Mirum Pharmaceuticals, Inc. 10-K

Item 1. Business. Overview We are a biopharmaceutical company focused on the development and commercialization of a late-stage pipeline of novel therapies for debilitating liver diseases. We focus on diseases for which the unmet medical need is high and the biology for treatment is clear. 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. Cholestasis is characterized by impaired flow of bile resulting in accumulation of toxic bile acids both in the liver and systemically. This can lead to severe pruritus, or itching, high symptomatic burden, liver injury, progressive liver disease and, if left untreated, can result in fibrosis, cirrhosis, liver failure and death. Most cholestatic liver diseases have no approved medicines and often the only option is to resort to liver transplant to address the related symptoms and progressive liver disease. We are developing maralixibat for the treatment of pediatric patients with Alagille syndrome (“ALGS”), progressive familial intrahepatic cholestasis (“PFIC”) and biliary atresia (“BA”). Across all three settings, the majority of diagnosed children are estimated to receive a liver transplant before adulthood. In particular, in patients with ALGS and PFIC, the severe pruritus can be the leading driver for a transplant. 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”). PSC and PBC are progressive immuno-inflammatory driven cholestatic conditions that cause debilitating pruritus and progressive liver damage related to disruption in bile acid transit. ICP is a cholestatic liver disorder which occurs during pregnancy that results in high symptomatic burden for the mother and can be fatal for the fetus. In all of these indications, we believe the elevated bile acid pool drives symptomatic burden and life-threatening progression and ASBT inhibition has the potential to reduce these elevated bile acid levels. 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 volixibat in ICP. We expect to dose the first patient in the clinical trial of volixibat in PBC in the second half of 2021. We believe we have incorporated material regulatory feedback for these three studies such that, if successful, their results may support filing for regulatory approval for their respective indications. Our Product Pipeline Our team has strategically assembled a pipeline of novel product candidates that target a specific biological mechanism implicated in cholestatic liver diseases. We own exclusive worldwide rights to each of our product candidates. Maralixibat and volixibat are investigational, novel, oral, minimally-absorbed agents designed to inhibit the apical sodium-dependent bile acid transporter (“ASBT”), which is primarily responsible for recycling bile acids from the intestine to the liver. The following graphic depicts each of our product candidates, the respective indications we are pursuing, the expected next milestones and regulatory designations: 4 Abbreviations: FPI, First Patient In; BTD, Breakthrough Therapy Designation; FDA, U.S. Food and Drug Administration; EMA, European Medicines Agency Maralixibat Our lead product candidate, maralixibat, is a novel, oral, minimally-absorbed agent designed to selectively inhibit ASBT, also known as ileal bile acid transporter (“IBAT”). ASBT is primarily responsible for recycling bile acids from the intestine back to the liver. ASBT inhibition results in more bile acids being excreted in the feces, leading to lower levels of bile acids systemically, thereby reducing bile acid mediated effects and liver damage. We believe that by targeting bile acids in these settings, maralixibat has the potential to improve long-term outcomes and symptoms in our targeted settings and provide an alternative treatment to liver transplant. Maralixibat possesses an extensive safety dataset, having been evaluated in more than 1,600 human subjects. Maralixibat has been studied in a number of completed and ongoing clinical trials in ALGS and PFIC with over 120 children treated and some on study for over seven years. We received breakthrough therapy designation for maralixibat for the treatment of pruritus associated with ALGS in patients one year of age and older and for the treatment of PFIC2. We also have orphan designation for ALGS, PFIC and BA, and rare pediatric disease designation granted for ALGS and PFIC. Maralixibat in ALGS ALGS is a multi-organ disease that affects approximately one in 30,000 births in the United States and Europe, and patients typically present in infancy or early childhood. Based on primary market research we believe that in the United States there are approximately 2,000 to 2,500 children with ALGS who are eligible for treatment with maralixibat. There are no approved therapies for the treatment of ALGS. Partial External Biliary Diversion (“PEBD”) surgery is associated with significant complications, and liver transplantation is the only definitive treatment for cholestasis due to ALGS, but is expensive, requires long-term administration of immuno-suppressants, and only a portion of the patients who require a liver transplant are able to match with a suitable donor organ or can tolerate the surgery. In ICONIC, a Phase 2b placebo-controlled randomized drug withdrawal clinical trial, there was a clinically and statistically significant difference in pruritus between the treatment group and placebo group as measured by ItchRO(Obs) score (p<0.0001). The ItchRO(Obs) score is a caregiver-reported outcome assessment developed for use in cholestatic liver diseases, which measures severity of itch on a 0-4 scale. Additionally, at week 48 as compared to baseline, 72% of patients had a clinically meaningful reduction in the ItchRO(Obs) score (p<0.0001); mean serum bile acids (“sBA”) were reduced by 36% (p<0.01); xanthomas, which are deposits of cholesterol under the skin, were decreased by 44% (p<0.01), as measured by the Clinician Xanthoma Scale; and quality of life scores improved by a mean of 9.5 points. Maralixibat has been granted orphan drug designation for ALGS by the FDA and EMA and breakthrough designation for the treatment of pruritus associated with ALGS in patients one year of age 5 and older by the FDA. Further, long-term analysis of the ICONIC clinical trial has shown durable response in sBA , pruritus, xanthomas and growth in patients remaining on study at week 191. We have completed our NDA submission for maralixibat for the treatment of cholestatic pruritus in patients with ALGS. If our application is accepted for filing by the FDA, we expect a review decision in the second half of 2021 and, as a result, are preparing for a potential commercial launch of maralixibat in this indication in the United States. Maralixibat in PFIC PFIC affects approximately one in 50,000 to 100,000 births in the United States and Europe and typically presents within the first three to six months of life. Currently, there are no approved therapies for the treatment of PFIC. Surgical options such as PEBD and liver transplantation can be effective, but are expensive, may require life-long administration of immuno-suppressants and have potential for significant comorbidities. Only a portion of the patients who require a liver transplant are able to match with a suitable donor organ, and there can be serious complications, for example, rapid re-occurrence of disease and steatosis. We have submitted an MAA for maralixibat for the treatment of PFIC2 with the EMA which is currently under review. This submission is based on five-year results from the Phase 2 INDIGO clinical trial of maralixibat in PFIC. An analysis of response as determined by a 75% reduction in sBA showed that maralixibat responders had a significant improvement in transplant free survival. In addition, maralixibat responders exhibited significant improvements in pruritus and growth. Our MAA also included a five-year analysis of PFIC2 patients treated with maralixibat compared to a natural history control cohort showing an improvement in event free survival with maralixibat. Maralixibat has been granted orphan drug designation for PFIC by the FDA and the EMA. In addition, we are conducting the MARCH-PFIC Phase 3 clinical trial of maralixibat in PFIC. The MARCH-PFIC clinical trial and long-term extension MARCH-ON is evaluating maralixibat at higher doses in multiple PFIC subtypes. We expect to complete enrollment in MARCH-PFIC in the second quarter of 2021 and report topline data in early 2022. Maralixibat in BA BA is a rare liver disorder in which there is a blockage or absence of large bile ducts that leads to bile accumulation in the liver and results in progressive cholestasis and liver damage. BA occurs in infants and is estimated to affect one in every 10,000 to 15,000 live births in the United States. BA is the most common reason for liver transplantation in children. There remains a substantial unmet medical need for therapeutic interventions as initial surgical treatment is often unsuccessful. The standard of care for BA is the Kasai procedure, a surgery in which a segment of the small intestine is used to attach the small intestine directly to the liver where bile is expected to drain and is most successful if conducted in the first eight weeks of life. The success rate for the Kasai procedure is approximately 30% to 40%, while the remaining patients are at risk of progressive liver disease requiring liver transplantation. Prognosis after Kasai procedure has been shown to be most promising in patients with lower levels of bilirubin. Further, a strong association between sBA control post-Kasai procedure with long-term outcomes has been observed, supporting the hypothesis that pharmacologically reducing sBA may improve outcomes in BA. We believe ASBT inhibition has therapeutic potential in this patient population through its impact on sBA. We initiated recruitment for the EMBARK Phase 2b clinical trial of maralixibat in BA in the first quarter of 2021. Maralixibat has been granted orphan drug designation for BA by the FDA and the EMA. Volixibat We are advancing our second product candidate, volixibat, a novel, oral, minimally-absorbed agent designed to inhibit ASBT, for the treatment of adult patients with cholestatic liver diseases. We are developing volixibat for the treatment of ICP, PSC and PBC. Volixibat has been studied in over 400 adults for up to 48 weeks. Clinical trials of volixibat have shown significant activity on ASBT and bile acid markers such as 7αC4, fecal bile acids and cholesterol, demonstrating potent biological activity. ICP is diagnosed in pregnant women typically during the second or third trimester and increases the risk of stillbirth, preterm labor and neonatal complications. Additionally, ICP is associated with severe pruritus. In ICP, sBA levels have been shown to correlate with worsened risk of pre-term labor and stillbirth. We estimate that each 6 year there are approximately 40,000 cases of ICP in the United States and approximately 100,000 cases of ICP in Europe. We have initiated recruitment for the OHANA clinical trial of volixibat in ICP. OHANA is an adaptive, randomized Phase 2b clinical trial evaluating the effect of volixibat on sBA , pruritus and perinatal outcomes in patients with ICP. PSC is a serious, idiopathic chronic cholestatic liver disease characterized by the progressive inflammation and destruction of bile ducts, which can lead to life-threatening complications. It is estimated that approximately 29,000 people in the United States and approximately 50,000 people in Europe suffer from PSC. Up to 70% of PSC patients suffer from pruritus during the course of the disease. Liver transplantation is the only treatment shown to improve clinical outcomes in PSC but is expensive, requires long-term administration of immuno-suppressants and only a portion of the patients who require a liver transplant are able to match with a suitable donor organ. Ursodeoxycholic acid (“UDCA”), is used off-label in PSC with conflicting evidence. We dosed the first patient in the VISTAS Phase 2b clinical trial of volixibat in PSC in January 2021. VISTAS is an adaptive, randomized Phase 2b clinical trial evaluating the effect of volixibat on pruritus, sBA and fibrosis markers in patients with PSC and pruritus. PBC is a chronic, rare, cholestatic liver disease characterized by progressive liver bile flow impairment caused by immune-mediated destruction of intrahepatic bile ducts. This results in increased hepatic bile acid concentrations, which leads to a local inflammatory response in the liver that progresses to hepatic fibrosis, cirrhosis, and hepatic decompensation. The incidence rates for PBC in Europe, North America, Asia, and Australia are reported as ranging from 0.33 to 5.8 per 100,000 people, with a prevalence ranging from 1.91 to 40.2 per 100,000 people. We plan to initiate the Phase 2b clinical trial of volixibat in PBC in the second half of 2021. There are no approved therapies for PSC or ICP in the United States. A variety of licensed and off-label therapies are currently used to reduce the impact of the progressive nature of PBC. These include UDCA, obeticholic acid, peroxisome proliferator activator receptors like bezafibrate and fenofibrate, and others. However, the few therapeutic options available to manage PBC associated pruritus are temporary and/or suboptimal. Our History Our mission is to develop life-changing therapies for patients suffering from debilitating liver diseases. Our management team has significant experience in progressing liver and orphan diseases therapies from early stage research to clinical trials and ultimately to regulatory approval and commercialization. In May 2018 we were incorporated in Delaware and began operations in November 2018. In July 2019, we completed our initial public offering (“IPO”). Our team has extensive experience developing and commercializing medicines, including in hepatology settings. Our Strategy Our goal is to be a leader in the treatment of liver diseases for which the unmet medical need is high. The key components of our strategy include: • Advance maralixibat through clinical development and seek regulatory approvals for the treatment of ALGS, PFIC and BA. Results from our Phase 2b ICONIC trial demonstrated maralixibat’s potential to provide benefits in patients with ALGS. Based on these data, we completed a submission of an NDA for the treatment of cholestatic pruritus in patients with ALGS in January 2021 and if accepted we anticipate approval and subsequent launch in the second half of 2021. We have also submitted an MAA for maralixibat for PFIC2 in Europe and, if approved, plan to commercialize maralixibat in Europe in early 2022. We are also conducting the MARCH-PFIC Phase 3 clinical trial to evaluate maralixibat at a higher dose and in additional PFIC subtypes. We are also evaluating the potential of maralixibat in the EMBARK Phase 2b clinical trial in BA. • Advance volixibat for the treatment of adults with PSC, ICP and PBC. We plan to further leverage our understanding of cholestatic liver disease with volixibat in adult settings. We initiated clinical trials in ICP and PSC in the first quarter of 2021 and plan to initiate a clinical trial in PBC in the second half of 2021. 