period — — 33,398 — — — — — Stock-based compensation — — — — 2,974 — — 2,974 Net loss — — — — — (23,251 ) — (23,251 ) Other comprehensive income — — — — — — 342 342 Balance as of June 30, 2020 — $ — 25,071,337 $ 3 $ 250,349 $ (114,462 ) $ 318 $ 136,208 Issuance of common stock in at-the-market offering, net of issuance costs of $138 — — 98,708 — 2,244 — — 2,244 Issuance of common stock in connection with common stock option exercises — — 7,442 — 27 — — 27 Restricted common stock vested in the period — — 33,398 — — — — — Stock-based compensation — — — — 3,428 — — 3,428 Net loss — — — — — (21,506 ) — (21,506 ) Other comprehensive loss — — — — — — (146 ) (146 ) Balance as of September 30, 2020 — $ — 25,210,885 $ 3 $ 256,048 $ (135,968 ) $ 172 $ 120,255 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Mirum Pharmaceuticals, Inc. Condensed Consolidated Statement of Redeemable Convertible Preferred Stock, Redeemable Common Stock and Stockholders’ Equity (Deficit) (Unaudited) (In thousands, except share and per share data) Series A Redeemable Convertible Preferred Stock Redeemable Common Stock Preferred Stock Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders’ Equity Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Income (Deficit) Balance as of December 31, 2018 59,908,284 $ 59,849 1,859,151 $ 6,990 — $ — 636,719 $ 1 $ 34 $ (17,348 ) $ — $ (17,313 ) Restricted common stock vested in the period — — — — — — 35,156 — — — — — Stock-based compensation — — — — — — — — 218 — — 218 Net loss — — — — — — — — — (5,957 ) — (5,957 ) Balance as of March 31, 2019 59,908,284 $ 59,849 1,859,151 $ 6,990 — $ — 671,875 $ 1 $ 252 $ (23,305 ) $ — $ (23,052 ) Restricted common stock vested in the period — — — — — — 33,398 — — — — — Issuance of Series A redeemable convertible preferred stock at $1.00259507 per share, net of issuance costs of $23 59,844,699 59,977 — — — — — — — — — — Stock-based compensation — — — — — — — — 1,641 — — 1,641 Net loss — — — — — — — — — (13,557 ) — (13,557 ) Other comprehensive income — — — — — — — — — — 28 28 Balance as of June 30, 2019 119,752,983 $ 119,826 1,859,151 $ 6,990 — $ — 705,273 $ 1 $ 1,893 $ (36,862 ) $ 28 $ (34,940 ) Restricted common stock vested in the period — — — — — — 33,398 — — — — — Stock-based compensation — — — — — — — — 2,144 — — 2,144 Conversion of Series A redeemable convertible preferred stock into common stock on initial public offering (119,752,983 ) (119,826 ) — — — — 14,969,118 1 119,825 — — 119,826 Reclassification of redeemable common stock into common stock on initial public offering — — (1,859,151 ) (6,990 ) — — 1,859,151 — 6,990 — — 6,990 Issuance of common stock in initial public offering, net of issuance costs of $7,800 — — — — — — 5,000,000 — 67,200 — — 67,200 Net loss — — — — — — — — — (15,087 ) — (15,087 ) Other comprehensive income — — — — — — — — — — 70 70 Balance as of September 30, 2019 — $ — — $ — — $ — 22,566,940 $ 2 $ 198,052 $ (51,949 ) $ 98 $ 146,203 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Mirum Pharmaceuticals, Inc. Condensed Consolidated Statement of Cash Flows (Unaudited) (In thousands) Nine Months Ended September 30, 2020 2019 Operating activities Net loss $ (66,067 ) $ (34,601 ) Reconciliation of net loss to net cash used in operating activities: Stock-based compensation 8,975 4,003 Depreciation and amortization 220 80 Amortization of operating lease right-of-use assets 238 124 Net amortization (accretion) on investments 32 (199 ) Change in operating assets and liabilities: Prepaid expenses and other current assets (1,699 ) (3,046 ) Operating lease right-of-use assets 94 (33 ) Other assets — (84 ) Accounts payable, accrued expenses and other liabilities 5,655 8,079 Operating lease liabilities (244 ) 13 Net cash used in operating activities (52,796 ) (25,664 ) Investing activities Proceeds from maturities of investments 71,400 8,500 Proceeds from paydowns of investments 23,608 — Purchase of investments (51,991 ) (130,923 ) Purchase of property and equipment (197 ) (214 ) Net cash provided by (used in) investing activities 42,820 (122,637 ) Financing activities Proceeds from the issuance of Series A redeemable convertible preferred stock, net of issuance costs — 59,977 Proceeds from issuance of common stock in initial public offering, net of issuance costs — 67,200 Proceeds from issuance of common stock in public offering, net of issuance costs 46,903 — Proceeds from issuance of common stock pursuant to equity award plans 52 — Payment of deferred offering costs in connection with the shelf registration and sales agreement (175 ) — Net cash provided by financing activities 46,780 127,177 Effect of exchange rate on cash and cash equivalents 4 (25 ) Net increase (decrease) in cash and cash equivalents 36,808 (21,149 ) Cash and cash equivalents at beginning of period 11,970 51,963 Cash and cash equivalents at end of period $ 48,778 $ 30,814 Supplemental disclosure of cash flow information: Operating lease right-of-use asset obtained in exchange for operating lease liability $ — $ 1,444 Landlord paid tenant improvements $ — $ 455 Conversion