What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-31 compared with 2020-05-11 · 62 added, 40 removed, 155 unchanged (40% of the section changed)

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In March 2020, the World Health Organization ("WHO") classified the COVID-19 outbreak as a pandemic.

While the impact of the COVID-19 pandemic did not have a material adverse effect on our financial position or results of operations for the quarter ended March 31, 2020, we have been monitoring the developments and assessing areas where there is potential for our business to be impacted.

While the impact of the COVID-19 pandemic did not have a material adverse effect on our financial position or results of operations for the three and six months ended June 30, 2020, we have been monitoring the developments and assessing areas where there is potential for our business to be impacted.

Our labor force is currently working remotely, which could, among other things, negatively impact our ability to conduct research and development activities, engage in sales-related initiatives, or efficiently conduct day-to-day operations, and we are aware that other businesses with which we engage are likely operating under similar restrictions and experiencing disruptions in their own operations, which may create obstacles in the coordination of business activities.

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The financial markets have been subject to significant volatility that could impact our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing activities.

We currently have $67.0 million in cash and cash equivalents and $289.4 million in available-for-sale securities as of March 31, 2020, which we believe provides sufficient capital to fund our operations for at least the next twelve months and withstand the anticipated near-term consequences of the pandemic, although liquidity constraints and access to capital markets could warrant changes to our investment strategy.

We currently have $237.2 million in cash and cash equivalents and $220.2 million in available-for-sale securities as of June 30, 2020, which we believe provides sufficient capital to fund our operations for at least the next twelve months and withstand the anticipated near-term consequences of the pandemic, although liquidity constraints and access to capital markets could warrant changes to our investment strategy.

While we have not yet experienced a material impact to date, the full magnitude of the pandemic cannot be measured at this time, and therefore any of the aforementioned circumstances, as well as other factors, may cause our results of operations to vary substantially from year to year and quarter to quarter.

Our Product Candidates and Approved Products

*Chenodal is indicated for the treatment of patients suffering from gallstones and is also in Phase 3 for treatment of cerebrotendinous xanthomatosis ("CTX").

*Chenodal is indicated for the treatment of patients suffering from gallstones and is also in Phase 3 development for treatment of cerebrotendinous xanthomatosis ("CTX").

Product Candidate Development Activities:

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and Conditional Marketing Authorization ("CMA") consideration in Europe.

Top-line data from the interim analysis are expected to become available in the first quarter of 2021, which timelines may need to be adjusted as a result of the COVID-19 pandemic once the impact of the pandemic is better known.

The DUPLEX Study protocol also provides for a sample size re-assessment to support the confirmatory portion of the study.

At this time, topline data from the 36-week proteinuria endpoint analysis are expected to become available in the first quarter of 2021, and we are monitoring the potential impact the evolving COVID-19 pandemic in conjunction with the outcome of the planned sample size reassessment may have on this timing.

• Immunoglobulin A nephropathy ("IgAN") is characterized by hematuria, proteinuria, and variable rates of progressive renal failure.

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There are currently no FDA approved treatments for IgAN.

The current standard of care is renin-angiotensin-aldosterone system ("RAAS") blockade with immunosuppression also being commonly used for patients with significant

proteinuria or rapidly progressive glomerulonephritis.

In 2018, we announced that the first patient had been dosed in the PROTECT Study, a global, randomized, multicenter, double-blind, parallel-arm, active-controlled pivotal Phase 3 clinical trial evaluating the safety and efficacy of sparsentan in patients with IgAN, and the study continues to enroll.

The primary efficacy endpoint in the PROTECT Study is the change in proteinuria (urine protein-to-creatinine ratio) from baseline after 36 weeks of treatment.

Successful achievement of this endpoint in the first approximately 280 patients is expected to support the submission of an NDA under the Subpart H accelerated approval pathway in the U.S., as well as an application for CMA consideration in Europe.