7 • Commercialize our product candidates, if approved, in North America and Europe. We have retained all worldwide commercial rights for maralixibat and volixibat. Given the targeted prescribing nature of the indications we are currently pursuing, we believe we will be able to independently commercialize maralixibat and volixibat in North America and Europe with a targeted specialty sales force. We plan to seek strategic collaborations or partnerships with larger biopharmaceutical companies or those specialized in the relevant areas for territories outside North America and Europe. • Actively manage our product portfolio and expand our pipeline of novel product candidates. We believe the mechanism of action of maralixibat and volixibat has utility for the treatment of additional cholestatic liver diseases. We have assembled an executive team of scientific, clinical and business leaders with highly relevant experience to enable the advancement of therapeutics in the field of liver diseases. We intend to leverage our collective expertise to identify, acquire, in-license and advance additional product candidates for the treatment of liver diseases. Overview of Cholestatic Liver Diseases The liver is responsible for many vital body functions, including the regulation of bile acid synthesis and metabolism. The liver uses cholesterol to produce bile acids, which promote digestion and absorption of dietary fats and fat-soluble vitamins. Approximately 95% of bile acids recirculate back to the liver, and the remaining bile acids are excreted from the body in the feces. ASBT is present in the small intestine and mediates the uptake of bile acids in the intestines and recycles them back to the liver. In patients with cholestatic liver diseases, the flow of bile from the liver is impaired. Accumulation of bile acids in the liver leads to liver injury, progressive liver disease and, if left untreated, results in fibrosis, cirrhosis, liver failure and death. Patients often experience debilitating pruritus, which dramatically impacts quality of life and can lead to epidermal scarring, sleep deprivation, significant fatigue and psycho-social effects. In some patients, intractable pruritus can be severe enough to be an indication for liver transplantation. Caregivers, particularly parents of children with cholestatic liver diseases, also suffer from impaired sleep and anxiety as they struggle to help their loved ones manage these debilitating symptoms. Other general manifestations of cholestatic liver diseases include jaundice, progressive liver disease and growth delay. Alagille Syndrome ALGS is a rare genetic disorder in which bile ducts are abnormally narrow, malformed and reduced in number, which leads to bile accumulation in the liver and ultimately progressive liver disease. The estimated incidence of ALGS is one in every 30,000 births in the United States and Europe. Based on primary research conducted with pediatric hepatologists and gastroenterologists, the specialist physicians who typically treat ALGS, we believe the initial addressable patient population in the United States will be a subset of these patients, comprising approximately 2,000-2,500 pediatric ALGS patients. We believe this addressable number may grow with the availability of an oral therapy as an alternative to transplant for the treatment of pruritus due to ALGS as well as increased disease awareness and diagnosis. In patients with ALGS, multiple organ systems may be affected by the mutation, including the liver, heart, kidneys and central nervous system. The accumulation of bile acids prevents the liver from working properly to eliminate waste from the bloodstream and leads to progressive liver disease. Signs and symptoms arising from cholestasis in ALGS may include jaundice, pruritus, xanthomas and growth deficit. The pruritus experienced by patients with ALGS is among the most severe in any chronic liver disease and is present in most affected children by the third year of life. In children with cholestasis due to ALGS, it is estimated that only about 25% will survive past 18 years of age with their native liver. Furthermore, it is reported that the majority of liver transplants in ALGS are due to cholestatic symptoms rather than progressive liver damage. In patients who have not received a liver transplant, 75% have active scratching, with 32% having destruction of skin, bleeding or scarring. Children with ALGS experience a markedly impaired quality of life largely due to the intense pruritus and associated skin lesions and disruptions in sleep and mood. A study to assess the health-related quality of life in ALGS patients indicated a significant burden in physical, psychological and social health accompanies the disease. 8 There remains a substantial unmet medical need for therapeutic options for ALGS, as PEBD and liver transplantation are the only options available for these patients. Progressive Familial Intrahepatic Cholestasis PFIC is a rare genetic disorder that causes cholestasis and progressive liver disease, which typically leads to liver failure. The disease is inherited in an autosomal recessive pattern, meaning mutations in both copies of the gene are necessary to cause the disorder. PFIC is estimated to affect one in every 50,000 to 100,000 births in the United States and Europe. Based on primary research conducted with pediatric hepatologists and gastroenterologists, the specialist physicians who typically treat PFIC, we believe the initial addressable patient population in the United States is approximately 500-750 PFIC2 children. In patients with PFIC, liver cells have a diminished ability to secrete bile due to mutations in proteins that control bile flow. The resulting buildup of bile in liver cells causes liver damage in affected individuals. Six types of PFIC have been genetically identified, all of which are similarly characterized by impaired bile flow and progressive liver disease. Our initial focus is on the nt-PFIC2, or bile salt export pump (“BSEP”) protein deficient, patient population, which accounts for approximately 50% of the PFIC patient population. PFIC2 is caused by a mutation in the ABCB11 gene, which normally encodes a BSEP protein that transports bile acids out of the liver. Mutations in the ABCB11 gene result in the buildup of bile salts in liver cells, damaging these cells and causing liver disease. Patients with nt-PFIC2 have mutations in ABCB11 that are expected to have some residual BSEP function and thus an ability, though impaired, to transport some bile acids to canaliculus, gall bladder and small intestines where maralixibat is active. Signs and symptoms of PFIC typically begin in infancy and are related to buildup of toxic bile acid in the liver. Patients with PFIC experience pruritus, jaundice, failure to gain weight and to grow at the expected rate, enlarged livers and spleens and progressive liver disease. Elevation of sBA is a common feature of the disease. Children with PFIC2 often develop liver failure within the first few years of life and have an increased risk of developing liver cancer. The most prominent and troublesome ongoing symptom of PFIC is severe pruritus, leading to a greatly diminished quality of life. There remains a substantial unmet medical need for therapeutic options for PFIC, as PEBD and liver transplantation are often the sole options available for patients. Children with nt-PFIC2 are our initial target patient population for treatment with maralixibat. We believe the opportunity exists to broaden beyond this initial patient population, and we are evaluating the effectiveness of maralixibat in patients with other types of PFIC, such as PFIC1 and PFIC3, in a supplemental cohort in our Phase 3 MARCH trial. Benign recurrent intrahepatic cholestasis (“BRIC”), consists of two types, BRIC1 and BRIC2, which have the same underlying genetic mutations as PFIC1 and PFIC2, respectively. BRIC is characterized by intermittent episodes of cholestasis with pruritus. This condition is called benign because it typically does not cause lasting damage to the liver, but it can develop into a more severe, permanent form. There are no approved therapies for BRIC, but patients can achieve temporary relief of the severe pruritus by lowering bile acid levels through procedures such as naso-biliary drainage. We believe there is therapeutic potential for an ASBT inhibitor (“ASBTi”), for the treatment of pruritus associated with BRIC. Biliary Atresia BA is a rare liver disorder in which there is a blockage or absence of large bile ducts that leads to bile accumulation in the liver and ultimately results in progressive cholestasis and liver damage. BA occurs in infants and is estimated to affect one in every 10,000 to 15,000 live births in the United States. BA is the most common reason for liver transplantation in children. The underlying causes of BA are not completely understood. For some patients, BA may occur because the bile ducts did not form properly during fetal development and in others, inflammation around the time of birth leads to destruction of bile ducts. As a result of BA, bile acids are not able to adequately drain from the liver, resulting in an array of signs and symptoms shortly after birth, including jaundice, dark urine and enlarged liver. The rapid progression of BA necessitates surgical intervention within the first months of life. 9 There remains a substantial unmet medical need for therapeutic interventions, as invasive surgery is often unsuccessful. The standard of care for BA is the Kasai procedure, a surgery in which a segment of the small intestine is used to attach the small intestine directly to the liver where bile is expected to drain and is most successful if conducted in the first eight weeks of life. The success rate of the Kasai procedure is approximately 30% to 40%. The remaining patients are at risk of progressive liver disease requiring liver transplantation, often before two years of age. Recent analyses of outcomes in post-Kasai procedure BA have shown that the risk of progression to transplant is higher in patients with elevated sBAs or bilirubin. Intrahepatic Cholestasis of Pregnancy ICP is a liver disorder that occurs in pregnant women, often during the third trimester, which impairs the normal release of bile from liver cells and leads to impaired liver function. We estimate that each year there are approximately 40,000 cases of ICP in the United States and approximately 100,000 cases of ICP in Europe. ICP can contribute to serious complications, including preterm labor, stillbirth and neonatal complications. The underlying cause of ICP is not completely understood, but it is thought that the increase in pregnancy hormones during the second and third trimesters impairs liver function and the flow of bile. Also, some women have a genetic profile similar to that seen in PFIC. The disease can result in intense pruritus, typically of the hands and feet. It resolves rapidly following birth but can cause serious complications for childbirth, including meconium-stained amniotic fluid, preterm labor, neo-natal asphyxia and stillbirth. The rates of these events increase with increasing levels of maternal sBA. Induction of early delivery, i.e. before 36 gestational weeks, is an option for high risk pregnancies but bear the risk of long-term consequences for the child. Due to the acute nature of the disease and potential for complications during pregnancy, there remains an unmet medical need for a safe and effective treatment option for ICP. There is no approved therapy for ICP in the United States, but UDCA is used off-label to decrease the concentration of harmful bile acids. However, reports suggest that UDCA offers minimal improvement for patients. Therefore, patients with ICP may benefit from treatment with an ASBTi. Primary Sclerosing Cholangitis PSC is a rare, serious, idiopathic chronic cholestatic liver disease characterized by progressive inflammation and destruction of bile ducts, which may lead to fibrosis, cirrhosis, portal hypertension, cancer and ultimately liver failure. It is estimated that approximately 29,000 people in the United States and approximately 50,000 people in Europe suffer from PSC. The underlying cause of PSC is not completely understood, but it is thought to arise from a combination of genetic and environmental factors. There is evidence that variations in certain genes involved in immune function increase the risk of developing PSC. The median age at diagnosis is approximately 35 years and approximately 70% of PSC patients have inflammatory bowel disease, principally ulcerative colitis. The earliest symptoms of PSC include extreme fatigue, abdominal discomfort and pruritus. Up to 70% of PSC patients suffer from pruritus during the course of the disease. As the condition worsens, patients may develop jaundice and enlarged spleens. Eventually, the buildup of bile damages liver cells and contributes to progression of the disease from chronic liver disease to subsequent liver failure. Median transplant-free survival for PSC patients is estimated to be nine to 18 years from diagnosis in symptomatic patients, depending upon the stage of the disease at the time of diagnosis. Complications involving the biliary tree are common and include cholangitis, as well as ductal strictures and gallstones, both of which may require frequent endoscopic or surgical interventions. PSC increases the risk of development of malignancies, with cholangiocarcinoma, a group of cancers that begin in the bile ducts, being the most common. There is an acute need for novel therapeutic interventions in PSC as liver transplantation is currently the only known treatment shown to improve clinical outcomes. UDCA is often used off-label for the treatment of PSC but does not offer improvement in pruritus, one of the most debilitating symptoms associated with the disease. PSC is the fifth leading indication for liver transplantation; however, the post-transplant recurrence rate of PSC is as high as 10 25%. We believe an ASBTi offers a substantial opportunity to address many of the symptoms and associated complications of PSC, as well as potentially delay or eliminate the need for liver transplantation. Primary Biliary Cholangitis PBC is a chronic, rare, cholestatic liver disease characterized by progressive liver bile flow impairment caused by immune-mediated destruction of intrahepatic bile ducts. This results in increased hepatic bile acid concentrations, which leads to a local inflammatory response in the liver that progresses to hepatic fibrosis, cirrhosis, and hepatic decompensation. Patients with PBC progress at varying rates, some becoming decompensated over a period of several years while others progress over more than a decade. If left untreated or not optimally treated, chronic cholestasis and bile-duct destruction from PBC can cause liver failure and result in ultimately liver transplantation or death. The pathogenesis of PBC is unknown, though the breakdown of immune self-tolerance is proposed as the disease is characterized by a T-lymphocyte mediated attack on intralobular bile ducts. It is believed that genetic susceptibility and environmental factors may cause PBC. PBC disproportionately affects women at a ratio of 10:1. The incidence rates for PBC in Europe, North America, Asia, and Australia are reported as ranging from 0.33 to 5.8 per 100,000 inhabitants, with a prevalence ranging from 1.91 to 40.2 per 100,000 inhabitants. PBC is typically diagnosed in patients between 40 to 60 years of age, with those who are younger at onset or male having a worse prognosis. The estimated average time from first appearance of the hallmark serologic signature, antimitochondrial antibodies (“AMA”), to death is approximately 20 years to 22 years without treatment. Patients with pruritic PBC often experience a significant reduction in quality of life and impairment of sleep. Severe pruritus limits daily activities, causes fatigue, depression, and, in some cases, suicidal ideation. Studies report that up to 70% of patients with PBC experience pruritus and about 75% of patients experience pruritus before diagnosis. A variety of licensed and off-label therapies are currently used to reduce the impact of the progressive nature of PBC. These include UDCA, obeticholic acid, peroxisome proliferator activator receptors like bezafibrate and fenofibrate, and others. However, the few therapeutic options available to manage PBC associated pruritus are temporary and/or suboptimal. First-line (bile-acid sequestrants) and second-line (rifampicin, opiates, SSRIs) therapies have demonstrated partial efficacy but are associated with tolerability issues, side-effect concerns or have drug-drug interactions. Lastly, antihistamines are widely used but provide only temporary pruritic relief. In severe cases of pruritus refractory to medical treatments, biliary drainage can be used to alleviate pruritus and can be an indication for liver transplantation as a last resort. 11 Our Solutions Cholestatic liver diseases are driven by increased levels of bile acids. As depicted in the figure below, inhibiting ASBT results in more bile acids being excreted in the feces, leading to lower levels of bile acids systemically and thereby reducing bile acid mediated liver damage. This leads to improvements in liver function, pruritus and other symptoms of cholestatic liver diseases. Overview of Maralixibat Our lead product candidate, maralixibat, is a novel, oral, minimally-absorbed agent designed to selectively inhibit ASBT. Maralixibat possesses an extensive safety dataset, having been evaluated in more than 1,600 human subjects. Maralixibat has been studied in 86 pediatric patients with ALGS across five Phase 2 clinical trials, including three placebo-controlled clinical trials. The first two ALGS clinical trials of maralixibat, at low doses, showed signs of activity; however, their primary endpoints were not met, although long term analysis showed sustained control of pruritus and sBA. In the Phase 2b ICONIC clinical trial of maralixibat in ALGS, patients taking maralixibat had statistically significant reductions in pruritus and sBA compared to placebo. At the 48-week measurement, pruritus and sBA reductions were maintained and improvements in xanthomas and quality of life were also observed. We are pursuing full approval from the FDA for the indication of cholestatic pruritus in patients with ALGS. In addition to the ongoing Phase 3 MARCH clinical trial, maralixibat has been studied in 33 pediatric patients with PFIC in one open-label Phase 2 clinical trial. Results from the Phase 2 INDIGO clinical trial of maralixibat in PFIC showed multi-parameter response in patients with nt-PFIC2 on pruritus, sBA, normalization of liver enzymes if abnormal at baseline and quality of life scores, which was the basis for maralixibat’s breakthrough therapy designation for the treatment of PFIC2. While the primary endpoint of sBA change from baseline to week 13 did not reach statistical significance for the overall group, the pre-specified 48-week analysis of the clinical trial demonstrated a profound treatment response in a subset of PFIC2 patients. A long-term analysis of the INDIGO clinical trial showed control of sBA with maralixibat in patients with PFIC2 led to transplant free survival in line with literature stating that sBA control with surgical biliary diversion has demonstrated 15-year transplant free survival. In addition, an improvement in growth compared to a normalized growth curve for those patients who had a response in sBA and pruritus. In a natural history comparison between INDIGO and a PFIC2 natural history cohort showed improved event free survival with maralixibat. We commenced enrollment in the Phase 3 MARCH clinical trial of maralixibat in PFIC in the second quarter of 2019, with a primary endpoint focused on pruritus in patients with nt-PFIC2. 12 Historical Clinical Development of Maralixibat Maralixibat has been studied in a number of pediatric clinical trials. Our Clinical Trials of Maralixibat in ALGS Phase 2b ICONIC Trial The multicenter Phase 2b ICONIC clinical trial has a four-week double-blind, randomized, placebo-controlled drug withdrawal period with the following design: The ICONIC clinical trial enrolled 31 ALGS patients with sBA greater than three times the upper limit of normal and moderate to severe pruritus and includes an open-label extension period of over four years. The ICONIC clinical trial met its primary endpoint of a mean change in sBA between placebo and maralixibat during the 13 randomized drug withdrawal period in responders, as defined in the graph below. A statistically significant difference in sBA was observed between the treatment groups (p<0.05). Change in sBA during the randomized drug withdrawal period in sBA responders (responders defined as 50% reduction in sBA at week 12 or 18) MRX=maralixibat; PBO=placebo The ICONIC trial demonstrated statistical significance on efficacy measures at multiple timepoints. In addition to the primary endpoint, the ICONIC clinical trial evaluated measures of pruritus, sBA and xanthomas. In the ICONIC trial, sBA changes were evaluated in the full study population over time as a measure of the bile acid reduction activity of maralixibat. As depicted in the figure below, at week 18, patients treated with maralixibat experienced an approximately 31% mean reduction from baseline in sBA levels in the overall study population. During the randomized withdrawal period, patients treated with placebo experienced a significant increase in sBA levels to near baseline levels, whereas patients who continued on maralixibat maintained their reduction in sBA levels at week 22 (p<0.05). After the randomized drug withdrawal phase, placebo patients received maralixibat for a second time. At week 48, placebo patients experienced a 36% mean sBA reduction compared to sBA levels at week 22. Reductions in sBA were sustained through week 204. Mean reductions from baseline in sBA levels As depicted in the figure below, patients treated with maralixibat experienced an approximately 60% mean reduction from baseline to week 18 in pruritus, as measured by ItchRO(Obs) score (p<0.0001). The predefined analysis to assess changes in pruritus during the randomized drug withdrawal period showed that patients who were randomized to placebo experienced a recurrence of their pruritus, whereas those who continued on maralixibat 14 maintained their reduction in pruritus (p<0.0001). After the randomized drug withdrawal phase during which placebo patients received maralixibat for a second time, a decrease in ItchRO ( Obs ) score similar to those who had received continuous maralixibat treatment was observed. The results during the randomized drug withdrawal period demonstrate a treatment effect with maralixibat . Pruritus improvements were maintained through week 48 and were statistically significant as compared to baseline (p<0.0001) and were sustained through week 204. The ItchRO(Obs) score is a caregiver-reported outcome assessment developed for use in cholestatic liver diseases, which measures severity of itch on a 0-4 scale. The ItchRO(Obs) score is a tool developed for evaluating pruritus in pediatric cholestatic settings. Over the course of the maralixibat program, ItchRO(Obs) has been developed and tested to support an outcome assessment for regulatory purposes. We have incorporated FDA input into the use of the tool in our clinical trials. Our validation work with ItchRO(Obs) supports that a change of 1.0 is clinically meaningful. Observer-reported pruritus severity ItchRO(Obs) weekly average morning score change from baseline The ICONIC trial analysis evaluated additional measures of pruritus to further characterize the potential treatment effects of maralixibat. The clinician scratch score (“CSS”), is a measure of itch evaluated by the treating physician. The CSS uses a scale of 0-4 in which 0=none, 1=rubbing or scratching, 2=active scratching without evident skin abrasions, 3=abrasions evident and 4=cutaneous mutilation, hemorrhage and scarring. Results were consistent with the pruritus ItchRO(Obs) results during both the blinded drug withdrawal period and at the end of the 48-week observation period. The proportion of patients with the maximum CSS score of 4 decreased from 51.6% at baseline to 6.9% at week 18 and remained stable at 7.1% at week 48. Statistically significant mean reductions from baseline were noted in the overall study population from baseline to week 204, indicating durable improvement in pruritus. The results are shown below and provide further evidence of a treatment effect with maralixibat. 15 Improvements from baseline in Clinician Scratch Scale scores The ICONIC trial also evaluated xanthomas on the Clinician Xanthoma Scale, which uses a 5-point scale that ranges from 0 (none) to 4 (disabling). Xanthomas are cholesterol deposits underneath the skin that occur as a result of retained bile acids and cholesterol in some ALGS patients and can be very disfiguring and debilitating. In the ICONIC clinical trial, maralixibat led to a mean reduction of 44% in xanthoma score at week 48 as compared to baseline (p<0.01). Additionally, of the patients who had xanthomas at baseline, 43% had no xanthomas at week 48. In addition, xanthomas (p<0.05) remained significantly reduced compared to baseline with long-term treatment. Improvements were also seen in the PedsQL Multidimensional Fatigue Scale score (p<0.01). As depicted in the figure below, children taking maralixibat exhibited a clinically meaningful and statistically significant acceleration in height growth as measured by height z-score (p≤0.01). In ICONIC, the mean height percentile for patients followed to week 191 increased from the 9 th percentile to the 16 th percentile. Maralixibat was generally well tolerated at doses of up to 760 µg/kg/day. Increased height z-scores with long-term maralixibat treatment 16 Additional Phase 2 Trials in ALGS Two additional clinical trials have been conducted for maralixibat for the treatment of ALGS. These clinical trials included dose-ranging randomized assessments of maralixibat compared to placebo at week 13 on measures of sBA and pruritus. All of the dose levels of maralixibat evaluated in the randomized comparison were lower than those used in the ICONIC clinical trial. We believe the dose of 380 µg/kg used in the ICONIC clinical trial has the potential for stronger therapeutic activity on pruritus than the lower doses evaluated in these clinical trials. The table below summarizes the pruritus results from the Phase 2 ITCH and IMAGO clinical trials of maralixibat in ALGS. ITCH MRX Week 13 ITCH PBO Week 13 IMAGO MRX Week 13 IMAGO PBO Week 13 MRX (µg/kg QD) 133/266 0 133/266 0 Change from Baseline ItchRO(Obs) -1.19 -0.58 -0.61 -0.59 % Change from Baseline ItchRO(Obs) -39 % -21 % -22 % -19 % Long-term analysis from IMAGINE I, the extension of the IMAGO clinical trial, showed that despite there not being a significant difference from placebo at week 13, pruritus relief was sustained over the long-term open label treatment with maralixibat. Similarly, in the long-term extension of ITCH, IMAGINE II, reductions in ItchRO(Obs) and CSS were observed at week 48 and sustained for up to 216 weeks. Registrational Path for Maralixibat in ALGS We completed our submission of an NDA for the treatment of cholestatic pruritus in patients with ALGS in January 2021. We have received breakthrough therapy designation for maralixibat for the treatment of pruritus associated with ALGS in patients one year of age and older. In November 2019, we were granted Rare Pediatric Disease Designation for maralixibat for ALGS, and as a result, we may qualify for the receipt of a priority review voucher if our NDA is approved. In addition, we plan to further discuss our submission plans with the EMA after further analysis of our long-term extension treatment data compared to natural history data. Our Clinical Trials of Maralixibat in PFIC Phase 2 INDIGO Trial The Phase 2 INDIGO clinical trial is a long-term, open-label trial designed to evaluate the safety and efficacy of maralixibat in 25 pediatric patients with PFIC2 and eight pediatric patients with PFIC1. Treatment response on sBA, pruritus and growth paired with 5-year transplant free and event free survival improvements from INDIGO served as the basis of our MAA submission to EMA for maralixibat for PFIC2. INDIGO evaluated measures of sBA and pruritus at various time points. The primary endpoint of the change from baseline to week 13 in fasting sBA level did not reach statistical significance for the overall group, but profound and durable reductions in sBA were seen in patients with PFIC2 at 48 weeks and maintained long term. The secondary endpoint of a reduction from baseline to week 13 in pruritus as measured by the ItchRO(Obs) scale did reach statistical significance for the overall group. Moreover, in the 48-week analysis, 55% of PFIC2 patients had a clinically meaningful pruritus reduction as measured by the ItchRO(Obs) scale. Patients are currently being followed in a long-term extension trial. During the INDIGO clinical trial, maralixibat was administered at doses up to 266 µg/kg daily (“QD”). Patients without response or with partial treatment response could escalate to 266 µg/kg twice daily (“BID”). The chart below show the ItchRO(Obs) response profiles for the patients with PFIC1 and PFIC2. 17 Significant and sustained improvements in pruritus with long-term maralixibat treatment The responses observed in the PFIC2 patient group provided the basis for breakthrough therapy designation for the treatment of PFIC2 patients. At the 48-week time point, maralixibat treatment in PFIC2 responders led to normalization (<8.5 µmol/L) or significant reduction (>70%) in sBA levels from baseline and control of pruritus (1.0 point reduction from baseline on the ItchRO(Obs) scale). This pattern of improvement has not been observed in the natural history of the disease. An analysis of PFIC2 patients with complete absence of BSEP function, that is, patients with a truncating mutation in the PFIC2 gene (“truncating PFIC2”), showed that these patients were unlikely to respond to treatment, whereas those patients with residual BSEP function, that is, patients with nt-PFIC2 had the greatest reductions in both sBA and pruritus. Of the 19 nt-PFIC2 patients in the clinical trial, seven had a durable sBA response, with a mean reduction to 44.2 µmol/L (from a baseline of 299.6 µmol/L). A corresponding reduction in ItchRO was observed along with durable improvements in growth as outlined in the graphics below. sBA response is associated with multi-parameter improvements sBA response has also been shown to predict transplant-free survival in a retrospective natural history analysis. The analysis included 264 PFIC2 pediatric patients with homozygous or compound heterozygous pathogenic ABCB11mutations. sBAs were established as a predictive marker of long-term transplant-free survival after interruption of enterohepatic circulation. This clinical trial demonstrates nt-PFIC2 patients who had a significant reduction and control of sBAs (defined as sBA threshold of less than 102 μmol/L or a 75% reduction) after 18 interruption of the enterohepatic circulation via PEBD remained transplant-free out to 15 years post-SBD. Patients in whom SBD did not lead to such control of sBA levels had significantly worse native liver survival with approximately 50% and 70% of the group under-going liver transplant or death within five and 15 years, respectively. Akin to these effects observed in NAPPED, the same sBA response profile was observed after pharmacological interruption of the enterohepatic circulation with maralixibat treatment responders (see figure below). The data from a five year analysis of INDIGO below indicate that 100% of maralixibat patients who achieved the established NAPPED sBA response threshold remained transplant free, whereas those who did not achieve the sBA response criteria went on to eventually receive a liver transplant. The difference between the groups was statistically significant (p=0.0006). We believe that the INDIGO data show a clear pattern of response in patients with PFIC2 leading to long-term transplant free survival. In addition to the INDIGO data, through an academic collaboration, a comparison of event free survival of maralixibat to a natural history cohort of patients was conducted showing an advantage in event free survival for the maralixibat group. Registrational Program for Maralixibat in PFIC We have submitted the results of the INDIGO clinical trial and natural history comparisons as part of an MAA to the EMA for maralixibat for the treatment of PFIC2. The MAA submission has been validated as of November 2020 and is under review as of the date of this Annual Report. We are also conducting the Phase 3 MARCH clinical trial to evaluate higher doses of maralixibat and additional PFIC sub-types. MARCH is a randomized, placebo-controlled clinical trial of maralixibat in PFIC. As 19 depicted in the figure below, the clinical trial is evaluating maralixibat at a dose of up to 570 µg/kg BID compared to placebo for six months followed by a long-term open label extension in which all patients will receive maralixibat . The primary endpoint is a reduction in severity of pruritus as measured by the ItchRO ( Obs ) scale and will include up to 30 patients with nt-PFIC2 aged one to 17 years. Other PFIC patients who do not meet the inclusion criteria for the primary cohort but otherwise meet eligibility criteria will be enrolled in a supplemental cohort. We are also evaluating a number of secondary and additional endpoints to support maralixibat’s effect on the underlying disease. These additional endpoints include the mean change in pruritus frequency, the mean change in sBA , mean change in quality of life as measured by the PedsQL and the proportion of patients who experience an improvement from baseline in height z-score. We expect to report topline data from the Phase 3 MARCH clinical trial in early 2022 . We expect that the data from our Phase 3 MARCH clinical trial, if positive, together with natural history data set comparisons and the data from the Phase 2 INDIGO clinical trial, will form the basis for our planned NDA submission to the FDA for maralixibat in PFIC. Safety and Tolerability Data for Maralixibat In the ALGS clinical development program, which includes five clinical trials comprising 86 patients up to 21 years of age, patients received doses of maralixibat up to 760 µg/kg per day. In a pooled analysis, the most common (≥ 5%) adverse reactions of any grade were diarrhea and abdominal pain, which were mostly mild to moderate in severity and resolved during continued maralixibat treatment. No patients discontinued maralixibat due to these adverse reactions. A summary of placebo comparisons from the ICONIC clinical trial and a pooled analysis of ITCH and IMAGO clinical trials in ALGS are provided below. 