of Series A redeemable convertible preferred stock into common stock on initial public offering $ — $ 119,826 Reclassification of redeemable common stock into common stock on initial public offering $ — $ 6,990 Property and equipment purchases included in accounts payable $ — $ 43 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Mirum Pharmaceuticals, Inc. Notes to Unaudited Condensed Consolidated Financial Statements (Unaudited) 1. Description of Business Mirum Pharmaceuticals, Inc. (the “Company”) was incorporated in the State of Delaware on May 2, 2018 and is headquartered in Foster City, California. The Company is a biopharmaceutical company focused on the development and commercialization of a late-stage pipeline of novel therapies for debilitating liver diseases. The Company’s pipeline consists of two clinical-stage product candidates, maralixibat and volixibat, with mechanisms of action that have potential utility across a wide range of orphan liver diseases. The Company commenced significant operations in November 2018. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Mirum Pharmaceuticals AG. All intercompany balances and transactions among the consolidated entities have been eliminated in consolidation. Reverse Stock Split On July 3, 2019, the Company effected a 1-for-8 reverse stock split of its common stock. The par value and the authorized number of shares of common stock were not adjusted as a result of the reverse stock split. The reverse stock split resulted in an adjustment to the conversion price of the Company’s Series A redeemable convertible preferred stock (the “Series A Preferred Stock”) to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. The accompanying consolidated financial statements and notes to the consolidated financial statements give retroactive effect to the reverse stock split for all periods presented. Follow-on Public Offering On January 13, 2020, the Company completed a follow-on public offering of its common stock, pursuant to which the Company sold 2,400,000 shares of common stock at a price of $20.00 per share, resulting in net proceeds of $44.7 million after deducting underwriting discounts, commissions and offering expenses. Shelf Registration and Sales Agreement On August 10, 2020, the Company filed a registration statement on Form S-3 (“Shelf Registration”) covering the sale of up to $300.0 million in corporate securities, which Shelf Registration was declared effective on August 12, 2020. On August 3, 2020, the Company entered into a sales agreement (“Sales Agreement”) with SVB Leerink LLC (“SVB Leerink”) pursuant to which the Company may elect to issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $75.0 million under the Shelf Registration through SVB Leerink acting as the sales agent and/or principal. During the three months ended September 30, 2020, the Company sold 98,708 shares of common stock in an at-the-market offering pursuant to the Sales Agreement at a weighted-average price of $24.13 per share, resulting in gross proceeds of $2.4 million. The net proceeds after deducting sales commissions to SVB Leerink and other issuance expenses were approximately $2.2 million. Liquidity The Company has a limited operating history, has incurred significant operating losses since its inception, and the revenue and income potential of the Company’s business and market are unproven. As of September 30, 2020, the Company had an accumulated deficit of $136.0 million and cash, cash equivalents and investments of $133.7 million, which is available to fund future operations. The Company believes that its cash, cash equivalents and investments as of September 30, 2020 provide sufficient capital resources to continue its operations for at least twelve months from the issuance date of the accompanying unaudited condensed consolidated financial statements. This estimate is based on the Company’s current assumptions, including assumptions relating to the timing of initiation of clinical trial activities, regulatory filings and approval and the timing of first commercial sales, and the Company’s ability to manage the amount and timing of its spend. As such, the unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities. 7 2. Su mmary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The unaudited interim financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. The unaudited condensed consolidated balance sheet as of December 31, 2019 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by GAAP for complete financial statements. The operating results presented in these unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for any future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2019, as filed with the SEC on March 12, 2020. Use of Estimates The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the financial statements and accompanying notes. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to accrued research and development expenses, the valuation of investments, equity awards and the valuation allowance of deferred tax assets resulting from net operating losses. These estimates and assumptions are based upon historical experience, knowledge of current events and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could differ materially from those estimates. In December 2019, a novel strain of coronavirus, which causes COVID-19, was identified. Due to the rapid and global spread of the virus, on March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. To slow the proliferation of COVID-19, governments have implemented extraordinary measures, which include the mandatory closure of businesses, restrictions on travel and gatherings, and quarantine and physical distancing requirements. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including clinical trial delays and costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets. There were no significant estimates contained in the preparation of the Company’s consolidated financial statements or impacts to the Company’s consolidated financial statements for the three or nine months ended September 30, 2020 that were directly a result of the COVID-19 pandemic. The Company is not aware of any specific event or circumstance that would require an update to its estimates, judgments and assumptions or a revision of the carrying value of the Company’s assets or liabilities as of the date of this filing. Significant Accounting Policies There have been no significant changes to the accounting policies during the nine months ended September 30, 2020, as compared to the significant accounting policies described in Note 2 of the “Notes to Consolidated Financial Statements” in the Company’s audited consolidated financial statements included in the Annual Report. Shelf Registration and Sales Agreement Deferred Offering Costs Deferred offering costs directly related to the August 2020 Shelf Registration and Sales Agreement primarily consist of legal, accounting, printing and SEC filing fees. These costs are reclassified to additional paid-in capital on a pro-rata basis as the Company completes offerings under the Shelf Registration, with any remaining deferred costs to be charged to results of operations at the end of the three-year life of the Shelf Registration. During the three and nine months ended September 30, 2020, the deferred offering costs reclassified to additional paid-in capital as a result of the transactions contemplated under the Sales Agreement is not significant. Net Loss Per Share Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average shares of common stock outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is 8 computed by dividing the net loss attributable to common stockholders by the weighted-average shares of common stock and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. Diluted net loss per share excludes the potential impact of the Company’s common stock subject to repurchase and common stock options because their effect would be anti-dilutive due to the Company’s net loss. Since the Company had a net loss in each of the periods presented, basic and diluted net loss per share were t he same. The following potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect: As of September 30, As of December 31, 2020 2019 Options to purchase common stock 5,038,421 3,366,812 Common stock subject to repurchase 289,455 389,649 Employee Stock Purchase Plan Contingently Issuable 21,488 — Total 5,349,364 3,756,461 Recently Adopted Accounting Pronouncements On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) , which eliminated the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 assets, the policy for timing and transfers between levels and the valuation process for Level 3 fair value measurements. The guidance modified disclosure requirements for investments in certain entities that calculate net asset value and clarifies the purpose of the measurement uncertainty disclosure. The guidance added requirements to disclose changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements and to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. There was no impact on the accompanying unaudited condensed consolidated financial statements as of the adoption date, January 1, 2020. Other recent accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company’s consolidated financial position, results of operations or cash flows. Recent Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires an entity to utilize a new impairment model that requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. The new guidance requires the use of forward-looking expected credit loss models based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new guidance. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses . This ASU does not change the core principle of the guidance in ASU 2016-13, instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses guidance. The FASB also subsequently issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 842), which did not change the core principle of the guidance in ASU 2016-13 but clarified that expected recoveries of amounts previously written off and expected to be written off should be included in the valuation account and should not exceed amounts previously written off and expected to be written off. In March 2020, the FASB issued ASU No. 2020-3, Codification Improvements to Financial Instruments which makes narrow-scope improvements to various financial instruments topics, including the new credit losses standard and clarifies the following areas (i) the contractual term of a net investment in a lease should be the contractual term used to measure expected credit losses; (ii) when an entity regains control of financial assets sold, an allowance for credit losses should be recorded. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 for public business entities, excluding smaller reporting companies. As a smaller reporting company, the guidance will be effective for the Company during the first quarter of 2023. The Company is in the process of assessing the impact adoption will have on its consolidated financial statements. 9 In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) . Th e guidance eliminates certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. This guidance also includes guidance to reduce complexity in certain areas, includin g recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual and interim periods in fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is cu rrently evaluating the impact this change will have on its consolidated financial statements. 3. Fair Value Measurements Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type as of September 30, 2020 and December 31, 2019 are presented in the following table (in thousands): September 30, 2020 Level 1 Level 2 Level 3 Total Financial assets: Money market fund $ 46,243 $ — $ — $ 46,243 U.S. treasury bills 29,989 — — 29,989 Corporate debt securities — 29,345 — 29,345 Commercial paper — 20,463 — 20,463 Asset backed securities — 5,174 — 5,174 Total $ 76,232 $ 54,982 $ — $ 131,214 December 31, 2019 Level 1 Level 2 Level 3 Total Financial assets: Money market fund $ 10,621 $ — $ — $ 10,621 Corporate debt securities — 41,668 — 41,668 Commercial paper — 35,016 — 35,016 U.S. government bonds — 22,511 — 22,511 Asset-backed securities — 28,787 — 28,787 Total $ 10,621 $ 127,982 $ — $ 138,603 The carrying amounts of certain financial instruments such as cash and cash equivalents, prepaid expenses, other current assets, accounts payable, accrued expenses, and other current liabilities as of September 30, 2020 and December 31, 2019 approximate their related fair values due to the short-term maturities of these instruments. The fair value of certain financial instruments was measured and classified within Level 1 of the fair value hierarchy based on quoted prices. Certain financial instruments classified within Level 2 of the fair value hierarchy include the types of instruments that trade in markets that are not considered to be active, but are valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. 10 4. Financial Instruments The fair value and amortized cost of cash equivalents and available-for-sale investments by major security type are presented in the following table (in thousands): September 30, 2020 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Cash equivalents and investments: Money market fund $ 46,243 $ — $ — $ 46,243 U.S. treasury bills 29,988 1 — 29,989 Corporate debt securities 29,168 177 — 29,345 Commercial paper 20,463 — — 20,463 Asset backed securities 5,157 17 — 5,174 Total cash equivalents and investments $ 131,019 $ 195 $ — $ 131,214 Classified as: Cash equivalents $ 46,243 Short-term investments 84,971 Long-term investments — Total cash equivalents and investments $ 131,214 December 31, 2019 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Cash equivalents and investments: Money market fund $ 10,621 $ — $ — $ 10,621 Corporate debt securities 41,556 113 (1 ) 41,668 Commercial paper 35,016 — — 35,016 U.S. government bonds 22,492 19 — 22,511 Asset-backed securities 28,762 25 — 28,787 Total cash equivalents and investments $ 138,447 $ 157 $ (1 ) $ 138,603 Classified as: Cash equivalents $ 10,621 Short-term investments 104,690 Long-term investments 23,292 Total cash equivalents and investments $ 138,603 As of September 30, 2020, the remaining contractual maturities of available-for-sale debt securities were as follows (in thousands): Estimated Fair Value Due within one year $ 84,680 One to two years — More than two years 291 Total $ 84,971 During the three and nine months ended September 30, 2020 and 2019, there have been no significant realized gains or losses on available-for-sale investments , and the Company did not recognize any other-than-temporary impairment losses. 