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Item 7. Management’s Discussion and Analysis

2021-03-09 compared with 2020-03-12 · 142 added, 83 removed, 137 unchanged (62% of the section changed)

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Our pipeline consists of two clinical-stage product candidates with mechanisms of action that have potential utility across a wide range of orphan cholestatic liver diseases.

We are initially developing maralixibat for the treatment of pediatric patients with Alagille syndrome (“ALGS”) and progressive familial intrahepatic cholestasis (“PFIC”).

Based on improvements in pruritus, or itching, and other outcomes and disease markers observed in Phase 2 clinical trials, we are planning to initiate a rolling submission of a New Drug Application (“NDA”), for the treatment of cholestatic pruritus associated with ALGS in the third quarter of 2020.

We expect to complete the rolling submission of our NDA in the first quarter of 2021, and pending a successful submission, we will plan for a potential launch in ALGS in the second half of 2021.

We are also conducting the Phase 3 MARCH clinical trial in PFIC, from which we expect to complete enrollment in the second quarter of 2020 and announce topline Phase 3 data in late-2020.

Further, we are also conducting an analysis of our long-term treatment data in PFIC against a natural history control group in conjunction with the NAtural course and Prognosis of PFIC and Effect of biliary Diversion Consortium and plan to share these results with regulators in 2020.

We are developing volixibat for the treatment of adult patients with cholestatic liver diseases and expect to initiate our first clinical trial in these indications in late 2020.

We are developing maralixibat for the treatment of pediatric patients with Alagille syndrome (“ALGS”), progressive familial intrahepatic cholestasis (“PFIC”) and biliary atresia (“BA”).

In the third quarter of 2020, we initiated a rolling submission of a New Drug Application (“NDA”), for the treatment of cholestatic pruritus in patients with ALGS to the U.S.

Food and Drug Administration (“FDA”) and subsequently completed our NDA submission in January 2021.

We are planning for a potential launch in ALGS in the second half of 2021.

We have also submitted a marketing authorization application (“MAA”) to the European Medicines Agency (“EMA”) for maralixibat for the treatment of PFIC2, which has been accepted for review.

In parallel, we are also conducting the Phase 3 MARCH clinical trial in PFIC evaluating higher doses of maralixibat in a broader population of PFIC subtypes, for which we expect to complete enrollment in the second quarter of 2021 and announce topline data in early 2022.

Additionally, we have initiated recruitment for the EMBARK Phase 2 clinical trial for BA.

We are developing volixibat for the treatment of adult patients with cholestatic liver diseases, including primary sclerosing cholangitis (“PSC”), intrahepatic cholestasis of pregnancy (“ICP”) and primary biliary cholangitis (“PBC”).

We dosed the first patient in the VISTAS Phase 2b clinical trial of volixibat in PSC in January 2021, and we have initiated recruitment for the OHANA clinical trial of ICP.

We expect to dose the first patient in the clinical trial of volixibat in PBC in the second half of 2021.

We were incorporated in May 2018 and commenced operations in November 2018.

To date, we have focused primarily on acquiring and in-licensing our product candidates, maralixibat and volixibat, organizing and staffing our company, business planning, raising capital, and preparing for advancement of our product candidates into clinical development.

To date, we have focused primarily on acquiring and in-licensing our product candidates, maralixibat and volixibat, organizing and staffing our company, business planning, raising capital, advancing our product candidates through clinical development and preparing for commercialization of maralixibat.

We have a limited operating history and incurred significant operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable future.

We have no products approved for commercial sale and have never generated any revenues from product sales.

We have funded our operations to date primarily through equity financings.

In November 2018, we completed the initial closing of our Series A redeemable convertible preferred stock (“Series A convertible preferred stock”) financing and sold an aggregate of 59,908,284 shares at a purchase price of $1.00259507 per share.

In addition, at the request of our board of directors, in April 2019, certain purchasers in the initial closing purchased an aggregate of 59,844,699 additional shares of our Series A convertible preferred stock at the same purchase price per share in a subsequent closing.

On July 22, 2019 , we completed our initial public offering (“IPO”) pursuant to which we sold an aggregate of 5,000,000 shares of our common stock at a price of $15.00 per share, resulting in net proceeds of $67.2 million after deducting underwriting discounts, commissions and offering expenses payable by us.

We have funded our operations to date primarily through debt and equity financings.

Financing Transactions

In July 2019 , we completed our initial public offering (“IPO”) pursuant to which we sold an aggregate of 5,000,000 shares of our common stock at a price of $15.00 per share, resulting in net proceeds of $67.2 million after deducting underwriting discounts, commissions and offering expenses payable by us.