20 L iver-related events were assessed in two maralixibat program-wide safety reviews, including two adjudications by independent groups of pediatric hepatologists and drug-induced liver injury experts in cholestatic indications. The independent expert group concluded that there was no serious concern for significant general or sporadic drug-induced liver injury. The analyses showed that maralixibat may cause isolated, asymptomatic and reversible ALT elevations in some participants with ALGS. However, there has been no serious adverse event (“SAE”) associated with these isolated ALT increases in participants with ALGS and no case of drug-induced liver injury or liver-related morbidity or mortality has been reported to date in over 1600 adult and pediatric study participants. There is evidence that these effects of ALT elevations are likely due to a mechanism related to the underlying disease rather than a direct hepatotoxic effect, as a similar degree of isolated ALT/AST increases are seen after PBD in patients with ALGS. In addition, these ALT/AST increases have not been observed in participants with PFIC exposed to maralixibat. Maralixibat in BA We believe ASBT inhibition has therapeutic potential in this patient population. This is based on analogous disease models, including rat partial bile duct ligation, that replicate the extra-hepatic cholestasis and liver injury associated with BA. As shown below, maralixibat alleviated BA biochemical and histological pathology. Supportive data includes seven days of maralixibat 1mg/kg and 10mg/kg treatment versus vehicle in partial bile duct ligated rats, leading to significant and dose-dependent changes in sBA and liver transaminases. Maralixibat treatment reduces sBAs and liver injury at day 7 in bile duct ligated rats Bilirubin and sBA levels post-Kasai procedure have been associated with risk of progression to transplant as shown in the figures below: 21 Bilirubin levels post-Kasai procedure may predict future transplant The figure above shows a Kaplan-Meier analysis of outcome based on total bilirubin levels three months after a Kasai procedure. At three months after the Kasai procedure, total bilirubin levels were < 2mg/dL in 38 children, between 2 and 6 mg/dL in 30 children and > 6mg/dL in 19 children. sBA post-Kasai procedure may predict future transplant 22 The above Kaplan-Meier curve demonstrates a significantly improved transplant survival rate in patients with sBA levels ≤ 40 µ mol/L at 6 months. Only 1 of 43 patients, with sBAs ≤ 40 µ mol/L (as depicted by the blue line) required a liver transplant as compared to 31 of 96 infants requiring a transplant in those infants with sBAs > 40 µ mol/L (as depicted by the red line). Based on these data, we designed the Phase 2 EMBARK clinical trial. The primary objective of the EMBARK clinical trial is to assess the safety and efficacy of maralixibat in infants with BA. The clinical trial will evaluate maralixibat’s ability to reduce the amount of bile acids in the blood, helping to prevent liver damage and the need for future liver transplantation. As depicted in the figure below, EMBARK is a randomized, placebo-controlled clinical trial that will evaluate approximately 72 patients who have previously undergone a Kasai procedure. Patients will be randomized to receive maralixibat 570 µg/kg BID or placebo for six months. The primary endpoint in the clinical trial is change in total serum bilirubin. Secondary endpoints include reduction in sBA, bilirubin normalization, biomarkers of liver injury, transplant-free survival, and safety. After the first six months of evaluation, all patients will receive maralixibat in an open-label long-term extension with the goal of assessing transplant-free survival and key liver events. Overview of Volixibat Our second product candidate, volixibat, is a novel, oral, minimally-absorbed agent designed to selectively inhibit ASBT. We believe that volixibat may offer a novel approach in the treatment of adult cholestatic diseases by blocking recycling of bile acids, thereby reducing bile acids systemically and in the liver. Phase 1 and Phase 2 clinical trials of volixibat demonstrated decreases in LDL cholesterol, increases in 7αC4 and increases in fecal bile acid content, all markers of ASBT inhibition. Development of Volixibat Volixibat has been evaluated in over 400 subjects across multiple clinical trials. In Phase 1 clinical trials in 92 healthy volunteers, volixibat was generally well tolerated. The most common adverse events reported were mild to moderate GI events observed in the volixibat groups. The only treatment-related SAE reported was one event of elevated ALT. Volixibat was also found to decrease cholesterol levels in healthy subjects, consistent with its mechanism of lowering bile acid levels. An additional Phase 1 clinical trial was conducted in obese and overweight, but otherwise healthy, adults to evaluate volixibat’s potential to lower bile acid levels by measuring the excretion of bile acids in the feces. This clinical trial indicated volixibat increased fecal bile acid levels in a dose dependent manner, but without appreciable change in GI tolerability at higher doses. Volixibat was also studied in a multicenter, Phase 2, double-blind, randomized, placebo-controlled NASH clinical trial. 196 participants were randomized to receive oral placebo or volixibat in doses of 5 mg, 10 mg or 20 mg QD for 48 weeks. The safety results were consistent with prior clinical trials of volixibat. In a planned interim analysis, there was no difference between volixibat and placebo treated groups on magnetic resonance imaging-derived proton density fat fraction. Volixibat was associated with lower LDL cholesterol and increased 7αC4, indicative of ASBT inhibition. After the interim analysis, Shire plc discontinued the development of volixibat for the treatment of NASH. Based on these results, we plan to pursue the development of volixibat for the treatment of adult cholestatic liver diseases. 23 Phase 1 Dose Ranging Clinical Trial A single-center, placebo-controlled, single-blind, multiple-dose/regimen, parallel-group, dose-finding clinical trial in healthy adults was completed in 2020. This clinical trial was designed to evaluate the effect of a range of volixibat QD or BID dose regimens versus placebo on fecal bile acid excretion. Participants were randomized to one of five cohort groups to receive either volixibat 5 mg twice daily (BID), volixibat 20 mg QD, volixibat 20 mg BID, volixibat 40 mg BID, or volixibat 80 mg BID, and each cohort underwent four treatment periods. Volixibat was well tolerated and all BID doses increased fecal bile acid excretion versus QD, and higher doses increased bile acid synthesis as demonstrated by increased 7αC4. Based on the 7αC4 and fBA activity levels shown in these results, doses of 20 mg and 80 mg BID are being evaluated in our registrational programs. On-going and Future Clinical Development of Volixibat We are evaluating the utility of volixibat in adult cholestatic liver diseases and initiated clinical trials in PSC and ICP in the first quarter of 2021. Additionally, we plan to start a clinical trial in PBC in the second half of 2021. Phase 2a/2b OHANA Trial in ICP In ICP, we are evaluating the potential of volixibat to lower sBA levels in patients with elevated sBA levels, who are considered at high risk of preterm labor, stillbirth or other perinatal complications. As depicted in the figure below, the OHANA phase 2a/2b clinical trial is evaluating two doses of volixibat compared to placebo. The OHANA clinical trial primary cohort will evaluate approximately 260 patients who have been diagnosed with ICP and have elevated sBA levels consistent with at least moderate ICP. Additionally, up to 30 participants with a lower threshold, yet still elevated, sBA levels, consistent with mild ICP will be enrolled into an open-label supplemental cohort. Patients in the clinical trial are randomized to receive either volixibat 80 mg BID or 20 mg BID, or placebo BID up to delivery of their baby. The primary endpoint will assess the mean change from baseline in total sBA 24 concentration as compared to placebo. Secondary endpoints will assess pruritus improvements, adverse perinatal outcomes, safety, tolerability, and other measures. Phase 2b VISTAS Trial in PSC In PSC, based on the reductions in pruritus observed in PSC patients receiving maralixibat, we are conducting a Phase 2b clinical trial of volixibat in PSC patients with pruritus. The VISTAS clinical trial will evaluate approximately 120 patients with pruritus due to PSC and will include an adaptive interim analysis. After the interim analysis, the confirmatory phase of VISTAS will evaluate a single dose of volixibat compared to placebo. In addition to the 28-week primary analysis, patients will be eligible to continue on open label volixibat treatment and will be evaluated for durability of response and changes in fibrosis markers. 25 Phase 2b Clinical Trial in PBC We are currently planning to initiate a Phase 2b clinical trial of volixibat in PBC in the second half of 2021. We are designing the program to focus on the treatment of cholestatic pruritus with elevated or normal alkaline phosphatase. License, Finance and Royalty Agreements Assignment and License Agreement with Shire International GmbH (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. Pursuant to the Shire License Agreement, Shire assigned, transferred and conveyed all of its right, title and interest in and to the Pfizer Agreement, Satiogen Agreement and Sanofi Agreement, each of which is defined below. In addition, Shire granted us an exclusive, royalty bearing, sublicensable, worldwide license under certain regulatory materials as well as patents and know-how, which we refer to collectively as the Shire IP, relating to the maralixibat compound and the volixibat compound in development by Shire as of that date, which we collectively refer to as the Shire Licensed Products, to develop, have developed, make, have made, use, sell, have sold, offer for sale or import the Shire Licensed Products worldwide for the therapeutic or prophylactic application in human health. We have sole authority and responsibility over development and commercialization activities for the Shire Licensed Products, and we are required to use commercially reasonable efforts to perform certain development, regulatory and commercialization activities with respect to the PFIC, ALGS and BA indications for maralixibat and unspecified indications with respect to volixibat. We will solely own all inventions and discoveries arising out of activities conducted by us under the Shire License Agreement. We will also be responsible for the preparation, filing, prosecution and maintenance of patents under the Shire License Agreement and the cost thereof. We have the first right, but are not obligated, to enforce any patent licensed under the Shire License Agreement. As consideration for the rights granted to us under the Shire License Agreement, we made a one-time upfront payment to Shire of $7.5 million and issued Shire 1,859,151 shares of our common stock pursuant to a common stock issuance agreement that we entered into concurrently with the Shire License Agreement. We paid a $2.5 million milestone payment to Shire as a result of the initiation of the Phase 3 MARCH clinical trial in July 2019. We are also required to pay Shire up to an aggregate of $107.0 million upon the achievement of certain other clinical development and regulatory milestones for maralixibat in the PFIC, ALGS and BA indications, and a $25.0 million payment upon regulatory approval of maralixibat for each and every other indication. Each such milestone payment will be paid only once for each such indication during the term of the Shire License Agreement, the first time maralixibat reaches such milestone event, regardless of the number of times such milestone is reached by maralixibat for the same indication. In addition, we are 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. Each such milestone payment will be paid only once for the first indication for which volixibat is developed during the term of the Shire License Agreement, the first time volixibat reaches such milestone event, regardless of the number of products or the number of indications for which volixibat is developed. 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. In December 2020, we achieved a further development milestone related to the submission of the MAA for maralixibat for the treatment of PFIC2 and made a $10.0 million payment to Shire. In January 2021 we achieved a development milestone related to volixibat and made a $2.0 million payment to Shire. Upon achievement of certain thresholds for aggregate worldwide net sales for all Shire Licensed Products, we are required to pay Shire, on a one-time, non-refundable and non-creditable basis, up to an aggregate of $30.0 million in tiered sales milestone payments. Lastly, upon certain annual worldwide net sales of all Shire Licensed Products, we are required to pay Shire, on a non-refundable and non-creditable basis, tiered royalties with rates ranging from low double-digits to mid-teens (“Shire royalties”). If we actually make royalty payments to 26 Sanofi, which is defined below, under the Sanofi Agreement, the Shire royalties will be reduced by low to high single digit percentages of certain net sales thresholds. Similarly, if we actually make royalty payments to Satiogen , which is defined below, under the Satiogen Agreement, the Shire royalties will be reduced by a low single digit percentage of net sales. Under the Shire License Agreement, we are prohibited from developing any competing product prior to the five year anniversary of the first commercial sale of a Shire Licensed Product, or commercializing any competing product prior to the eight year anniversary of the first commercial sale of a Shire Licensed Product. For purposes of the Shire License Agreement, a competing product is any product that is or contains a compound (A) where the primary method of action is ASBT inhibition activity or (B) that is commercialized or developed for any PFIC, ALGS, or BA indication, except (B) shall not apply with respect to (1) a given indication if a product failure has occurred with respect to such indication (e.g., if a product failure has occurred for a Shire Licensed Product for the BA indication, we may thereafter develop and commercialize a product for the BA indication if such product uses a different primary method of action than ASBT inhibition activity) or (2) a given product if such product is a product that is not deleterious to the sales or pricing of a Shire Licensed Product. The Shire License Agreement will remain in effect on a country-by-country and Shire Licensed Product-by-Shire Licensed Product basis and will continue on such basis until the later of the (i) expiration of the last patent or patent application licensed under the Shire License Agreement that covers a Shire Licensed Product, (ii) expiration of any regulatory exclusivity period, and (iii) tenth anniversary of the first commercial sale of such Shire Licensed Product in such country. The term of the last patent or patent application licensed under the Shire License Agreement ends on October 26, 2032, absent patent term adjustment or extension. After November 5, 2021, we may unilaterally terminate the Shire License Agreement for any reason or no reason upon 90 days’ written notice to Shire. In addition, we may also terminate the Shire License Agreement if we reasonably determine that we are precluded from further development due to materially adverse pre-clinical or clinical pathology or toxicology data. Either party may terminate the Shire License Agreement in the event of the other party’s insolvency or for the other party’s material breach of the Shire License Agreement that remains uncured after 90 days of receiving written notice of such breach. Shire may terminate the Shire License Agreement upon our or our affiliates’ challenge to the validity of the patents licensed under the Shire License Agreement. License Agreement with Pfizer Inc. Through the Shire License Agreement, we were assigned the rights to the license agreement (“Pfizer Agreement”), with Pfizer Inc. (“Pfizer”), pursuant to which we obtained an exclusive, worldwide license to Pfizer’s know-how related to maralixibat, or the Pfizer Know-How. Under the Pfizer Agreement, we are permitted to research, develop, manufacture and commercialize products utilizing the Pfizer Know-How for the diagnosis, treatment, prevention, mitigation and cure of human diseases and disorders, and to sublicense such rights. Pfizer retained the right to use the Pfizer Know-How to conduct internal research and to use a third party to conduct research on Pfizer’s behalf. We have sole responsibility and control over development and commercialization activities for the Pfizer Know-How and products utilizing the Pfizer Know-How, and we are obligated to use commercially reasonable efforts to develop and commercialize products utilizing the Pfizer Know-How. In the event we determine to sublicense to a third party our right to commercialize the Pfizer Know-How or products utilizing the Pfizer Know-How under the Pfizer Agreement, Pfizer has the first right to negotiate such a commercial license with us. Ownership of inventions and discoveries under the Pfizer Agreement will be determined in accordance with the rules of inventorship under United States patent laws. We will own and bear all expenses incurred in preparing, filing, prosecuting and maintaining all patents for inventions that are solely invented by us. As consideration, upon commercialization of any product utilizing the Pfizer Know-How, we will be required to pay to Pfizer a low single-digit royalty on net sales of such products sold by us, our affiliates or sublicensees. Our 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. 