11 5. Accrued Expenses Accrued expenses consists of the following (in thousands): September 30, December 31, 2020 2019 Accrued clinical trials $ 4,564 $ 4,795 Accrued professional service fees 1,334 777 Accrued contract manufacturing and non-clinical costs 3,493 1,540 Accrued compensation and related benefits 3,608 2,216 Total accrued expenses $ 12,999 $ 9,328 6. Asset Acquisitions Assignment and License Agreement with Shire International GmbH On November 5, 2018, the Company entered into an Assignment and License Agreement (the “Shire Agreement”) with Shire International GmbH (“Shire”). Under the terms of the Shire Agreement, Shire granted the Company an exclusive, royalty bearing worldwide license to develop and commercialize its two product candidates, maralixibat and volixibat. As part of the Shire Agreement, the Company was assigned license agreements held by Shire with Satiogen Pharmaceuticals, Inc. (“Satiogen”), Pfizer Inc. (“Pfizer”) and Sanofi-Aventis Deutschland GmbH (“Sanofi”). The Company has the right to sublicense under the Shire Agreement and additionally has the right to sublicense under the Satiogen, Pfizer and Sanofi licenses subject to the terms of those license agreements. In consideration for the rights granted to the Company under the Shire Agreement, the Company made an upfront payment to Shire on November 5, 2018 of $7.5 million and issued Shire 1,859,151 shares of its redeemable common stock with an estimated fair value of $7.0 million, or $3.76 per share. The fair value of the shares was determined using an option pricing model with key assumptions as of the date of issuance including the probabilities of liquidity scenarios, enterprise value, time to liquidity, risk-free interest rates, volatility and discount for lack of marketability. The Company accounted for the transaction as an asset acquisition as substantially all of the fair value of the gross assets acquired were concentrated in a group of similar identifiable assets thus satisfying the requirements of the screen test in ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business . The assets acquired in the transaction were measured based on the upfront payment to Shire and the fair value of the common stock shares issued to Shire, as the fair value of the consideration given was more readily determinable than the fair value of the assets received. Because the assets had not yet received regulatory approval and have no alternative future use, the fair value attributable to these assets were initially recorded as in process research and development expenses. The Company is also obligated to pay Shire up to an aggregate of $109.5 million upon the achievement of certain clinical development and regulatory milestones for maralixibat in certain indications and an additional $25.0 million upon regulatory approval of maralixibat for each and every other indication. In addition, the Company is required to pay up to an aggregate of $30.0 million upon the achievement of certain clinical development and regulatory milestones for volixibat solely for the first indication sought. Upon commercialization, the Company is obligated to pay Shire product sales milestones on total licensed products up to an aggregate of $30.0 million. The Company is also obligated to pay tiered royalties with rates ranging from low double-digits to mid-teens based upon annual worldwide net sales for all licensed products; however, these royalties are reduced in part by royalties due under the Satiogen and Sanofi licenses, as discussed below, related to maralixibat and volixibat, as applicable. The Company’s royalty obligations will continue on a licensed product-by-licensed product and country-by-country basis until the later to occur of the expiration of the last valid claim in a licensed patent covering the applicable licensed product in such country, expiration of any regulatory exclusivity for the licensed product in a country and ten years after the first commercial sale of a licensed product in such country. In July 2019, the Company achieved a development milestone related to the initiation of the Phase 3 MARCH-PFIC clinical trial and made a $2.5 million payment to Shire. As of September 30, 2020, no additional milestones had been accrued as there were no other potential milestones yet considered probable. 12 In January 2019, the Company also entered into a Transition Services Agreement (“TSA”) with Shire, which covered services provided by Shire to transfer the researc h and development activities and the related know-how from Shire to the Company, including continuation of work on any existing clinical trials and manufacturing activities until fully transferred. A ll transition services were completed and all pass-through costs were settled as of June 30 , 2019 . As such, for the three and nine months ended September 30 , 2020, there were no expenses for Shire provided services or pass-through costs recorded. For the nine months ended September 30 , 2019, t he Compa ny recorded $ 0 . 