Upon the closing of our IPO, all outstanding shares of our Series A convertible preferred stock automatically converted into 14,969,118 shares of our common stock.

Subsequent to December 31, 2019, on January 13, 2020, we completed a follow-on public offering of our common stock pursuant to which we sold an aggregate of 2,400,000 shares of common stock at a price of $20.00 per share, resulting in net proceeds of approximately $44.7 million after deducting underwriting discounts, commissions and offering expenses payable by us.

Our net loss was $52.6 million and $17.3 million for the year ended December 31, 2019 and for the period from May 2, 2018 to December 31, 2018, respectively.

In January 2020, we completed a follow-on public offering of our common stock pursuant to which we sold an aggregate of 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 payable by us.

In August 2020, the Securities and Exchange Commission (“SEC”) declared effective a registration statement on Form S-3 (“Shelf Registration”) covering the sale of up to $300.0 million of our securities.

Also, in August 2020, we entered into a sales agreement (“Sales Agreement”) with SVB Leerink LLC (“SVB Leerink”) pursuant to

which we 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 year ended December 31, 2020, we sold 305,969 shares of common stock in at-the-market offerings pursuant to the Sales Agreement at a weighted-average price of $ 21.55 per share, resulting in gross proceeds of $ 6.6 million.

The net proceeds after deducting sales commissions to SVB Leerink and other issuance expenses were approximately $ 6.3 million.

The remaining capacity under the Sales Agreement is approximately $ 68.4 million as of December 31, 2020.

In December 2020, we completed an underwritten public offering of our common stock pursuant to the Shelf Registration.

We sold 3,750,000 shares of common stock at a price of $20.00 per share, resulting in net proceeds of $70.0 million after deducting underwriting discounts, commissions and offering expenses.

In addition, we granted the underwriters an option, exercisable for 30 days, to purchase up to 562,500 additional shares of our common stock at the public offering price, less the underwriting discounts and commissions.

In January 2021, the underwriters exercised their option for 375,654 shares of our common stock, resulting in net proceeds of $7.1 million after deducting underwriting discounts.

In December 2020, we entered into a Revenue Interest Purchase Agreement (“RIPA”) with Mulholland SA LLC, an affiliate of Oberland Capital LLC (“Oberland”), as agent for purchasers party thereto (the “Purchasers”), and the Purchasers named therein, pursuant to which the Purchasers paid us $50.0 million on closing, less certain issuance costs.

We may also be entitled to receive up to an additional $100.0 million upon certain regulatory approval of our product candidates and up to an additional $50.0 million at the option of the Purchasers to finance in-license or other acquisitions (“Purchaser Payments”).

As consideration for the Purchaser Payments, the Purchasers have the right to receive certain revenue interests (the “Revenue Interests”) from us based on the net sales of maralixibat, if approved, which will be tiered payments ranging from 2.00% to 9.75% of our net sales in the covered territory.

The initial Revenue Interest rate of 9.75% will decrease upon certain revenue achievements.

The Purchasers’ rights to receive such payments shall terminate on the date on which the Purchasers have received payments totaling 195.0% of the total payments made by the Purchasers to the Company, exclusive of transaction expenses, unless the RIPA is terminated earlier.

Refer to Note 6 to our audited financial statements included elsewhere in this Annual Report on Form 10-K.

Concurrently with our entry into the RIPA, we entered into a Common Stock Purchase Agreement (the “Stock Purchase Agreement”) with TPC Investments II LP, TPC Investments Solutions LP and TPC Investments Solutions Co-Invest LP, each of which is an affiliate of Oberland.

Pursuant to the Stock Purchase Agreement, we issued an aggregate of 509,164 shares of our common stock at a price per share of $19.64, resulting in net proceeds to us of $10.0 million.

Financial Overview

Our net loss was $103.3 million and $52.6 million for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, we had an accumulated deficit of $173.2 million and cash, cash equivalents and investments of $231.8 million.

We expect our expenses and operating losses will increase substantially as we conduct our planned clinical trials, continue our research and development activities , initiate commercial preparation activities, and seek regulatory approvals for our product candidates, as well as hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company.

We expect our expenses and operating losses will increase substantially as we conduct our ongoing and planned clinical trials, continue our research and development activities, continue commercial preparation activities for maralixibat, and seek regulatory approvals for our product candidates, as well as hire additional personnel and protect our intellectual property.

In addition, as our product candidates progress through development and toward commercialization, we will need to make milestone payments to the licensors and other third parties from whom we have in-licensed or acquired our product candidates.

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If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.

Accordingly, until such time as we can generate substantial product revenues to support our cost structure, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements.

Accordingly, until such time as we can generate substantial product revenues to support our cost structure, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including through the RIPA, collaborations, licenses and other similar arrangements.

However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all.

Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.

If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate our product candidate development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

Assignment and License Agreement with Shire

In November 2018, we entered into an assignment and license agreement (“Shire License Agreement”) with Shire International GmbH (“Shire”), in which we were granted an exclusive, royalty bearing worldwide license to develop and commercialize our two product candidates, maralixibat and volixibat.

If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate the development of one or more of our product candidates or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

The COVID-19 pandemic has had a significant economic impact across the global marketplace presenting challenges to maintaining business continuity.

We are working diligently to ensure the advancement of all of our clinical development programs in the safest manner possible.

While we are unable to reliably estimate the duration or extent of any potential business disruption or financial impact during this time, we remain committed to (i) prioritizing the safety, health and well-being of patients, their caregivers, healthcare providers and our employees;

(ii) ensuring patients are well supported and have continued uninterrupted access to our product candidates, for which we currently do not expect any supply disruption;

and (iii) advancing our clinical trials.

Examples include a “Work from Home Policy” for our employees and access to home health care to assist families with safer participation in our trials.

Although we did not see a significant financial impact to our business operations as a result of COVID-19 for the year ended December 31, 2020, there may be potential impacts to our business in the future that are highly uncertain and difficult to predict such as temporary closures of our offices or those of our third-party manufacturers or suppliers, disruptions or restrictions on our employees’ ability to travel, disruptions to or delays in ongoing non-clinical trials, clinical trials, third-party manufacturing supply and other operations, the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the FDA or other regulatory authorities, and our ability to raise capital and conduct business development activities.

We continue to believe that existing cash, cash equivalents and investments and existing sources of and access to financing are adequate to satisfy our needs for working capital, capital expenditures, debt service requirements and other business development initiatives that we plan to strategically pursue.

However, should the COVID-19 pandemic and any associated recession or depression continue for a prolonged period, our results of operations, financial condition, liquidity and cash flows could be materially impacted as a result of a lower likelihood of effectively and efficiently developing new medicines and successfully commercializing our products.

Assignment and License Agreement with Shire (Takeda)

In November 2018, we entered into an assignment and license agreement (“Shire License Agreement”) with Shire International GmbH (“Shire”), which was subsequently acquired by Takeda Pharmaceutical Company Limited, in which we were granted an exclusive, royalty bearing worldwide license to develop and commercialize our two product candidates, maralixibat and volixibat.

As part of the Shire License Agreement, we were assigned license agreements held by Shire with Satiogen Pharmaceuticals, Inc.

(“Satiogen” and altogether, the “Satiogen License”), Pfizer Inc.

(“Pfizer”), and Sanofi-Aventis Deutschland GmbH (“Sanofi”).

(“Pfizer”), and Sanofi-Aventis Deutschland GmbH (“Sanofi”), collectively the Assigned License Agreements (“Assigned License Agreements”).

In partial consideration for the rights granted to us under the Shire License Agreement, we made an upfront payment to Shire of $7.5 million and issued Shire 1,859,151 shares of our common stock with an estimated fair value of $7.0 million.

In January 2019, we entered into a Transition Services Agreement with Shire (“TSA”), which covered services to be provided by Shire to transfer certain research and development activities and the related know-how from Shire to us, including continuation of work on any existing trials and manufacturing activities until fully transferred to us.

We completed the activities under the TSA and finalized amounts due to Shire for services and pass-through expenses on existing trials and manufacturing activities in the second quarter of 2019.

In July 2019, we achieved a development milestone under the Shire License Agreement related to the initiation of the Phase 3 MARCH clinical trial, and made a $2.5 million payment to Shire and a $0.5 million payment to Satiogen accordingly.

Under the Shire License Agreement and Assigned License Agreements, we have paid aggregate development milestones of $3.0 million in July 2019 related to initiation of the Phase 3 MARCH clinical trial of maralixibat in PFIC , $10.0 million in December 2020 upon acceptance of an MAA filing to the EMA for maralixibat for the treatment of PFIC2 and $2.0 million in January 2021 associated with the initiation of the VISTAS Phase 2b clinical trial of volixibat in PSC.

Development milestones achieved prior to regulatory approval of the product are expensed in the period incurred as research and development.

See Note 7 to our consolidated financial statements included elsewhere in this Annual Report.

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Research and Development Expenses

Research and development expenses primarily relate to non-clinical and clinical development of our product candidates.

Research and development expenses primarily relate to clinical development and manufacturing activities of our product candidates.

Our research and development expenses include or could include:

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external expenses paid to clinical trial sites, contract research organizations and consultants that conduct our clinical trials;

expenses related to drug formulation development and the production of non-clinical and clinical trial supplies, including fees paid to contract manufacturers;

licensing milestone payments related to development, regulatory or commercialization events;

expenses related to drug formulation development and the production of clinical trial supplies, including fees paid to contract manufacturers;

licensing milestone payments related to development or regulatory events;

expenses related to non-clinical studies;

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The prepaid amounts are expensed as the related goods are delivered or the services are performed.

We expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we continue to further our clinical development pipeline.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We expect our research and development expenses to be significant over the next several years as we increase personnel and compensation costs, further our development programs and prepare to seek regulatory approval for our product candidates.

It is difficult to determine with certainty the duration and completion costs of any clinical trial we may conduct.

Because our product candidates are still in clinical and non-clinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when, we may achieve profitability.

Due to the early stage nature of our programs, we do not track costs on a project by project basis.

As our programs become more advanced, we intend to track the external and internal cost of each program.

In Process Research and Development

In process research and development (“IPR&D”) expenses include in-process research and development acquired as part of an asset acquisition or in-license for which there is no alternative future use, and are expensed as incurred.

IPR&D expenses consist of our upfront cash payment and issuance of our common stock made to Shire in connection with the acquisition to the rights of maralixibat and volixibat.

Because our product candidates are still in clinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when, we may achieve profitability.

However, as we add additional development programs, our research and development expenses will increase.

We do not track costs on a project-by-project basis.

As our programs advance, we intend to track the external and internal cost of each program.

General and Administrative Expense

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Other significant costs include facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and insurance costs.

We expect that our general and administrative expenses will increase in the future as we expand our operating activities, including commercial preparation activities, increase headcount, as well as incur additional costs associated with being a publicly traded company, such as increased personnel expenses, legal fees, accounting fees and directors’ and officers’ liability insurance premiums and maintaining compliance with exchange listing and SEC requirements.

We expect that our general and administrative expenses will increase as we expand our operating activities, including commercial preparation activities and increased headcount.

Interest Income

Interest income consists of interest earned on our cash equivalents and investments.

Other Income (Expense), Net

Other income (expense), net consists of (i) transactional currency exchange gain or loss and (ii) interest expense related to a convertible promissory note issued in August 2018 which converted into shares of our Series A convertible preferred stock in November 2018.

Interest Expense

Interest expense for the year ended December 31, 2020 was related to the RIPA.

Costs during the year consist primarily of costs associated with our credit facility and non-cash interest costs associated with the amortization of the related debt discount and deferred issuance costs.

Other Expense, Net

Other expense, net consists of transactional currency exchange loss.

Critical Accounting Policies and Estimates

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While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.

Revenue Interest Liability

In December 2020, we entered into the RIPA to support the commercialization and further development of maralixibat and provide for other working capital needs.

We recorded a revenue interest liability related to the RIPA on our consolidated balance sheet on the date we entered into the RIPA, which is presented net of issuance costs and a debt discount.

We impute interest expense associated with this liability using the effective interest rate method.

The estimated effective interest rate is calculated based on the rate that would enable the debt to be repaid in full over the anticipated life of the arrangement.

Interest expense and amortization of our issuance costs and debt discount is recognized over the estimated term in our consolidated statements of operations.

The interest rate on the liability may vary during the term of the agreement primarily due to the level of forecasted net sales.

We evaluate the interest rate quarterly based on our current net sales forecasts utilizing the prospective method.

A significant increase or decrease in net sales could materially impact the revenue interest liability, interest expense and the time period for repayment.

At December 31, 2020, the revenue interest liability is calculated using our current estimate of global forecasted net sales of maralixibat for our planned commercial launch and impacted by a debt discount comprising the estimated value of a bifurcated derivative liability and issuance costs incurred.

As our product candidates are not yet approved for sale, the estimated probability and timing or amounts of repayment is likely to change each reporting period.

The fair value of the derivative liability is valued using a “with-and-without” method.

The “with-and-without” methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the individual embedded derivative.

The difference between the entire instrument with the embedded derivative compared to the instrument without the embedded derivative was the fair value of the derivative liability.

The estimated probability and timing of underlying events triggering the exercisability of the derivative liability bifurcated from within the RIPA, forecasted cash flows and the discount rate are significant unobservable inputs used to determine the estimated fair value of the entire instrument with the embedded derivative.

Accrued Research and Development Expenses

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This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost.