27 We may unilaterally terminate the Pfizer Agreement for any reason or no reason upon 90 days’ written notice to Pfizer. Either party may terminate the Pfizer Agreement in the event of the other party’s insolvency or for the other party’s material breach of the Pfizer Agreement which remains uncured after 60 days of receiving written notice of such breach, or 30 days in the case of a payment breach. Absent early termination, the Pfizer Agreement will automatically expire on a country-by-country basis upon the expiration of our royalty payment obligations. License Agreement with Sanofi-Aventis Deutschland GmbH Through the Shire License Agreement, we were assigned the rights to the license agreement, as amended (“Sanofi Agreement”), with Sanofi-Aventis Deutschland GmbH (“Sanofi”), under which we obtained an exclusive, worldwide license to certain patents and know-how controlled by Sanofi related to volixibat (“Sanofi Technology”). Under the Sanofi Agreement, we are permitted to develop and commercialize products containing volixibat utilizing the Sanofi Technology. Additionally, under the Sanofi Agreement, we are permitted to manufacture products containing volixibat utilizing the Sanofi Technology and to sublicense such rights. In addition, Sanofi granted to us, under certain conditions, an exclusive option to obtain an exclusive license to manufacture volixibat during the term of the Sanofi Agreement. We exercised this option in May 2020 and are transferring manufacturing of volixibat to a third-party contract manufacturer. Sanofi retained the right to practice the Sanofi Technology outside the scope of the license granted to us under the Sanofi Agreement and to make and use for internal research purposes, provided that upon our request, Sanofi is obligated to provide us with a written summary of the results of any such research to the extent such results relate to the use of volixibat as an ASBTi. Under the Sanofi Agreement, we have sole authority and responsibility over development and commercialization activities for licensed products, and we are required to use diligent efforts to perform certain development, regulatory and commercialization activities. With the exception of Sanofi’s rights on its further optimization of the process of manufacturing of the product utilizing the Sanofi Technology, we will own all inventions and discoveries arising out of activities conducted by us under the Sanofi Agreement and we will be responsible for the preparation, filing, prosecution and maintenance of patents under the Sanofi Agreement. Further, we will have the first right, but will not be obligated, to enforce patents under the Sanofi Agreement. If we do not exercise our right to enforce patents under the Sanofi Agreement, Sanofi will be able to enforce the patents. We are required to pay to Sanofi up to an aggregate of $36.0 million upon the achievement of certain regulatory, commercialization and product sales milestones. Upon commercialization of any product utilizing the Sanofi Technology, we will be required to pay to Sanofi tiered royalties in the mid to high single-digit range based upon net sales of licensed products sold by us and our affiliates and sublicensees in a calendar year, subject to adjustments in certain circumstances. Our 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 or patent application covering the applicable licensed product in such country and ten years after the first commercial sale of a licensed product following regulatory approval in such country. The term of the last patent or patent application licensed under the Sanofi Agreement ends on May 26, 2030, absent patent term adjustment or extension. In the event we sublicense our right to commercialize a product utilizing the Sanofi Technology, we are obligated to pay to Sanofi a fee based on a percentage of sublicense fees received by us, which percentage ranges from the mid-teens to low-thirties, depending on the stage of development of such licensed product, and is subject to adjustment in certain circumstances. For three years after the first commercial sale of a product utilizing the Sanofi Technology, on a licensed product-by-licensed product basis, we may not, through our own efforts or with an affiliate or third party, commercialize any product for specified indications with a method of action that reduces the reabsorption of bile acids in the intestinal tract, except for the commercialization of products utilizing the Sanofi Technology under the Sanofi Agreement. We may unilaterally terminate the Sanofi Agreement for any reason or no reason upon 60 days’ written notice to Sanofi after the second anniversary of the Sanofi Agreement. We may also terminate the Sanofi Agreement on a country-by-country or licensed product-by-licensed product basis upon written notice to Sanofi (1) if we reasonably determine that we are precluded from proceeding with the first Phase 2b clinical trial for a product utilizing the 28 Sanofi Technology in certain major markets due to certain safety failures or (2) after using diligent efforts, we reasonably determine that we are precluded from proceeding with a Phase 3 clinical trial for a product utilizing the Sanofi Technology in certain major markets due to certain safety or efficacy failures. Either party may terminate the Sanofi Agreement in the event of the other party’s insolvency or for the other party’s material breach of the Sanofi Agreement which remains uncured after 90 days of receiving written notice of such breach, or ten business days in the case of a payment breach. Absent early termination, the Sanofi Agreement will remain in effect on a country-by-country and licensed product-by-licensed product basis until the expiration of our royalty payment obligations for such licensed product in such country. License Agreement with Satiogen Pharmaceuticals, Inc. Through the Shire License Agreement, we were assigned the rights to the license agreement, as amended (“Satiogen Agreement”), with Satiogen Pharmaceuticals, Inc (“Satiogen”), under which we obtained an exclusive, worldwide license to certain patents and know-how controlled by Satiogen related to ASBTis (“ASBTi Technology”), and TGR5 agonists (“TGR5 Technology”). Under the Satiogen Agreement, we are permitted to develop, manufacture and commercialize products utilizing the ASBTi Technology or TGR5 Technology for the diagnosis, treatment, prevention, mitigation and cure of human diseases and disorders, other than diabetes, obesity or a combination thereof, and to sublicense such rights. We have sole responsibility and control over development and commercialization activities for products utilizing the ASBTi Technology or TGR5 Technology under the Satiogen Agreement and we are required to use commercially reasonable efforts to develop and commercialize such licensed products. Ownership of inventions and discoveries conceived or reduced to practice under the Satiogen Agreement will be determined in accordance with the rules of inventorship under United States patent laws. We will own any and all inventions made by us or jointly with Satiogen under the Satiogen Agreement and we will be responsible for filing, prosecuting and maintaining any patents for such inventions. Satiogen will own any and all inventions that are solely invented by Satiogen under the Satiogen Agreement and will be responsible for preparing, filing, prosecuting and maintaining any patents for such inventions. Satiogen will be responsible for filing, prosecuting and maintaining patents related to the ASBTi Technology and TGR5 Technology controlled by Satiogen as of the effective date or during the term of the Satiogen Agreement. Additionally, prior to certain events specified in the Satiogen Agreement, Satiogen will have the sole right, but not the obligation, to enforce patents related to the ASBTi Technology and the TGR5 Technology; after which, we will have the sole right, but not the obligation, to enforce patents related to the ASBTi Technology and the TGR5 Technology. In March 2017, the Satiogen Agreement was amended to terminate the license of certain patents related to the ASBTi Technology and TGR5 Technology as each relates to diabetes and obesity. We are required to pay to Satiogen up to an aggregate of $10.5 million upon the achievement of certain milestones, of which $0.5 million relates to the initiation of certain development activities, $5.0 million relates to the completion of regulatory approvals and $5.0 million relates to commercialization activities. We will be required to pay to Satiogen a low single-digit royalty on net sales of products utilizing the ASBTi Technology or TGR5 Technology sold by us and our affiliates. Our 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 or patent application covering the applicable licensed product in such country. The term of the last patent or patent application licensed under the Satiogen Agreement ends on August 30, 2031, absent patent term adjustment or extension. In the event we sublicense any of our rights under the ASBTi Technology or TGR5 Technology to a third party, we are obligated under the Satiogen Agreement to pay to Satiogen a fee based on a percentage of sublicense revenue received by us, which percentage ranges from the mid-teens to mid-twenties, depending on whether the right granted is in connection with the ASBTi Technology or TGR5 Technology, and the stage of development of such sublicensed technology. In addition, we are obligated under the Satiogen Agreement to pay to Satiogen a percentage of royalties we receive in consideration for the grant of such sublicense based on a percentage of revenue generated by such sublicensee for sales of products utilizing the ASBTi Technology or TGR5 Technology, which percentage is in the low-fifties and is subject to adjustment in certain circumstances. This payment will not exceed an amount that is one-half of our low single-digit royalty obligation to Satiogen. 29 We may unilaterally terminate the Satiogen Agreement for any reason or no reason upon 90 days’ written notice to Satiogen. If we cease all research, development and commercialization efforts with respect to all licensed products related to the ASBTi Technology or the TGR5 Technology for over one year, or we determine to cease all such efforts, Satiogen may elect to terminate the Satiogen Agreement with respect to the license under the ASBTi Technology or the TGR5 Technology, respectively. Either party may terminate the Satiogen Agreement for the other party’s material breach of the Satiogen Agreement which remains uncured after 90 days of receiving written notice of such breach. Absent early termination, the Satiogen Agreement will automatically terminate upon the expiration of our royalty obligations. Revenue Interest Purchase Agreement with Oberland In December 2020, we entered into a Revenue Interest Purchase Agreement (“RIPA”) with Mulholland SA LLC, an affiliate of Oberland Capital LLC, as agent for the purchasers party thereto (the “Purchasers”), and the Purchasers. Pursuant to the RIPA, the Purchasers paid us $50.0 million on closing, less certain issuance costs. We may also be entitled to receive up to approximately $150.0 million in subsequent installments as follows: (i) $65.0 million if the FDA has accepted for review our NDA for maralixibat as a treatment for cholestatic pruritus in patients with ALGS on or prior to a specified date; (ii) $35.0 million if the FDA has approved maralixibat as a treatment for ALGS on or prior to a specified date; and (iii) up to $50.0 million at the option of the Purchasers to finance in-licenses or other acquisitions. As consideration for such payments, the Purchasers will have a right to receive certain revenue interests (the “Revenue Interests”) from us based on annual net sales of maralixibat, if approved, which will be tiered payments (the “Revenue Interest Payments”) based on whether such annual net sales are (i) less than or equal to $350.0 million (“Tier 1”), (ii) exceeding $350.0 million and less than or equal to $1.1 billion (“Tier 2”), or (iii) exceeding $1.1 billion (“Tier 3”). The Revenue Interest Payments will initially be 9.75% (at Tier 1) and 2.00% (at Tier 2 and Tier 3) of such annual net sales in a specified territory (the “Covered Territory”); provided that (i) if the Purchasers have received Revenue Interest Payments in an amount equal to or greater than 110.0% of the total payments actually made by the Purchasers to us, exclusive of transaction expenses (the “Cumulative Purchaser Payments”), on or prior to December 31, 2026, the Revenue Interests shall be reduced to 2.00% at Tier 1 and 0.00% at Tier 3 for all subsequent calendar years beginning on January 1, 2027 and (ii) if the Purchasers have not received Revenue Interest Payments in an amount equal to or greater than 110.0% of the Cumulative Purchaser Payments on or prior to December 31, 2026, the Revenue Interests shall be increased for all subsequent calendar years beginning on January 1, 2027 to a single defined rate (with no separate tiers) that would have provided the Purchasers with an amount equal to 110.0% of the Cumulative Purchaser Payments on or prior to December 31, 2026 had such rate applied to Tier 1 of initial Revenue Interest Payments. The Purchasers’ rights to receive the Revenue Interest Payments shall terminate on the date on which the Purchasers have received Revenue Interest Payments of 195.0% of the Cumulative Purchaser Payments, unless the RIPA is terminated earlier. Intellectual Property Our success depends in part on our ability to obtain and maintain proprietary protection for our product candidates and other discoveries, inventions, trade secrets and know-how that are critical to our business operations. Our success also depends in part on our ability to operate without infringing the proprietary rights of others, and in part, on our ability to prevent others from infringing our proprietary rights. A comprehensive discussion on risks relating to intellectual property is provided under “Risk Factors” under the subsection “Risks Related to Our Intellectual Property.” We have developed and continue to develop patent portfolios around our product candidates, maralixibat and volixibat. We have rights to pending patent applications in the United States, Europe, South Korea, Israel, Hong Kong and Singapore covering the methods of treating cholestasis using ASBTis that have limited systemic exposure, which, if issued, would expire in October 2032, absent any patent term adjustments or extensions. We have rights to an issued patent in the United Stated directed to treating or ameliorating PFIC2 in a pediatric subject comprising administering maralixibat, which expires in October 2032. We have rights to granted and/or issued patents in Australia, Brazil, Canada, China, Japan, Mexico, South Korea, Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Turkmenistan, South Africa and Macau covering the methods of treating cholestasis using ASBTis that have limited systemic exposure, which expire in October 2032. We also have rights to pending 30 patent applications in United States, Europe, Australia, Japan, Eurasia, South Korea, Mexico, Hong Kong, Singapore and South Africa, covering methods of treating pediatric cholestatic liver diseases using ASBTis that have limited systemic exposure, which, if issued, would expire in October 2032, absent any patent term adjustments or extensions. We have rights to granted and/or issued patents in Australia, Brazil, Canada, China, Israel, Japan, Mexico, South Korea, South Africa, Singapore, Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, United Kingdom, Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Macau and Turkmenistan covering methods of treating pediatric cholestatic liver diseases using ASBTis that have limited systemic exposure, which expire in October 2032. We also have rights to a granted patent in South Africa covering pediatric dosage forms of ASBTis that have limited systemic exposure, which expires in October 2032. We also have rights to a pending patent application in China covering pediatric dosage forms of ASBTIs that have limited systemic exposure, which, if issued, would expire in October 2032, absent any patent term adjustments or extensions. We have rights to a pending Patent Cooperation Treaty (“PCT”) application directed to methods for modulating a dosage of an ASBTi and to methods for using patient genotype to predict response to ASBTi administration in patients with BSEP deficiency. We have rights to a pending PCT application and pending United States applications directed to methods for treating cholestatic liver disease comprising administering higher dosages of ASBTis . We have rights to a pending PCT application directed to methods of increasing growth in pediatric subjects having cholestatic liver disease by administering ASBTis . Any patents issuing from these PCT or United States applications would expire in 2040, absent any patent term adjustments or extensions. We have licensed patent applications in the United States and Europe from Satiogen covering therapeutic uses of ASBTis that have limited systemic exposure for treating inflammatory intestinal conditions, which, if issued, would expire in May 2031, absent any patent term adjustments or extensions. One of these Satiogen applications recently issued as United States Patent No. 10,251,880. We have licensed an issued United States patent, as well as issued foreign counterparts in Argentina, Austria, Australia, Belgium, Canada, Switzerland, China, Germany, Denmark, Spain, Finland, France, United Kingdom, Greece, Hong Kong, Ireland, Israel, India, Italy, Japan, South Korea, Liechtenstein, Mexico, Malaysia, Netherlands, Norway, Portugal, Russia, Sweden, Singapore, Taiwan and Turkey, and a pending counterpart in Brazil from Sanofi, that cover the composition and methods of making volixibat and salts thereof, expiring in December 2027. Patents related to maralixibat and volixibat may be eligible for patent term extensions in certain jurisdictions, including the United States and Europe, upon approval of a commercial use of the corresponding product by a regulatory agency in the jurisdiction where the patent was granted and/or issued. We do not have patents or patent applications covering maralixibat as a composition of matter. Therefore, the primary patent-based intellectual property protection for our maralixibat program will be any patents granted on the pending method-of-use and dosage form patent applications. In addition to patent protection, we rely on trade secret protection, trademark protection and know-how to expand our proprietary position around our chemistry, technology and other discoveries and inventions that we consider important to our business. We are a party to a number of license agreements under which we are granted intellectual property rights to know-how that are important to our business. We have licensed know-how related to maralixibat in the United States, Europe and other countries from Pfizer. We have licensed know-how related to ASBTi Technology and TGR5 Technology from Satiogen. We have licensed know-how related to volixibat from Sanofi. Our existing license agreements as related to maralixibat and volixibat impose various development, regulatory and/ commercial diligence obligations, payment of milestones and/or royalties and other obligations. In addition, we currently have orphan drug designation for maralixibat for the treatment of ALGS, PFIC, PSC and PBC in the United States and the European Union, providing the opportunity to receive seven years of market exclusivity in the United States, which can be extended to seven and a half years if trials are conducted in accordance with an agreed-upon pediatric investigational plan, and ten years of market exclusivity in the European Union, which can be extended to 12 years in the European Union if trials are conducted in accordance with an agreed-upon pediatric investigational plan. Upon approval in the United States, as neither maralixibat or volixibat has previously been approved in the United States for any indication, both product candidates may be eligible for five years of new chemical entity exclusivity, which would run currently with their seven years of orphan drug exclusivity if we obtain orphan drug exclusivity for their approved uses. 31 We also seek to protect our intellectual property in part by entering into confidentiality agreements with companies with whom we share proprietary and confidential information in the course of business discussions, and by having confidentiality terms in our agreements with our employees, consultants, scientific advisors, clinical investigators and other contractors and also by requiring our employees, commercial contractors, and certain consultants and investigators, to enter into invention assignment agreements that grant us ownership of any discoveries or inventions made by them while in our employ. Furthermore, we seek trademark protection in the United States and internationally where available and when we deem appropriate. Sales and Marketing We currently have a limited commercial organization. We are in the process of building the commercial infrastructure necessary to effectively support the commercialization of maralixibat and volixibat, if approved, in North America and Europe and we may decide to use strategic partners, distributors, or contract management organizations to assist in the commercialization of maralixibat and volixibat in other markets. We believe that our commercial organization can be targeted to the relatively small number of specialists who treat patients with pediatric cholestasis, such as ALGS, PFIC and BA. The commercial infrastructure for orphan products typically consists of a targeted, specialty sales force that calls on a limited and focused group of physicians supported by sales management, internal sales support, an internal marketing group and distribution support. Additional capabilities important to the marketplace include the management of key accounts such as managed care organizations, group-purchasing organizations, specialty pharmacies, government accounts and reimbursement support. Based on the number of physicians that treat cholestatic liver diseases, we believe that we can effectively target the relevant audience for maralixibat and volixibat in North America and Europe primarily through an internal sales force. To develop the appropriate commercial infrastructure, we will have to invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that maralixibat or volixibat will be approved. In addition, we are building a medical affairs organization and multiple capabilities across North America and Europe to meet the scientific and medical educational needs of the healthcare providers and patients in the rare liver disease community, focusing on providing accurate disease state and balanced product information for appropriate management of patients with rare liver disorders. Medical affairs is comprised of medical information, patient advocacy, patient diagnosis, medical science liaisons, research and educational grants. In October 2020, we entered into a services agreement with Eversana, a leading provider of commercial support services to the life science industry, to provide integrated nationwide distribution, specialty pharmacy, medical information, patient services and hub support for maralixibat in the United States, if approved. Manufacturing We do not own or operate manufacturing facilities for the production of maralixibat and volixibat or other product candidates that we may develop, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently depend on third-party contract manufacturers for all of our required raw materials, active pharmaceutical ingredient and finished products. Over the course of the development of our ASBTis we have used and continue to use multiple third-party contract manufacturers. We do not have any current contractual arrangements for the manufacture of commercial supplies of maralixibat or volixibat. Prior to our receipt of any approval from the FDA, if at all, we intend to enter into agreements for commercial production of our product candidates with third party suppliers. We currently employ internal resources and third-party consultants to manage our manufacturing contractors. Competition The biotechnology and pharmaceutical industries are subject to rapid and intense technological change. We face, and will continue to face, competition in the development and marketing of our products and product candidates from academic institutions, government agencies, research institutions and biotechnology and 32 pharmaceutical companies. Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approval and marketing than we do. Competition may also arise from, among other things, new drug development technologies, new or improved treatment options for preventing or reducing the incidence of disease in diseases our products treat and new small molecule or other classes of therapeutic agents. Such developments by competitors could reduce or eliminate the use of our products or may limit the utility and application of ongoing clinical trials for our product candidates. There are no FDA-approved therapies for the treatment of ALGS, PFIC, BA, PSC or ICP in the United States. Symptomatic treatment with antipruritics, such as cholestyramine, typically provides only modest relief. Bristol Myers Squibb Company has discontinued its brand name cholestyramine, but generic versions of the drug are marketed by Upsher-Smith Laboratories, Inc., Par Pharmaceutical Companies, Inc., Sandoz Inc., the generic pharmaceuticals division of Novartis AG and others. UDCA, as ursodiol, is marketed by a number of generic pharmaceutical companies such as Mylan Inc., Actavis Inc., Lannett Company, Inc. and Par Pharmaceutical Companies, Inc. A number of drugs, including UDCA, rifampin and naltrexone, are used off-label to treat patients suffering from cholestatic liver diseases. Additionally, surgical interventions, such as partial external biliary diversion and nasobiliary drainage, and extracorporeal liver support, such as Molecular Adsorbent Recirculation System, are also employed in an attempt to lower bile acid levels, manage pruritus and improve measures of liver function. We are aware of two other companies pursuing clinical development of therapies that reduce sBA levels via the ASBT pathway. GlaxoSmithKline plc and Albireo Pharma, Inc.(“Albireo”) have ASBTis in clinical development for cholestatic liver diseases. We are aware that Albireo has announced topline results from a Phase 3 trial for PFIC1 and PFIC2 patients for odevixibat and has an extension study and an expanded access program enrolling PFIC patients. Albireo’s NDA for odevixibat for the treatment of pruritus in patients with PFIC has been accepted by the FDA. Additionally, we are aware that Albireo has submitted an MAA for odevixibat. Albireo has also announced the initiation of studies of odevixibat in BA and ALGS and plans to pursue other cholestatic liver diseases. We are aware that GlaxoSmithKline plc has completed a Phase 2 trial of its ASBTi in PBC patients and has announced its intention to conduct a Phase 3 trial in PBC. We are also aware that Intercept Pharmaceuticals, Inc. is exploring BA as an indication for obeticholic acid. Further, we may compete with companies that are developing gene therapy for the treatment of PFIC. In adult settings of cholestasis, similar to pediatric settings, cholestyramine, UDCA, rifampin and naltrexone are commonly used agents. We are not aware of FDA approved therapeutics for the treatment of ICP or PSC. We are aware of several agents in clinical development for the treatment of PSC, including Cymabay’s seladelpar, DURECT Corporation’s DUR928, Gilead Sciences Inc.’s GS-9674, HighTide Biopharmaceutical Inc.’s HTD1801, Immunic Therapeutics’ IMU-838, Intercept’s Ocaliva, or obeticholic acid, NGM Biopharmaceuticals Inc.’s NGM282 and Pliant Therapeutics’ PLN-74809. Intercept Pharmaceuticals, Inc.’s Ocaliva is approved as a second-line treatment for PBC. We are aware of several agents in clinical development for the treatment of PBC including Cymabay’s seladelpar, Genfit’s elafibranor and NGM Biopharmaceuticals, Inc.’s NGM282. Furthermore, if approved, one of our own product candidates may be used off-label in the market for another of our product candidates, adversely affecting the sales of that product candidate. Government Regulation and Product Approval As a pharmaceutical company that operates in the United States, we are subject to extensive regulation. Government authorities in the United States (at the federal, state and local level) and in other countries extensively regulate, among other things, the research, development, testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug products such as those we are developing. Maralixibat and volixibat and any other product candidates that we develop must be approved by the FDA before they may be legally marketed in the United States and by the appropriate foreign regulatory agency before they may be legally marketed in foreign countries. Generally, our activities in other countries will be subject to regulation that is similar in nature and scope as that imposed in the United States, although there can be important differences. Additionally, some significant aspects of regulation in Europe are addressed in a centralized way, but country-specific regulation remains essential in many respects. 33 U.S. Drug Development Process In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act (“FDCA”), and implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include, among other actions, refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls or withdrawals from the market, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a drug may be marketed in the United States generally involves the following: • completion of extensive preclinical laboratory tests, preclinical animal studies and formulation studies in accordance with applicable regulations, including the FDA’s Good Laboratory Practice (“GLP”), regulations and other applicable regulations; • submission to the FDA of an investigational new drug (“IND”), which must become effective before human clinical trials may begin; • approval by an independent institutional review board (“IRB”), at each clinical site before each trial may be initiated; • performance of adequate and well-controlled human clinical trials in accordance with applicable regulations, including the FDA’s good clinical practice (“GCP”), regulations to establish the safety and efficacy of the proposed drug for its proposed indication; • submission to the FDA of an NDA for a new drug; • satisfactory completion of an FDA advisory committee review, if applicable; • a determination by the FDA within 60 days of its receipt of an NDA to file the NDA for review; • satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug is produced to assess compliance with the FDA’s current good manufacturing practice (“cGMP”), requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; • potential FDA inspection of the preclinical and/or clinical trial sites that generated the data in support of the NDA; and • FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States. Before testing any compounds with potential therapeutic value in humans, the drug candidate enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies, to assess the potential safety and activity of the drug candidate. The conduct of the preclinical tests must comply with federal regulations and requirements including GLPs. The sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for human trials. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the IND on clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a drug candidate at any time before or during clinical trials due to safety concerns or non-compliance. 34 Clinical trials involve the administration of the drug candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: • Phase 1. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion, the side effects associated with increasing doses and if possible, to gain early evidence of effectiveness. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. • Phase 2. The drug is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases or conditions and to determine dosage tolerance, optimal dosage and dosing schedule. • Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall benefit/risk ratio of the product and provide an adequate basis for product approval. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA. Post-approval studies, or Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, FDA may mandate the performance of Phase 4 trials. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in laboratory animals that suggests a significant risk for human subjects. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA, the IRB, or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life. 35 U.S. Review and Approval Processes The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. Data may come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational drug product to the satisfaction of the FDA. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. In addition, the Pediatric Research Equity Act (“PREA”), requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation. Unless otherwise required by regulation, the Pediatric Research Equity Act does not apply to any drug for an indication for which orphan designation has been granted. However, if only one indication for a product has orphan designation, a pediatric assessment may still be required for any applications to market that same product for the non-orphan indication(s). The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing. The FDA must make a decision on accepting an NDA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the Prescription Drug User Fee Act (“PDUFA”), guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a “filing” decision after it the application is submitted. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs, and the review process is often significantly extended by FDA requests for additional information or clarification. After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity. The FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions and typically follows the advisory committee’s recommendations. Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical sites to assure compliance with GCP requirements. After the FDA evaluates the application, manufacturing process and manufacturing facilities, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete Response Letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The Complete Response Letter may require additional clinical data and/or (an) additional pivotal Phase 3 clinical trial(s), and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or 36 manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling or may condition the approval of the NDA on other changes to the proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials. For example, the FDA may require Phase 4 testing, which involves clinical trials designed to further assess a drug safety and effectiveness, and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The FDA may also determine that a risk evaluation and mitigation strategy (“REMS”) is necessary to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Orphan Drug Designation Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States or, if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan designation must be requested before submitting an NDA. After the FDA grants orphan designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity or inability to manufacture the product in sufficient quantities. The designation of such drug also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval of the same drug as defined by the FDA or if our product candidate is determined to be contained within the competitor’s product for the same indication or disease. If an orphan designated product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan exclusivity. Orphan drug status in the European Union has similar but not identical benefits in that jurisdiction. Rare Pediatric Disease Priority Review Voucher Program In 2012, Congress authorized the FDA to award priority review vouchers to sponsors of certain rare pediatric disease product applications. This provision is designed to encourage development of new drug and biological products for prevention and treatment of certain rare pediatric diseases. Specifically, under this program, a sponsor who receives an approval for a drug or biologic for a “rare pediatric disease” may qualify for a voucher that can be redeemed to receive a priority review of a subsequent marketing application for a different product. The sponsor of a rare pediatric disease drug product receiving a priority review voucher may transfer (including by sale) the voucher to another sponsor. The voucher may be further transferred any number of times before the voucher is used, as long as the sponsor making the transfer has not yet submitted the application. The FDA may also revoke any priority review voucher if the rare pediatric disease drug for which the voucher was awarded is not marketed in the U.S. within one year following the date of approval. 37 For the purposes of this program, a “rare pediatric disease” is a (a) serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect individuals aged from birth to 18 years, including age groups often called neonates, infants, children, and adolescents; and (b) rare disease or conditions within the meaning of the Orphan Drug Act. A sponsor may choose to request Rare Pediatric Disease Designation, but the designation process is entirely voluntary; requesting designation is not a prerequisite to requesting or receiving a priority review voucher. In addition, sponsors who choose not to submit a Rare Pediatric Disease Designation request may nonetheless receive a priority review voucher if they request such a voucher in their original marketing application and meet all of the eligibility criteria. Expedited Development and Review Programs The FDA has a fast track designation program that is intended to expedite or facilitate the process for reviewing new drug products that meet certain criteria. Specifically, new drugs are eligible for Fast Track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Unique to a fast track product, the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. Any product submitted to the FDA for approval, including a product with a fast track designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. A product is eligible for priority review if it has the potential to provide safe and effective therapy for a serious condition where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a serious condition compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug designated for priority review in an effort to facilitate the review. In addition, a product may be eligible for accelerated approval. Drug products intended to treat serious or life-threatening diseases or conditions may be eligible for accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. Fast track designation, priority review and accelerated approval do not change the standards for approval but may expedite the development or approval process. A sponsor may seek FDA designation of a drug candidate as a “breakthrough therapy” if the drug is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes intensive FDA interaction and guidance. If a drug is designated as breakthrough therapy, the FDA will expedite the development and review of such drug. Breakthrough therapy designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance. The breakthrough therapy designation is a distinct status from both accelerated approval and priority review, which can also be granted to the same drug if relevant criteria are met. If a product is designated as breakthrough therapy, the FDA will work to expedite the development and review of such drug. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. In addition, this designation may not provide a material commercial advantage. 38 Post-Approval Requirements Any drug products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, restrictions on promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling (known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the internet. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses. In addition, quality control and manufacturing procedures must continue to conform to applicable manufacturing requirements after approval to ensure the long term stability of the drug product. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in accordance with cGMP regulations. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA, including, among other things, recall or withdrawal of the product from the market. In addition, changes to the manufacturing process are strictly regulated, and depending on the significance of the change, may require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval. The FDA also may require post-marketing testing, known as Phase 4 testing, and surveillance to monitor the effects of an approved product. Discovery of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development. U.S. Patent Term Restoration and Marketing Exclusivity Depending upon the timing, duration and specifics of the FDA approval of the use of our product candidates, some of our U.S. patents, if granted, may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years, as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may intend to apply for restoration of patent term for one of our currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA. 39 Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain marketing applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not approve or even accept for review an abbreviated new drug application (“ANDA”), or a 505(b)(2) NDA submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. Orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances. Pediatric exclusivity is another type of non-patent market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued “Written Request” for such a trial. Other U.S. Healthcare Laws and Compliance Requirements Although we currently do not have any products on the market, we are and, upon approval and commercialization, will be subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which we conduct our business. In the United States, such laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security, price reporting, and health care provider sunshine laws and regulations. The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor. Additionally, the intent standard under the Anti-Kickback Statute and the criminal healthcare fraud statutes (discussed below) was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Affordable Care Act”), to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act codified case law that a claim including items or 40 services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act (discussed below). The federal False Claims Act, as well as the civil monetary penalty law, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to, or approval by, the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification to the federal False Claims Act made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. Pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Companies have also been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved, and thus non-covered, uses. The Health Insurance Portability and Accountability Act (“HIPAA”) also created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Also, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Additionally, the federal Physician Payments Sunshine Act within the Affordable Care Act, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) annually report information related to certain payments or other transfers of value made or distributed to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, certain ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, applicable manufacturers will also be required to report such information regarding payments and transfers of value provided during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified nurse anesthetists and certified nurse-midwives. We may also be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations, impose requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. We also are or will become subject to privacy laws in the jurisdictions in which we are established or in which we sell or market our products or run clinical trials. For example, in relation to clinical trials in Europe, we are subject to Regulation (EU) 2016/679, the General Data Protection Regulation and similar laws in European countries outside of the EU (collectively, the “GDPR”), in relation to our collection, control, processing and other use of personal data (i.e. data relating to an identifiable living individual). We process personal data in relation to participants in our clinical trials in the European Economic Area, including the health and medical information of these participants. The GDPR also provides that European Union Member States may introduce further conditions, including limitations which could limit our ability to collect, use and share personal data (including health and medical information), or could cause our compliance costs to increase, ultimately having an adverse impact on our business. The GDPR imposes onerous accountability obligations requiring data controllers and processors to 41 maintain a record of their data processing and implement policies as part of its mandated privacy governance framework. It also requires data controllers to be transparent and disclose to data subjects (in a concise, intelligible and easily accessible form) how their personal information is to be used, imposes limitations on retention of personal data; defines for the first time pseudonymized (i.e., key-coded) data; introduces mandatory data breach notification requirements; and sets higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities. We are also subject to European Union rules with respect to cross-border transfers of personal data out of the European Union and European Economic Area. We are subject to the supervision of local data protection authorities in those European Union jurisdictions where we are established or otherwise subject to the GDPR, and we maintain an office in Switzerland, which has similar privacy and data protection laws and regulations. Fines for certain breaches of the GDPR are significant: up to the greater of €20 million or 4% of total global annual turnover. In addition to the foregoing, a breach of the GDPR or other applicable privacy and data protection laws and regulations could result in regulatory investigations, reputational damage, orders to cease/change our use of data, enforcement notices, or potential civil claims including class action type litigation. In addition, California recently enacted the California Consumer Privacy Act (“CCPA”), which requires covered companies to provide new disclosures to California residents and honor their requests to access, delete and opt-out of certain sharing of their personal data. The CCPA, which took effect on January 1, 2020, provides for civil penalties for violations and statutory damages for certain data breaches. The CCPA will expand substantially as a result of California voters approving a November 2020 ballot measure that adopted the California Privacy Rights Act of 2020, which will, among other things, create a new administrative agency to implement and enforce California’s privacy laws effective January 1, 2023. While certain clinical trial activities are exempt from the CCPA’s requirements, other personal information that we handle may be subject to the CCPA, which may increase our compliance costs, exposure to regulatory enforcement action and other liabilities. In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, track and report gifts, compensation and other remuneration made to physicians and other healthcare providers, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws. If our operations are found to be in violation of any of the federal and state healthcare laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including without limitation, significant civil, criminal and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, imprisonment, private “qui tam” actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. Pharmaceutical Coverage, Pricing and Reimbursement Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we or our collaborators obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we or our collaborators receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors provide coverage, and establish adequate reimbursement levels for such drug products. 42 In the United States, third-party payors include federal and state healthcare programs, government authorities, private managed care providers, private health insurers and other organizations. Third-party payors are increasingly challenging the price, examining the medical necessity and reviewing the cost-effectiveness of medical drug products and medical services, in addition to questioning their safety and efficacy. Such payors may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. We or our collaborators may need to conduct expensive pharmaco-economic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Nonetheless, our product candidates may not be considered medically necessary or cost-effective. Moreover, the process for determining whether a third-party payor will provide coverage for a drug product may be separate from the process for setting the price of a drug product or for establishing the reimbursement rate that such a payor will pay for the drug product. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a drug product does not assure that other payors will also provide coverage for the drug product. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. If we elect to participate in certain governmental programs, we may be required to participate in discount and rebate programs, which may result in prices for our future products that will likely be lower than the prices we might otherwise obtain. For example, drug manufacturers participating under the Medicaid Drug Rebate Program must pay rebates on prescription drugs to state Medicaid programs. Under the Veterans Health Care Act (“VHCA”), drug companies are required to offer certain drugs at a reduced price to a number of federal agencies, including the U.S. Department of Veterans Affairs and Department of Defense, the Public Health Service and certain private Public Health Service designated entities in order to participate in other federal funding programs, including Medicare and Medicaid. Recent legislative changes require that discounted prices be offered for certain U.S. Department of Defense purchases for its TRICARE program via a rebate system. Participation under the VHCA also requires submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations. If our products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Different pricing and reimbursement schemes exist in other countries. In the European Union, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular drug candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country. The marketability of any product candidates for which we or our collaborators receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we or our collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future. Healthcare Reform A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products and services, implementing reductions in Medicare and other healthcare funding and applying new payment methodologies. For example, in March 2010, the Affordable Care Act was enacted, which affected existing government healthcare programs and resulted in the development of new programs. 43 Among the Affordable Care Act’s provisions of importance to the pharmaceutical industry, in addition to those otherwise described above, are the following: • an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs; • an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively, and a cap on the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price (“AMP”); • a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D; • extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; • expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals, including individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability; • expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and • a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. There have been executive, judicial and Congressional challenges to certain aspects of the Affordable Care Act. For example, the Tax Act was enacted, which included a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas ruled that the individual mandate is a critical and inseverable feature of the Affordable Care Act, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the Affordable Care Act are invalid as well. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit ruled that that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well. The U.S. Supreme Court is currently reviewing this case, but it is unknown when a decision will be reached. Although the Supreme Court has not yet ruled on the constitutionality of the Affordable Care Act, on January 28, 2021, the current administration issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the Affordable Care Act marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the Affordable Care Act. It is unclear how the Supreme Court ruling, other such litigation and the healthcare reform measures of the current administration will impact the Affordable Care Act and our business. Other legislative changes have also been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, included aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030 unless additional Congressional action is taken. However, COVID-19 relief legislation suspended the 2% Medicare sequester from 44 May 1, 2020 through March 31, 2021. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years . There has been heightened governmental scrutiny recently over the manner in which pharmaceutical companies set prices for their marketed products, which has resulted in several Congressional inquiries and proposed federal legislation, as well as state efforts, designed to, among other things, bring more transparency to product pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products At the federal level, the previous administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, the previous administration announced several executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals. The FDA also released a final rule, effective November 30, 2020, implementing a portion of the importation executive order providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, the U.S. Department of Health and Human Services finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the current administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed pending review by the current administration until March 22, 2021. On November 20, 2020, Centers for Medicare & Medicaid Services issued an interim final rule implementing the previous administration’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. On December 28, 2020, the United States District Court in Northern California issued a nationwide preliminary injunction against implementation of the interim final rule. I t is unclear what additional reform measures, if any, will be taken by the current administration related to drug pricing reform on a federal level . At the state level, individual states in the United States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. We anticipate that these new laws will result in additional downward pressure on coverage and the price that we receive for any approved product, and could seriously harm our business. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. In addition, it is possible that there will be further legislation or regulation that could harm our business, financial condition, and results of operations. Further, it is possible that additional governmental action will be taken in response to the COVID-19 pandemic. The U.S. Foreign Corrupt Practices Act The U.S. Foreign Corrupt Practices Act of 1977 (“FCPA”), prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international 45 subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Europe / Rest of World Government Regulation In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we or our potential collaborators obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of an application for a clinical trial authorization (“CTA”), much like the IND prior to the commencement of human clinical trials. In the European Union, for example, a CTA must be submitted to each country’s national health authority and an application made to an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country’s requirements and a favorable ethics committee opinion has been issued, clinical trial development may proceed. The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. To obtain regulatory approval of an investigational drug or biological product under European Union regulatory systems, we must submit an MAA either under the so-called centralized or national authorization procedures. Centralized procedure. The centralized procedure provides for the grant of a single marketing authorization by the European Commission following a favorable opinion by the EMA that is valid in all European Union member states, as well as Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for medicines produced by specified biotechnological processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment of specified diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases, other immune dysfunctions and viral diseases. The centralized procedure is optional for other products that represent a significant therapeutic, scientific or technical innovation, or whose authorization would be in the interest of public health or which contain a new active substance for indications other than those specified to be compulsory. National authorization procedures. There are also two other possible routes to authorize medicinal products in several European Union countries, which are available for investigational medicinal products that fall outside the scope of the centralized procedure: • Decentralized procedure. Using the decentralized procedure, an applicant may apply for simultaneous authorizations in more than one European Union Member State of medicinal products that have not yet been authorized in any European Union Member State and that do not fall within the mandatory scope of the centralized procedure. • Mutual recognition procedure. In the mutual recognition procedure, a medicine is first authorized in one European Union Member State, in accordance with the national procedures of that country. Following this, further marketing authorizations can be sought from other European Union countries in a procedure whereby the countries concerned agree to recognize the validity of the original, national marketing authorization. The EMA grants orphan drug designation to promote the development of products for the treatment, prevention or diagnosis of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 people in the European Union. In addition, orphan drug designation can be granted if the drug is intended for a life threatening or chronically debilitating condition in the European Union and without incentives it is unlikely that sales of the drug in the European Union would be sufficient to justify the investment required to develop the drug. Orphan drug designation is only available if there is no other satisfactory method approved in the European 46 Union of diagnosing, preventing or treating the condition, or if such a method exists, the proposed orphan drug will be of significant benefit to patients. Orphan drug designation provides opportunities for free or reduced-fee protocol assistance, fee reductions for MAAs and other post-authorization activities and ten years of market exclusivity following drug approval, which can be extended to 12 years if trials are conducted in accordance with an agreed-upon pediatric investigational plan. The exclusivity period may be reduced to six years if the designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If we or our potential collaborators fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. Human Capital Management As of December 31, 2020, we employed 68 employees, all of whom are full-time, consisting of clinical, research, operations, finance and business development personnel. Seventeen of our employees hold Ph.D. or M.D. degrees. Further, 61 of our employees are located in the United Sates, and seven are located in Switzerland. None of our employees is subject to a collective bargaining agreement. We consider our relationship with our employees to be good. We expect to continue to add employees in 2021, with a focus on clinical, research and development and commercialization activities. We continually evaluate the business need and opportunity to expand our team and balance in-house expertise and capacity with outsourced expertise and capacity. Currently, we outsource substantial clinical trial work to clinical research organizations and drug manufacturing to contract manufacturers. We maintain a safety culture grounded on the premise of eliminating workplace incidents, risks and hazards. In response to COVID-19, we have implemented and continue to enhance safety measures in all our facilities, including: • Making work-from-home the default for all employees. • Establishing clear and regular COVID-19 policies, safety protocols and updates to all employees. • If employees are required to work from an office location: o implementing daily health attestations and capacity management; o providing additional personal protective equipment and cleaning supplies; o increasing cleaning and sanitization protocols across all locations; and o requiring face coverings to be worn in all locations. • Prohibiting all work-related domestic and international non-essential travel for all employees. We believe our success depends on our ability to attract, develop and retain key personnel. We invest in the growth and development of our employees through various training and development programs that build and strengthen employees’ leadership and professional skills. We also have processes in place to conduct activities like performance management, succession and workforce planning in order to support our employees in their growth and development and ensure we provide learning opportunities. To continually assess and improve our employee retention and engagement, we conduct an engagement survey on a regular basis, the results of which are discussed with our board of directors, at all-hands employee meetings and 47 in individual functions. We take actions to address areas of employment concern and follow up routinely to share with employees what we are doing. We strive toward having a diverse team of employees and are committed to equality, inclusion and workplace diversity. To accomplish this, we have included questions in our engagement survey to measure employee perception of inclusive culture. In 2020, we established a Culture Team consisting of four employees across a representative cross-section of departments. Amongst other initiatives, our Culture Team engages in continual discussions across the various business functions to identify potential actions to address areas of improvement and is focused on building accountability across the organization to ensure we meet our diversity objectives. Corporate Information We were incorporated in Delaware in May 2018. Our principal executive offices are located at 950 Tower Lane, Suite 1050, Foster City, California 94404, and our telephone number is (650) 667-4085. Our corporate website address is www.mirumpharma.com. Information contained on or accessible through our website is not a part of this Annual Report, and the inclusion of our website address in this report is an inactive textual reference only. Our design logo, “Mirum,” and our other registered and common law trade names, trademarks and service marks are the property of Mirum Pharmaceuticals, Inc. Emerging Growth Company We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). We may take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm under Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until December 31, 2024 or until we are no longer an “emerging growth company,” whichever is earlier. We will cease to be an emerging growth company prior to the end of such period if certain earlier events occur, including if we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), our annual gross revenues exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. We have not elected to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.” We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. 48