4 million for services provided by Shire under the TSA . Additionally, the Company recorded a reduction of estimated expenses of $ 0.1 million for pass - through costs related to continuation of work on existing clinical trials and manufacturing activities for the nine months ended September 30 , 2019 . The reduction of estimated expenses for the nine months ended September 30 , 2019 was related to a final reconciliation of expenses and agreement on final amounts due to Shire. Satiogen License Through the Shire Agreement, the Company was assigned a license agreement with Satiogen pursuant to which the Company obtained an exclusive, worldwide license to certain patents and know-how, with the right to sublicense to a third party subject to certain financial considerations. The Company is obligated to pay to Satiogen up to an aggregate of $10.5 million upon the achievement of certain milestones, of which $0.5 million was for initiation of certain development activities, $5.0 million for the completion of regulatory approvals and $5.0 million for commercialization activities. Additionally, the Company will be required to pay a low single-digit royalty on net sales. The Company’s royalty obligations continue on a licensed product-by-licensed product and country-by-country basis until the expiration of the last valid claim in a licensed patent covering the applicable licensed product in such country. Royalty obligations under the Satiogen license are creditable against the royalty obligations to Shire under the Shire Agreement. In July 2019, the Company achieved a development milestone related to the initiation of the Phase 3 MARCH-PFIC clinical trial and made a $0.5 million payment to Satiogen. As of September 30, 2020, no additional milestones had been accrued as there were no other potential milestones yet considered probable. Pfizer License Through the Shire Agreement, the Company was assigned a license agreement with Pfizer pursuant to which the Company obtained an exclusive, worldwide license to certain Pfizer know-how with a right to sublicense. Upon commercialization of any product utilizing the licensed product, the Company will be required to pay to Pfizer a low single-digit royalty on net sales of product sold by the Company, its affiliates or sublicensees. The Company’s royalty obligations continue on a licensed product-by-licensed product basis until the eighth anniversary of the first commercial sale of such licensed product anywhere in the world. Sanofi License Through the Shire Agreement, the Company was assigned a license agreement with Sanofi pursuant to which the Company obtained an exclusive, worldwide license to certain patents and know-how with the right to sublicense to a third party subject to certain financial considerations. The Company is obligated to pay up to an aggregate of $36.0 million upon the achievement of certain regulatory, commercialization and product sales milestones. Additionally, upon commercialization, the Company is required to pay tiered royalties in the mid to high single-digit range based upon net sales of licensed products sold by the Company and sublicensees in a calendar year, subject to adjustments in certain circumstances. The Company’s royalty obligations continue on a licensed product-by-licensed product and country-by-country basis until the later to occur of the expiration of the last valid claim in a licensed patent covering the applicable licensed product in such country and ten years after the first commercial sale of a licensed product in such country. Royalty obligations under the Sanofi license are creditable against the royalty obligations to Shire under the Shire Agreement. As of September 30, 2020, no milestones had been accrued as there were no potential milestones yet considered probable. 7. Stockholders’ Equity (Deficit) In connection with the Company’s initial public offering in July 2019, all of the outstanding shares of the Company’s Series A Preferred Stock automatically converted into 14,969,118 shares of common stock and the 1,859,151 shares of the Company’s redeemable common stock classified in mezzanine equity were reclassified to permanent equity due to the expiration of the deemed redemption feature associated with the stock. Common Stock In August and October 2018, the Company issued 1,187,500 shares of common stock as founder shares for services rendered to the Company, valued at $0.0001 per share for consideration of approximately $950. On November 5, 2018, in connection with the issuance of the Series A Preferred Stock, vesting conditions were placed on 562,500 previously issued founder shares. These shares vest over 4 years and are subject to repurchase by the Company in the event of termination of services. Shares subject to repurchase 13 are not deemed, for accounting purposes, to be outstanding until those shares vest. In April 2019, the Company repurchased 25,78 2 shar es of the common stock from a former employee in connection with termination of employment. As of September 30, 2020 and December 31, 2019, 289,455 and 389,649 shares of common stock, respectively, were subject to repurchase by the Company. The unvested stock liability related to these shares is not significant to all periods presented. Each share of common stock is entitled to one voting right. Common stockholders are entitled to dividends when funds are legally available and declared by the Company’s board of directors. In August 2020, the Company entered into the Sales Agreement with SVB Leerink, pursuant