We accrue and expense clinical trial activities performed by third parties based upon estimates of the proportion of work completed over the life of the individual study and patient enrollment rates in accordance with agreements established with clinical research organizations and clinical trial sites.

We determine the estimates by reviewing contracts, vendor agreements and purchase orders and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.

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In order to determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation .

For all grants subsequent to our IPO in July 2019, the fair value of common stock was determined by using the closing price per share of common stock as reported on the Nasdaq Global Market.

For all grants subsequent to our IPO in July 2019, the fair value of common stock is determined by using the closing price per share of common stock as reported on the Nasdaq Global Market.

Expected term — The expected term represents the period that stock-based awards are expected to be outstanding.

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If any assumptions change, our stock-based compensation could be materially different in the future.

For the year ended December 31, 2019 and for the period from May 2, 2018 to December 31, 2018, stock-based compensation was $6.1 million and $34,000, respectively.

For the years ended December 31, 2020 and 2019, stock-based compensation was $12.6 million and $6.1 million, respectively.

As of December 31, 2020, we had $33.3 million of total unrecognized stock-based compensation which we expect to recognize over a weighted-average period of 2.7 years.

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A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our consolidated financial statements included elsewhere in this Annual Report.

Results of Operations for the Year Ended December 31 , 2019 and from May 2, 2018 to December 31 , 2018

The following table summarizes our results of operations for the year ended December 31, 2019 and the period from May 2, 2018 to December 31, 2018 (in thousands):

May 2, 2018 to

Results of Operations for the Years Ended December 31, 2020 and 2019

The following table summarizes our results of operations for the years ended December 31, 2020 and 2019 (in thousands):

Year Ended December 31,

Operating expenses:

Research and development

In process research and development

General and administrative

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Interest income

Other income (expense), net

Interest expense

Other expense, net

Net loss before provision for income taxes

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Research and Development Expenses

Research and development expenses were $43.0 million for the year ended December 31, 2019, an increase of $40.7 million compared to the period from May 2, 2018 to December 31, 2018.

The increase was driven by $18.4 million in clinical trial expenses primarily associated with the PFIC and ALGS programs, $8.3 million of personnel and other compensation related expenses reflecting an increase in our number of employees, including stock-based compensation of $2.4 million, $4.6 million for manufacturing activities supporting clinical trial supplies and NDA registration activities, $3.4 million of consulting expenses associated with our clinical, manufacturing and regulatory activities, $3.0 million for development milestone expenses related to initiation of the Phase 3 MARCH clinical trial, $1.9 million of non-clinical expenses and $1.0 million related to other general expenses.

IPR&D expenses were approximately $14.5 million for the period from May 2, 2018 to December 31, 2018 relating to the acquisition of the rights to maralixibat and volixibat from Shire consisting of a $7.5 million upfront cash payment and $7.0 million for the fair value of the redeemable common stock issued to Shire.

There were no IPR&D expenses incurred for the year ended December 31, 2019.

Research and development expenses were $81.6 million for the year ended December 31, 2020, an increase of $38.6 million compared to the year ended December 31, 2019.

The increase was primarily due to $12.3 million related to manufacturing activities supporting NDA registration activities and clinical supply chain, $10.2 million of personnel and other compensation related expenses, including an increase in stock-based compensation of $2.8 million, reflecting an increase in the number of development employees to support the increase in our clinical trials and development activities, $10.0 million of development milestone expense incurred upon acceptance of an MAA filing to the EMA for maralixibat for the treatment of PFIC2, $6.6 million of clinical trial expenses consisting of approximately $5.0 million for newly initiated volixibat clinical trials in PSC and ICP and $1.6 million for maralixibat primarily related to BA, $2.8 million of consulting expenses associated with our increased clinical, manufacturing and regulatory activities, and $0.9 million associated with quality assurance systems and resources in connection with regulatory filings.

These increases were partially offset by a decrease of $3.0 million associated with development milestone expense related to the initiation of the Phase 3 MARCH clinical trial incurred during 2019, $1.1 million for clinical trial expenses related to natural history studies associated with PFIC and a decrease of $0.4 million for expenses related to transition services provided by Shire in 2019.

General and Administrative Expenses

General and administrative expenses were $11.8 million for the year ended December 31, 2019, an increase of $11.2 million compared to the period from May 2, 2018 to December 31, 2018.

The increase was primarily due to $7.3 million of personnel and other compensation related expenses reflecting an increase in our number of employees, including stock-based compensation of $3.7 million, $1.1 million of professional and consulting services, $1.1 million of expenses associated with being a public company primarily related to costs for insurance, $0.8 million of general legal and patent expenses, $0.7 million of expenses related to other general expenses and $0.2 million of expenses associated with commercial preparation activities.

General and administrative expenses were $22.7 million for the year ended December 31, 2020, an increase of $10.9 million compared to the year ended December 31, 2019.

The increase was primarily due to $6.5 million of personnel and other compensation related expenses including an increase in stock-based compensation of $3.7 million, reflecting an increase in our number of administrative employees to support increased requirements of operating as a public company, such as regulatory requirements and compliance, and commercial preparation activities for maralixibat, $2.1 million of expenses associated with operating as a public company primarily related to increased costs of insurance and audit and tax fees, $1.7 million of professional and consulting services primarily associated with commercial preparation activities for maralixibat, and $0.6 million of expenses related to other general and administrative expenses.

Interest Income

Interest income was $2.2 million for the year ended December 31, 2019, an increase of $2.2 million compared to the period from May 2, 2018 to December 31, 2018.

The increase was primarily due to interest earned on investments following an increase in our cash, cash equivalents and investment balances in 2019 due to the proceeds related to completion of our IPO in July 2019 and the sale of our Series A convertible preferred stock in April 2019.

Interest income was $1.6 million for the year ended December 31, 2020, a decrease of $0.7 million compared to the year ended December 31, 2019.

The decrease was primarily due to lower interest earned on our cash equivalents and investment balances compared to the prior year largely a result of current economic conditions.

Interest Expense

Interest expense was $0.3 million for the year ended December 31, 2020 compared to zero for the year ended December 31, 2019.

The increase was related to the accreted interest on the revenue interest liability in connection with the RIPA.

Liquidity and Capital Resources

We had $231.8 million of cash, cash equivalents and investments as of December 31, 2020 compared to $140.0 million as of December 31, 2019.

To date, we have incurred operating losses and negative cash flows from operations.

Since inception, we have incurred operating losses and negative cash flows from operations.

As of December 31, 2020, we had an accumulated deficit of $173.2 million.

In November 2018, we completed the initial closing of our Series A convertible preferred stock financing and sold an aggregate of 59,908,284 shares at a purchase price of $1.00259507 per share.

Upon the closing of our IPO in July 2019, all shares of our Series A convertible preferred stock automatically converted into 14,969,118 shares of our common stock.

On July 22, 2019, we completed our IPO, pursuant to which we sold an aggregate of 5,000,000 shares of our common stock at a price of $15.00 per share, resulting in net proceeds of $67.2 million after deducting underwriting discounts, commissions and offering expenses payable by us.

Based on our current and anticipated level of operations, we believe our cash, cash equivalents and investments, together with the proceeds from our follow-on public offering on January 13, 2020, will be sufficient to fund current operations through at least the next 12 months.

In July 2019, we completed our IPO, pursuant to which we sold an aggregate of 5,000,000 shares of our common stock at a price of $15.00 per share, resulting in net proceeds of $67.2 million after deducting underwriting discounts, commissions and offering expenses payable by us.

In August 2020, SEC declared effective the Shelf Registration covering the sale of up to $300.0 million of our securities.

Also, in August 2020, we entered into the Sales Agreement with SVB Leerink, pursuant to which we 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 year ended December 31, 2020, we sold 305,969 shares of common stock in an at-the-market offering pursuant to the Sales Agreement at a weighted-average price of $21.55 per share, resulting in gross proceeds of $6.6 million.

The net proceeds after deducting sales commissions to SVB Leerink and other issuance expenses were approximately $6.3 million.

The remaining capacity under the Sales Agreement is approximately $68.4 million as of December 31, 2020.

In December 2020, we completed an underwritten public offering of our common stock pursuant to the Shelf Registration.

We sold 3,750,000 shares of common stock at a price of $20.00 per share, resulting in net proceeds of $70.0 million after deducting underwriting discounts, commissions and offering expenses.

In January 2021, the underwriters exercised their option for 375,654 shares of our common stock resulting in net proceeds of $7.1 million after deducting underwriting discounts.

Pursuant to the RIPA, we received a net upfront cash payment of $49.3 million after deducting issuance costs, and may be entitled to receive up to an additional $100.0 million upon certain regulatory events related to our product candidates and up to an additional $50.0 million at the option of the Purchasers to finance in-license or other acquisitions.

In return, the Purchasers will have a right to receive Revenue Interests based on net sales of maralixibat, if approved.

As of December 31, 2020, we have not generated any revenue from product sales, and we anticipate that we will continue to incur losses for the foreseeable future.

Pursuant to the Stock Purchase Agreement, entered into concurrently with our entry into the RIPA, we issued an aggregate of 509,164 shares of our common stock at a price per share of $19.64, resulting in net proceeds to us of $10.0 million.

Based on our current and anticipated level of operations, we believe our cash, cash equivalents and investments will be sufficient to fund current operations through at least the next 12 months.

Our cash, cash equivalents and investments include money market funds, government agency securities, corporate debt and commercial paper.

We maintain established guidelines relating to diversification and maturities of our investments to preserve principal and maintain liquidity.

We anticipate that we will continue to incur net losses for the foreseeable future as we continue research efforts and the development of our product candidates, initiate commercial preparation activities, hire additional staff, including clinical, scientific, operational, financial and management personnel, and incur additional costs associated with being a public company.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures.

We anticipate that we will continue to incur net losses for the foreseeable future as we continue research efforts and the development of our product candidates, continue commercial preparation activities for maralixibat, hire additional staff, including clinical, scientific, operational, financial and management personnel and pay potential development and commercial milestones in connection with our license agreements.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures, including commercial planning expenses.

Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Until such time, if ever, as we can generate substantial product revenue from sales of maralixibat, volixibat or any future product candidates, we expect to finance our cash needs through a combination of equity offerings, debt financings and potential collaboration, license or development agreements.

Until such time, if ever, as we can generate substantial product revenue from sales of maralixibat, volixibat or any future product candidates, we expect to finance our cash needs through a combination of equity offerings, debt financings, revenue interest purchase agreements and potential collaboration, license or development agreements.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect rights as a stockholder.

Debt financing and preferred equity 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 additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required 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 raise additional funds through the RIPA, collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required 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.

As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.

If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive.

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 drug development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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the cost of manufacturing our product or any future product candidates and any products we successfully commercialize, including costs associated with building our supply chain;

our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such agreements that we may enter into;

our ability to establish and maintain strategic collaborations, the RIPA , licensing or other arrangements and the financial terms of any such agreements that we may enter into;

any product liability or other lawsuits related to our products;

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Year Ended December 31,

to December 31,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Effect of exchange rate on cash and cash

Net (decrease) increase in cash and cash equivalents

Effect of exchange rate on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash Used in Operating Activities

Net cash used in operating activities was $89.1 million for the year ended December 31, 2020, reflecting our net loss of $103.3 million partially offset by non-cash items of $13.6 million.

Non-cash items consisted primarily of $12.6 million of stock-based compensation, $0.6 million of depreciation and amortization of our fixed assets and our operating lease right-of use assets and $0.3 million of interest expense in connection with the RIPA.

Additionally, cash used in operating activities reflected changes in net operating assets of $0.6 million, consisting primarily of a $3.7 million increase in accounts payable, accrued expenses and other liabilities due to clinical and manufacturing activities, offset by a $1.8 million increase to prepaid expenses primarily associated with clinical and manufacturing activities, $1.0 million increase in long term assets primarily associated with advances to vendors associated with our clinical trials, and a $0.4 million decrease in our operating lease liability.

Net cash used in operating activities was $39.4 million for the year ended December 31, 2019, reflecting our net loss of $52.6 partially offset by non-cash items of $6.1 million.

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Additionally, cash used in operating activities reflected changes in net operating assets of $7.1 million, consisting primarily of an $10.1 million increase in accounts payable, accrued expenses and other liabilities primarily due to clinical and manufacturing activities, a $2.7 million increase in prepaid expenses and other current assets consisting primarily of $1.4 million in prepayments for directors and officers insurance, $0.8 million in prepaid research and development expenses representing increased operating activities over 2018 and $0.4 million in interest receivable, and a $0.2 million increase in other assets.

Net cash used in operating activities was $0.4 million for the period from May 2, 2018 to December 31, 2018 which consisted primarily of our net loss of $17.3 million, reduced by in process research and development expense of $14.5 million and a $2.4 million decrease in the net assets due to the increase in accounts payable.

Cash Used in Investing Activities

Net cash provided by investing activities was $37.9 million for the year ended December 31, 2020 primarily due to proceeds of $85.9 million from maturities of investments and proceeds of $26.8 million from paydowns of investments, partially offset by $74.6 million used in purchases of investments and $0.2 million used for purchases of property and equipment.

Net cash used in investing activities was $127.8 million for the year ended December 31, 2019 due to the purchases of $152.0 million of investments and the purchases of $0.3 million of property and equipment, partially offset by proceeds from maturities of investments of $24.5 million.

Net cash used in investing activities was $7.5 million for the period from May 2, 2018 to December 31, 2018 consisting of a $7.5 million upfront cash payment to Shire, as partial consideration for the rights granted to us under the Shire License Agreement.

Cash Provided by Financing Activities

Cash P rovided by Financing Activities

Net cash provided by financing activities was $181.3 million for the year ended December 31, 2020, due to net proceeds of $44.7 million received from the completion of a follow-on public offering of our common stock pursuant to which we sold an aggregate of 2,400,000 shares of common stock at a price of $20.00 per share, net proceeds of $70.0 million received from completion of a public offering of our common stock pursuant to which we sold an aggregate of 3,750,000 shares of common stock at $20.00 per share, net proceeds of $49.6 million pursuant to the RIPA, net proceeds of $10.0 million pursuant to the Stock Purchase Agreement entered into in connection with the RIPA for the sale of an aggregate of 509,164 shares of our common stock at a price per share of $19.64, net proceeds of $6.3 million from the sale of common stock under the Sales Agreement with SVB Leerink, pursuant to which we sold an aggregate of 305,969 shares of common stock at a weighted-average price of $21.55 per share, and proceeds of $0.8 million from the issuance of common stock pursuant to the exercise of outstanding options pursuant to our equity incentive plans.

These proceeds were offset by the payment of $0.2 million for deferred offering costs associated with the Shelf Registration.

The deferred offering costs are reflected as other assets on our consolidated balance sheet until such time as we complete sales of shares under the Shelf Registration.

Net cash provided by financing activities was $127.2 million for the year ended December 31, 2019, primarily due to $67.2 million in net proceeds received from our IPO and $60.0 million in net proceeds from the issuance of 59,844,699 shares of Series A convertible preferred stock.

Net cash provided by financing activities was $59.8 million for the period from May 2, 2018 to December 31, 2018 primarily consisted of net proceeds from issuance of 59,844,699 shares of Series A convertible preferred stock.

Contractual Obligations and Commitments

The following table summarizes our principal contractual obligations and commitments as of December 31, 2019 that will affect our future liquidity (in thousands):

Contractual Obligations

The following table summarizes our principal contractual obligations and commitments as of December 31, 2020 that will affect our future liability (in thousands):

Payments due by period

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Consists of leases for our corporate headquarters encompassing approximately 11,200 square feet of office space that expires in March 2025, and the lease for our office space in Basel, Switzerland encompassing approximately 1,400 square feet that expires in May 2024.

From time to time we enter into certain types of contracts that contingently require us to indemnify parties against third-party claims, including the Shire License Agreement, and certain real estate leases, supply purchase agreements, and agreements with directors and officers.

The above table does not include our obligations under the RIPA as products are not yet approved for sale and the timing or amounts of repayment is likely to change each reporting period.

Refer to Note 6 to our audited financial statements included elsewhere in this Annual Report on Form 10-K for further information.

From time to time we enter into certain types of contracts that contingently require us to indemnify parties against third-party claims, including the Shire License Agreement, RIPA, and certain real estate leases, supply purchase agreements, and agreements with directors and officers.

The terms of such obligations vary by contract and in most instances a maximum dollar amount is not explicitly stated therein.

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Under the Shire License Agreement, as well as our other license and acquisition agreements, we have payment obligations that are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones and are required to make royalty payments in connection with the sale of products developed under those agreements.

In July 2019, we achieved the first development milestone under the Shire License Agreement and Satiogen License and made an aggregate payment of $3.0 million.

As for the remaining milestones, as of December 31, 2019, we were unable to estimate the timing or likelihood of achieving future milestones or making future product sales and, therefore, any related payments are not included herein.

For additional information regarding these license agreements, including our payment obligations thereunder, see Note 6 to our consolidated financial statements.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements during the periods presented, and we do not currently have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Under the Shire License Agreement and Assigned License Agreements, we have paid development milestones of $3.0 million in July 2019 related to initiation of the Phase 3 MARCH clinical trial, $10.0 million in December 2020 upon acceptance of an MAA filing to the EMA for maralixibat for the treatment of PFIC2 and $2.0 million in January 2021 associated with the initiation of the VISTAS Phase 2b clinical trial of volixibat in PSC.

As of December 31, 2020, we were unable to estimate the timing or likelihood of achieving the remaining future milestones or making future product sales and, therefore, any related payments are not included herein.

For additional information regarding these license agreements, including our payment obligations thereunder, see Note 7 to our consolidated financial statements included elsewhere in this Annual Report.

As an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), we can take advantage of an extended transition period for complying with new or revised accounting standards.

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We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”).

We will remain an emerging growth company until the earliest of (i) December 31, 2024, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (“Exchange Act”) which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We will remain an emerging growth company until the earliest of (i) December 31, 2024, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

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-K

Item 7. Management’s Discussion and Analysis