The confirmatory endpoint in the PROTECT Study is the rate of change in eGFR over the 110-week period following the initiation of randomized treatment, and additional secondary endpoints include the rate of change in eGFR over the 58-week period following the initiation of randomized treatment, as well as the rate of change in eGFR over 52-week and 104-week periods following the first six weeks of randomized treatment.

Top-line data from the primary endpoint are expected to become available in the first half of 2022, which timelines may need to be adjusted as a result of the COVID-19 pandemic once the impact of the pandemic is better known.

We have recently increased the sample size for the confirmatory portion of the study from 280 patients to 380 patients, while maintaining the sample size for the primary endpoint at 280 patients.

The current standard of care is renin-angiotensin-aldosterone system ("RAAS") blockade with immunosuppression also being commonly used for patients with significant proteinuria or rapidly progressive glomerulonephritis.

the study continues to enroll.

The PROTECT Study protocol provides for an unblinded analysis of at least 280 patients to be performed after 36 weeks of treatment to evaluate the primary efficacy endpoint – the change in proteinuria (urine protein-to-creatinine ratio) at Week 36 from baseline.

Successful achievement of the proteinuria endpoint is expected to support submission of an NDA under the Subpart H accelerated approval pathway in the U.S., as well as an application for CMA consideration in Europe.

Secondary efficacy endpoints include the rate of change in eGFR following the initiation of randomized treatment over 58-week and 110-week periods, as well as the rate of change in eGFR over 52-week and 104-week periods following the first six weeks of randomized treatment in approximately 380 patients.

At this time, topline data from the 36-week proteinuria endpoint analysis are expected to become available in the second half of 2021 and we are monitoring the potential impact the evolving COVID-19 pandemic may have on this timing.

In January 2020, we randomized the first patients in a Phase 3 clinical trial to evaluate the effects of Chenodal in adult and pediatric patients with cerebrotendinous xanthomatosis (“CTX”).

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An estimated 200 to 300 patients are current candidates for therapy.

Kolbam, the branded name of Cholbam in Europe, is indicated in Europe for the treatment of certain inborn errors of primary bile acid synthesis, encompassing select single enzyme defects, in infants from one month of age for continuous lifelong treatment through adulthood.

Cholbam was previously marketed in Europe under the branded name Kolbam.

Sales of Kolbam in Europe were not a material component of our business, and in July 2020, we withdrew our European marketing approval application for Kolbam.

Thiola ® and Thiola EC ® (tiopronin)

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The resulting long-term damage can cause loss of kidney function in addition to substantial pain and loss of productivity associated with renal colic and stone passage.

The prevalence of cystinuria in the United States is estimated t

o be 10,000 to 12,000, indicating that there may be as many as 4,000 to 5,000 affected individuals with cystinuria in the United States that would be candidates for Thiola.

The prevalence of cystinuria in the United States is estimated to be 10,000 to 12,000, indicating that there may be as many as 4,000 to 5,000 affected individuals with cystinuria in the United States that would be candidates for Thiola.

In June 2019, we announced that the FDA approved 100 mg and 300 mg tablets of Thiola EC, a new enteric-coated formulation of Thiola.

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Results of Operations

Results of operations for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 .

Results of operations for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019.

Net Product Sales:

The following table provides information regarding net product sales ( in thousands ):

Three Months Ended March 31,

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

2020 2019 Change 2020 2019 Change

Net product revenues by product:

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Total net product revenues $ 48,430 $ 44,707 $ 3,723 $ 96,199 $ 84,277 $ 11,922

The sales increase for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was due to increased patient counts, as well as the normal fluctuations in timing of new patient starts and prescription refills.

The sales increase for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019 was due to increased patient counts, as well as the normal fluctuations in timing of new patient starts and prescription refills.