to which the Company may elect to issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $75.0 million through SVB Leerink acting as the sales agent and/or principal. During the three months ended September 30, 2020, the Company sold 98,708 shares of common stock at a weighted-average price of $24.13 per share, resulting in gross proceeds of $2.4 million. The net proceeds to the Company after deducting sales commissions to SVB Leerink and other issuance expenses were approximately $2.2 million. The remaining capacity under the Sales Agreement is approximately $72.6 million as of September 30, 2020. Common Stock Reserved for Issuance Common stock reserved for issuance is as follows: As of September 30, As of December 31, 2020 2019 Stock options issued and outstanding 5,038,421 3,366,812 Reserved for future stock awards or option grants 1,328,688 1,112,443 Reserved for employee stock purchase plan 729,899 500,000 7,097,008 4,979,255 8. Stock-Based Compensation Equity Incentive Plans On November 5, 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”), which permits the granting of stock awards and incentive and nonstatutory stock options to employees, directors and consultants of the Company. In July 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan became effective on July 17, 2019. Under the 2019 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other stock or cash-based awards to individuals who are then employees, officers, directors or consultants of the Company. A total of 1,401,443 shares of common stock were approved to be initially reserved for issuance under the 2019 Plan, including 101,443 shares that remained available for issuance under the 2018 Plan as of July 17, 2019. Shares subject to outstanding awards under the 2018 Plan as of the effective date of the 2019 Plan that are subsequently canceled, forfeited or repurchased by the Company will be added to the shares reserved under the 2019 Plan. In addition, the number of shares of common stock available for issuance under the 2019 Plan will be automatically increased on the first day of each calendar year during the ten-year term of the 2019 Plan, beginning with January 1, 2020 and ending with January 1, 2029, by an amount equal to 5% of the outstanding number of shares of the Company’s common stock on December 31st of the preceding calendar year or such lesser amount as determined by the Company’s board of directors. As of September 30, 2020, 1,040,788 shares of common stock were available for issuance under the 2019 Plan. On March 18, 2020, the compensation committee of the Company’s board of directors approved and adopted the 2020 Inducement Plan (the “2020 Inducement Plan”). Under the 2020 Inducement Plan, the Company may grant nonstatutory stock options, stock appreciation rights, restricted stock and restricted stock units to new employees entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4) . The 2020 Inducement Plan authorized 750,000 shares of the Company’s common stock for future issuance. As of September 30, 2020, 287,900 shares of common stock were available for issuance under the 2020 Inducement Plan. 14 Stock Options The fair value of each employee and non-employee stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company estimated expected volatility based on the historical volatility of a group of biopharmaceutical companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The following assumptions were used to estimate the fair value of stock option awards granted during the following periods: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Exercise price $19.03-$26.59 $9.86-$15.00 $10.4-$26.59 $2.94-$15.00 Expected term (in years) 6.1 6.0-6.3 5.5-6.1 6.0-6.3 Expected volatility 92.45%-94.82% 75.31%-75.98% 77.07%-95.85% 73.88%-75.98% Risk-free interest rate 0.33%-0.40% 1.46%-1.89% 0.33%-1.73% 1.46%-2.46% Expected dividend yield — — — — Grant date fair value of options granted $14.25-$20.21 $6.62-$10.01 $7.38-$20.21 $6.62-$10.46 The following table summarizes stock option activity during the nine months ended September 30, 2020 (in thousands, except share and per share data): Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value Outstanding as of December 31, 2019 3,366,812 $ 5.14 9.3 $ 65,235 Granted 1,948,567 $ 17.75 Exercised (11,645 ) $ 4.40 Canceled and forfeited (265,313 ) $ 10.17 Outstanding as of September 30, 2020 5,038,421 $ 9.76 8.8 $ 48,657 Vested and exercisable as of September 30, 2020 1,271,544 $ 5.03 8.3 $ 18,204 Intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the common stock for the options that had exercise prices that were lower than the per share fair value of the common stock on the date of exercise. As of September 30, 2020, the total unrecognized stock-based compensation related to unvested stock option awards granted was $35.4 million, which the Company expects to recognize over a weighted-average period of approximately 2.9 years. Restricted Stock On November 5, 2018, in connection with the issuance of Series A Preferred Stock, the Company’s founders agreed to modify their outstanding shares of common stock to include vesting provisions that require continued service to the Company in order to vest in those shares. As such, the 562,500 modified shares of common stock became compensatory upon such modification. The total compensation cost resulting from the modification was $1.7 million. The modified shares have a four-year vesting period and a measurement date fair value of $2.936 per share. For the three months ended September 30, 2020 and 2019, 33,398 and 33,398 shares vested, respectively. For the nine months ended September 30, 2020 and 2019, 100,194 and 101,952 shares vested, respectively. As of September 30, 2020, the total unrecognized compensation expense related to unvested restricted stock was $0.8 million expected to be recognized over a weighted-average period of approximately 2.2 years. 15 2019 Employee Stock Purchase Plan In July 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective on July 17, 2019. A total of 500,000 shares of common stock were approved to be initially reserved for issuance under the ESPP. In addition, the number of shares of common stock available for issuance under the ESPP will be automatically increased on the first day of each calendar year during the first ten-years of the term of the ESPP, beginning with January 1, 2020 and ending with January 1, 2029, by an amount equal to the lessor of (i) 1% of the outstanding number of shares of common stock on December 31st of the preceding calendar year, (ii) 1,500,000 shares of common stock or (iii) such lesser amount as determined by the Company’s board of directors. As of September 30, 2020, no shares were issued under the ESPP and there were 729,899 shares available for future issuance. Stock-based compensation expense is reflected in the unaudited condensed consolidated statements of operations as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 General and administrative $ 2,067 $ 1,314 $ 5,313 $ 2,464 Research and development 1,361 830 3,662 1,539 Total $ 3,428 $ 2,144 $ 8,975 $ 4,003 9. Leases In January 2019, the Company entered into an operating lease agreement for office space, which consisted of approximately 5,600 square feet (the “Lease”). Pursuant to the Lease, the lease term is approximately four years with an option to extend the term for one five-year term, which at the time was not reasonably assured of exercise and therefore, not included in the lease term. The Lease contained a tenant improvement allowance of $0.4 million, which has been recorded as leasehold improvements in the accompanying consolidated balance sheets with a corresponding reduction of the right-of-use (“ROU”) asset at inception of the Lease. Rent payments commenced in August 2019. In November 2019, the Company amended the Lease to extend the term through March 2025. This extension was accounted for as a lease modification and the Company recorded an increase to the ROU asset and lease liability of $0.6 million at the time of the amendment. Additionally, pursuant to the Lease, as amended, the Company expanded the office space by 5,555 square feet for a five-year term expiring in March 2025. The Company accounted for this expanded space as a separate contract as there were material additional rights of use that were not included under the terms of the initial Lease. The Lease, as amended, contained a tenant improvement allowance of $0.8 million in connection with the expanded space, which has been recorded as leasehold improvements on the accompanying consolidated balance sheet with a corresponding reduction of the ROU asset at inception of the lease for the expanded space. The ROU and corresponding lease liabilities were estimated using a weighted-average incremental borrowing rate of 8%. As of September 30, 2020, the Company recorded an aggregate ROU asset of $2.0 million and an aggregate lease liability of $3.4 million in the accompanying consolidated balance sheet. The weighted-average remaining lease term is 4.4 years. As of September 30, 2020, undiscounted future minimum payments under the Company’s operating leases are as follows: Year Ending December 31, Undiscounted Rent Payments 2020 (remaining three months) $ 213 2021 866 2022 892 2023 920 2024 929 2025 230 Total undiscounted lease payments 4,050 Less: imputed interest (646 ) Total lease liability $ 3,404 16 Rent expense was $0.2 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively, and $0.5 million and $0.2 million for the nine months ended September 30, 2020 and 2019, respectively. Variable lease payments for operating expenses were immaterial for the three and nine months ended September 30, 2020 and 2019. 10. Subsequent Event Pursuant to the Sales Agreement, subsequent to September 30, 2020 and through November 12, 2020, the Company sold 189,757 shares of common stock in an at-the-market offering at a weighted-average price of $19.86 per share, resulting in gross proceeds of $3.8 million. The net proceeds to the Company after deducting sales commissions to SVB Leerink and other issuance expenses were approximately $ 3.6 million. 17