Operating Expenses:

The following table provides information regarding operating expenses ( in thousands ):

Three Months Ended March 31,

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

2020 2019 Change 2020 2019 Change

Cost of goods sold $ 1,494 $ 979 $ 515 $ 2,864 $ 1,996 $ 868

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Write off of L-UDCA contingent consideration — — — — (18,000) 18,000

$ 71,541 $ 81,236 $ (9,695) $ 134,375 $ 159,034 $ (24,659)

Research and development expenses

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Research and development costs are expensed as incurred and include salaries and bonuses, benefits, non-cash share-based compensation, license fees, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials, and associated overhead expenses and facility costs.

For the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 , our research and development expenses decreased by $3.2 million , which is primarily due to the discontinuation of the fosmetpantotenate program in PKAN.

For the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019, our research and development expenses decreased by $7.1 million and $10.3 million, respectively, due to the discontinuation of the fosmetpantotenate program in PKAN.

Selling, general and administrative expenses

Selling, general and administrative expenses include salaries and bonuses, benefits, non-cash share-based compensation, professional fees, rent, depreciation and amortization, travel, insurance, business development, sales and marketing programs, and other operating expenses.

For the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 , our selling, general and administrative expenses remained relatively flat with an increase of $0.5 million .

For the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019, our selling, general and administrative expenses decreased by $4.0 million and $3.5 million, respectively.

This decrease is primarily due to lower legal expenses.

Change in the valuation of contingent consideration

For the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 , the change in fair value of contingent consideration is due to the timing of future payments and changes in projected revenues.

For the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, the change in fair value of contingent consideration is due to changes in market driven discount rates.

For the six months ended June 30, 2020 as compared to the six months ended June 30, 2019, the change in fair value of contingent consideration is due to a change in revenue projections.

During the first quarter of 2019, we elected to discontinue development of the L-UDCA program, resulting in the removal of the intangible asset of $25.5 million, which was originally recorded in 2016, and the reversal of associated contingent consideration of $18.0 million.

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The following table provides information regarding other income (expenses), net ( in thousands ):

Three Months Ended March 31,

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

2020 2019 Change 2020 2019 Change

Other income (expense), net $ 426 $ 125 $ 301 $ 235 $ (177) $ 412

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Interest expense (4,634) (4,817) 183 (9,521) (9,682) 161

The change in our other income (expenses) for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 of $0.8 million is primarily due to lower balances in investments in marketable securities.

$ (2,892) $ (2,103) $ (789) $ (5,995) $ (4,451) $ (1,544)

The change in our other income (expenses) for the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019 of $0.8 million and $1.5 million, respectively, is primarily due to lower average balances in investments in debt securities and lower interest rates.

Income Tax Benefit (Provision):

For the three months ended March 31, 2020, we recognized an income tax benefit of $19.0 million , primarily related to provisions of the CARES Act concerning net operating loss carrybacks.

For the six months ended June 30, 2020, we recognized an income tax benefit of $18.9 million, primarily related to provisions of the CARES Act concerning net operating loss carrybacks.

Under GAAP, quarterly effective tax rates may vary significantly depending on the actual operating results in the various tax jurisdictions, and significant transactions, as well as changes in the valuation allowance related to the expected recovery of deferred tax assets.

At March 31, 2020, we had no unrecognized tax benefits.

We did not recognize any interest or penalties related to unrecognized tax benefits during the three months ended March 31, 2020.

At June 30, 2020, we had no unrecognized tax benefits.

We did not recognize any interest or penalties related to unrecognized tax benefits during the six months ended June 30, 2020.

Liquidity and Capital Resources

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Management believes that our operating results will vary from quarter to quarter and year to year depending upon various factors including revenues, general and administrative expenses, and research and development expenses.

We had the following balances at March 31, 2020 and December 31, 2019 ( in thousands ):

March 31, 2020

December 31, 2019

We had the following balances at June 30, 2020 and December 31, 2019 ( in thousands ):

June 30, 2020 December 31, 2019

Cash & Cash Equivalents $ 237,170 $ 62,436

Marketable securities

Debt securities 220,206 336,088

Accumulated Deficit (441,704) (416,444)

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**Current assets divided by current liabilities.

Future Minimum Rental Commitments

We have future minimum rental commitments totaling $13.4 million arising from our operating leases.

These commitments consist of $1.4 million in aggregate base rent for our existing office lease estimated to expire in January 2021 and $12.8 million in aggregate base rent through August 2028, less seven months of rent abatement totaling $0.9 million for the new office lease space delivered in June 2020.

Excluded from these rental commitments is one month of advance rent totaling $0.1 million, and lease incentives in the form of tenant improvements allowances totaling $2.0 million for the office space delivered in June 2020.

Our future minimum rental commitments will increase by $34.0 million upon taking possession of the remainder of the new office lease space, which is expected to occur in the latter part of 2020.

These additional commitments consist of $36.5 million in aggregate base rent through August 2028, less seven months of rent abatement totaling $2.5 million for the new office lease space not yet delivered.

Excluded from these additional rental commitments is lease incentives in the form of tenant improvements allowances totaling $5.8 million for the office space not yet delivered.

See additional discussion of our operating leases within Note 6 of the financial statement disclosures.

Underwritten Public Offering of Common Stock

In June 2020, the Company sold an aggregate of 7.5 million shares of its common stock in an underwritten public offering, at a price to the public of $15.50 per share.

The net proceeds to the Company from the offering, after deducting the underwriting discounts and offering expenses, was $108.6 million.

At-the-Market Equity Offering Program

In February 2020, we entered into an Open Market Sale Agreement ("ATM Agreement") with Jefferies LLC, as agent (“Jefferies”), pursuant to which we may offer and sell, from time to time through Jefferies, shares of our common stock having an aggregate offering price of up to $100.0 million.

Shares will be sold

pursuant to our effective registration statement on Form S-3 (Registration Statement No.

333-227182), as previously filed with the Securities and Exchange Commission.

Through the period ended June 30, 2020, we have not sold any shares under the ATM Agreement.

Convertible Notes Payable

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The composition of our 2025 Notes are as follows ( in thousands ):

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

2.50% convertible senior notes due 2025 $ 276,000 $ 276,000

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Cash Flows from Operating Activities

Cash used in operating activities was $29.2 million for the three months ended March 31, 2020 compared to cash used of $20.5 million for the three months ended March 31, 2019 .

The increase in cash used is attributable to changes in working capital.

Cash used in operating activities was $35.6 million for the six months ended June 30, 2020 compared to cash used of $39.6 million for the six months ended June 30, 2019.

The change in cash used in operations is due to lower R&D expenses from the discontinuation of the fosmetpantotenate program in PKAN and lower legal expenses, offset by changes in net working capital.

Cash Flows from Investing Activities

Cash provided by investing activities for the three months ended March 31, 2020 was $39.6 million , compared to cash used of $11.4 million for the three months ended March 31, 2019 .

The change was due to timing differences associated with the purchases, sales and maturities of our available-for-sale investments .

Cash provided by investing activities for the six months ended June 30, 2020 was $107.4 million, compared to cash provided of $13.8 million for the six months ended June 30, 2019.

The change was due to the sale and maturity of our available-for-sale investments that were not reinvested.

Cash Flows from Financing Activities

Cash used by financing activities for the three months ended March 31, 2020 was $5.8 million compared to cash used of $1.1 million for the three months ended March 31, 2019 .

The increase in cash used was due to payment of a sales milestone for Cholbam achieved in 2019.

Cash provided by financing activities for the six months ended June 30, 2020 was $103.0 million compared to cash used of $1.4 million for the six months ended June 30, 2019.

The increase in cash provided was due to the underwritten public offering of our common stock in June 2020.

Funding Requirements

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Factors that may affect financing requirements include, but are not limited to:

increases or decreases in revenue from our marketed products, including decreases in revenue resulting from the COVID-19 pandemic;

• increases or decreases in revenue from our marketed products, including decreases in revenue resulting from the COVID-19 pandemic, if any;

• the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities, including any delays resulting from the COVID-19 pandemic;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis