What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-17 compared with 2020-02-26 · 47 added, 64 removed, 181 unchanged (38% of the section changed)

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Secondary objectives include evaluation of histologic changes assessed by hepatic biopsy after 52 weeks of dosing.

VK2809 has been evaluated in six completed clinical studies, which enrolled more than 260 subjects.

To date, no serious adverse events, or SAEs, have been observed in subjects receiving VK2809, and overall tolerability remains encouraging.

VK2809 has been evaluated in seven completed clinical studies, which enrolled more than 300 subjects.

No serious adverse events, or SAEs, have been observed in subjects receiving VK2809 in these completed studies, and overall tolerability remains encouraging.

In addition, the compound has been evaluated in chronic toxicity studies of up to 12 months in duration.

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Preliminary data suggest that VK0214 stimulates ABCD2 expression in an in vitro model and reduces VLCFA levels in an in vivo model of X-ALD.

Pending completion of certain ongoing toxicology studies, we expect to file an investigational new drug application, or IND, to initiate a proof-of-concept study in patients with X-ALD in 2020.

Our second clinical program’s lead drug candidate, VK5211, is an orally available, non-steroidal selective androgen receptor modulator, or SARM.

In September of 2020, we initiated a randomized, double-blind, placebo controlled Phase 1 single ascending dose, or SAD, and multiple ascending dose, or MAD, clinical trial of VK0214 in healthy patients.

The primary objectives of the study include evaluation of the safety and tolerability of single and multiple oral doses of VK0214, as well as identification of VK0214 doses for further clinical development in the setting of X-ALD.

Other clinical programs include VK5211, an orally available, non-steroidal selective androgen receptor modulator, or SARM.

In November 2017, we announced positive top-line results from a Phase 2 proof-of-concept clinical trial in 108 patients recovering from non-elective hip fracture surgery.

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The terms of this license agreement are detailed in the Master License Agreement with Ligand, which we entered into on

May 21, 2014, as amended, or the Master License Agreem ent.

May 21, 2014, as amended, or the Master License Agreement.

A summary of the Master License Agreement can be found under the heading “Agreements with Ligand—Master License Agreement” under Part I, “Item 1.

Business” of this Annual Report on Form 10-K.

We are subject to risks and uncertainties as a result of the COVID-19 pandemic.

The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve.

Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic slowdown or recession.

Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole.

The magnitude and overall effectiveness of these actions remain uncertain.

In addition, our clinical trials have been affected by and may continue to be affected by the COVID-19 pandemic.

Clinical site initiation and patient enrollment have been, and may continue to be delayed due to prioritization of hospital resources toward the COVID-19 pandemic.

Some patients have not been able and others may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services.

Similarly, any inability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may adversely impact our clinical trial operations.

The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our service providers, suppliers, contract research organizations, or CROs, and our clinical trials, all of which are uncertain and cannot be predicted, as well as the timing and potential rollout of any vaccines and the willingness of the general population to be vaccinated.

As of the date of issuance of our financial statements, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity or results of operations is still uncertain.

Financial Operations Overview

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Research and Development Expenses

During the year ended December 31, 2020, we charged $31.9 million to research and development expense primarily related to our efforts in continuing to conduct the VK2809 Phase 2b VOYAGE clinical trial as well as preparing for and initiating the VK0214 Phase 1 SAD and MAD study in healthy patients.

During the year ended December 31, 2019, we charged $23.6 million to research and development expense primarily related to our efforts to prepare for the initiation of the VK2809 Phase 2b VOYAGE clinical trial as well as certain toxicology studies for VK2809 and in vivo studies for VK0214.

During the year ended December 31, 2018, we charged $19.0 million to research and development expense related primarily to our continued efforts to conduct our Phase 2 clinical trial for VK2809, certain toxicology studies for VK2809 and in vivo studies for VK0214.

We expect that our ongoing research and development expenses will consist of costs incurred for the development of our drug candidates, including, but not limited to:

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Other Income (Expense)

Through May 21, 2018, other income (expense) includes the change in fair value of the debt conversion feature liability contained in the Secured Convertible Promissory Note issued pursuant to the Loan and Security Agreement with Ligand, or the Ligand Note, and

its related interest expense, as well as the non-cash amortization of debt discount cost associated with the Ligand Note, offset by interest income earned from our cash and short-term in vestments as the Ligand Note and the related interest were repaid in full on May 21, 2018.

After May 21, 2018, and throughout all of 2019, other income (expense) includes only interest income earned from our cash, cash equivalents and short-term investment s.

We are an “emerging growth company” within the meaning of the rules under the Securities Act, and we utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies.

For example, as an emerging growth company, we are not required to provide an auditor’s attestation report on our internal control over financial reporting in this and future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended.

In addition, Section 107 of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have irrevocably elected to “opt out” of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

As a result, we are complying with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

Other income (expense) includes interest income earned from our cash, cash equivalents and short-term investments.

Smaller Reporting Company and Non-Accelerated Filer

Until December 31, 2020, we were deemed an “emerging growth company” within the meaning of the rules under the Securities Act, and we utilized certain exemptions from various reporting requirements that were applicable to public companies that were not emerging growth companies.

For example, as an emerging growth company, we were not required to provide an auditor’s attestation report on our internal control over financial reporting in our annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended.

Effective December 31, 2020, we are no longer an emerging growth company as December 31, 2020 was the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering.

In March 2020, the SEC released final rules amending the definitions for accelerated and large accelerated filers.

In addition, these final rules also exclude from these definitions of accelerated and large accelerated filers an issuer that is eligible to be a smaller reporting company and non-accelerated filer.

As our public float on June 30, 2020 was less than $700 million and our annual revenues are less than $100 million, we are now deemed a smaller reporting company and a non-accelerated filer.

As a non-accelerated filer and in accordance with these new rules, we will continue to not be required to provide an auditor’s attestation report on our internal control over financial reporting in this and potentially future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended.

In addition, as a smaller reporting company, we have the ability to take advantage of several “scaled disclosure” accommodations in accordance with the smaller reporting company rules.

Critical Accounting Policies and Estimates

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Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 1 to our financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies will be critical to understanding our historical and future performance, as these policies relate to the significant areas involving management’s judgments and estimates in the preparation of our financial statements.

future performance, as these policies relate to the significant areas involving management’s judgments and estimates in the preparation of our financial statements.

Revenue Recognition

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ASC 606 is a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.

The new revenue standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The revenue standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve this core principle, ASC 606 provides that an entity should apply the following steps:

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All costs of research and development are expensed in the period incurred.

incurred pursuant to agreements with third-party manufacturing organizations, facilities cos ts, travel costs, dues and subscriptions, depreciation and materials used in preclinical studies, clinical trials and research and development.

Research and development costs primarily consist of fees paid to contract research organizations, or CROs, and clinical trial sites, employee and consultant related expenses, which include salaries, benefits and stock-based compensation for research and development personnel, external research and development expenses incurred pursuant to agreements with third-party manufacturing organizations, facilities costs, travel costs, dues and subscriptions, depreciation and materials used in preclinical studies, clinical trials and research and development.

We estimate our preclinical study and clinical trial expenses based on the services we received pursuant to contracts with research institutions and CROs that conduct and manage preclinical studies and clinical trials on our behalf.

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We note that intangible assets acquired that are in the preclinical or clinical stages of development when acquired, and not approved by the U.S.

Food and Drug Administration, are deemed to have not satisfied the definition of having an alternative future use, as defined.

Food and Drug Administration, are deemed to have not satisfied the definition of having

an alternative future use, as defined.

Accordingly, assets acquired in the preclinical and clinical stages of development are expensed as incurred in our statement of operations.

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As our ESPP also allows for up to one increase in contributions during each purchase period, then as an employee elects to increase their contributions, we treat this as an accounting modification.

The pre- and post-

modification values are calculated on the date of the modification, and the incremental expe nse is then amortized over the remaining purchase periods.

The pre- and post-modification values are calculated on the date of the modification, and the incremental expense is then amortized over the remaining purchase periods.

We account for our income taxes using the liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the basis used for financial reporting and income tax reporting purposes.

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Research and development expenses

The increase in research and development expenses during the year ended December 31, 2019 as compared to the year ended December 31, 2018 was primarily due to increased expenses related to the manufacturing of certain of our drug candidates of $2.3 million, certain clinical study efforts of $1.3 million, services provided by certain third-party consultants of $694,000 and salaries and benefits of $399,000, partially offset by decreased expenses related to certain pre-clinical study efforts of $142,000 .

The increase in research and development expenses during the year ended December 31, 2020 as compared to the year ended December 31, 2019 was primarily due to increased expenses related to our clinical study efforts of $9.5 million, salaries and benefits of $668,000, stock-based compensation of $405,000 and the manufacturing of our drug candidates of $278,000 partially offset by decreased expenses related to services provided by certain third-party consultants of $1.5 million, pre-clinical study efforts of $908,000 and travel of $40,000 .

General and Administrative Expenses

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General and administrative expenses

The increase in general and administrative expenses during the year ended December 31, 2019 as compared to the year ended December 31, 2018 was primarily due to increased expenses related to stock-based compensation of $1.1 million, services provided

by certain third-party consultants of $213,000 , insurance expense of $152,000 , legal and patent expense s of $152,000 and professional fees of $129,000 .

The increase in general and administrative expenses during the year ended December 31, 2020 as compared to the year ended December 31, 2019 was primarily due to increased expenses related to stock-based compensation of $1.7 million, salaries and wages of $295,000 and insurance expense of $173,000 partially offset by decreased expenses related to services provided by certain third-party consultants of $201,000, professional fees of $116,000, legal and patent expenses of $83,000 and travel of $71,000.

Other Income (Expense)

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Other income (expense) recognized during the year ended December 31, 2020 consisted primarily of interest income of $3.3 million, offset by expense relating to the amortization of certain financing costs of $106,000.

Other income (expense) recognized during the year ended December 31, 2018 consisted primarily of income related to the decrease in fair value of the Ligand Note’s conversion feature of $1.4 million and interest income of $3.3 million offset by expense related to the amortization of the Ligand Note discount of $404,000, interest expense related to the Ligand Note of $38,000, amortization of certain financing costs $120,000, and realized loss on sale of investment securities of $12,000.

Other income (expense) recognized during the year ended December 31, 2019 consisted primarily of interest income of $7.1 million, offset by expense relating to the amortization of certain financing costs of $146,000.

Liquidity and Capital Resources

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Cash used in operating activities

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Cash provided by financing activities

Cash Used in Operating Activities

During the year ended December 31, 2019, cash used in operating activities of $24.8 million primarily reflected our net losses for the period, adjusted by non-cash charges such as amortization of investment premiums , amortization of financing costs, amortization of non-cash clinical trial costs, and stock-based compensation as well as changes in our working capital accounts, primarily consisting of an increase in prepaid expenses, accounts payable and accrued expenses.

During the year ended December 31, 2018, cash used in operating activities of $18.8 million primarily reflected our net losses for the period, adjusted by non-cash charges such as amortization of discount charged to interest expense on the Ligand Note, amortization of investment premiums, amortization of financing costs, amortization of non-cash clinical trial costs, stock-based compensation and a decrease in the fair value of the debt conversion feature liability for the Ligand Note as well as changes in our working capital accounts, primarily consisting of an increase in prepaid expenses and accrued expenses offset by a decrease in accounts payable.

Cash Used in Investing Activities

During the year ended December 31, 2019, cash provided by investing activities of $7.5 million resulted primarily from the proceeds of sales and maturities of investments of $369.9 million, offset by the purchase of investments of $362.4 million.

During the year ended December 31, 2018, cash used in investing activities of $265.7 million resulted primarily from the purchase of investments of $348.2 million offset by the proceeds of sales and maturities of investments of $82.5 million.

During the year ended December 31, 2020, cash used in operating activities of $21.8 million primarily reflected our net losses for the period, adjusted by non-cash charges such as stock-based compensation, amortization of investment premiums , amortization of financing costs and amortization of right of use asset as well as changes in our working capital accounts, primarily consisting of an increase in accrued interest, net of interest received on maturity of investments, accounts payable and accrued expenses and a decrease in prepaid expenses and lease liability.

Cash Provided by Investing Activities

During the year ended December 31, 2020, cash provided by investing activities of $41.6 million resulted primarily from the proceeds of sales and maturities of investments of $322.2 million, partially offset by the purchase of investments of $280.6 million.

During the year ended December 31, 2019, cash provided by investing activities of $7.5 million resulted primarily from the proceeds of sales and maturities of investments of $369.9 million, partially offset by the purchase of investments of $362.4 million.

Cash Provided by Financing Activities

During the year ended December 31, 2019, cash provided by financing activities was $887,000, which consisted primarily of proceeds from certain warrant exercises of $783,000 and proceeds from certain stock option exercises and employee stock purchase plan purchases of $328,000, offset by the value of shares withheld to cover taxes of $151,000 and payments of certain financing costs of $73,000.

During the year ended December 31, 2018, cash provided by financing activities was $300.3 million, which consisted primarily of proceeds from the issuance of common stock, net of discount, of $165.2 million, $72.6 million and $58.8 million in the September 2018 Offering, June 2018 Offering and February 2018 Offering, respectively, proceeds from certain warrant exercises of $7.8 million and proceeds from certain stock option exercises and employee stock purchases of $560,000, offset by the repayment of the Ligand Note of $3.8 million and payments of certain deferred offering and financing costs of $765,000.

During the year ended December 31, 2020, cash provided by financing activities was $950,000, which consisted primarily of proceeds from certain warrant exercises of $854,000 and proceeds from certain stock option exercises and employee stock purchase plan purchases of $418,000, partially offset by the value of shares withheld to cover taxes of $296,000 and payments of certain financing costs of $26,000.

During the year ended December 31, 2019, cash provided by financing activities was $887,000, which consisted primarily of proceeds from certain warrant exercises of $783,000 and proceeds from certain stock option exercises and employee stock purchase plan purchases of $328,000, partially offset by the value of shares withheld to cover taxes of $151,000 and payments of certain financing costs of $73,000.

Future Funding Requirements

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We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.

Recent Accounting Pronouncements

Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board, or FASB, issued ASU No.

2016-02, or ASU 2016-02, which establishes a right-of-use, or ROU, model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for most leases.

In July 2018, the FASB issued ASU No.

2018-11, or ASU 2018-11, which amends the guidance to add a method of adoption whereby the issuer may elect to recognize a cumulative effect adjustment at the beginning of the period of adoption.

ASU 2018-11 does not require comparative period financial information to be adjusted.

Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

ASU 2016-02 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

To determine whether a contract conveys the right to control the use of the identified asset for a period of time, the customer has to have both (1) the right to obtain substantially all of the economic benefits from the use of the identified asset and (2) the right to direct the use of the identified asset;

a contract does not contain an identified asset if the supplier has a substantive right to substitute such asset, or the leasing criteria.

We determined that our office lease, which has a term in excess of one year, meets the leasing criteria.

Therefore, on January 1, 2019, we adopted ASU 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby we elected not to reassess the following:

(i) whether any expired or existing contracts contain leases;

(ii) the lease classification for any expired or existing leases;

and (iii) initial direct costs for any existing leases.

We elected to apply the transition provisions as of January 1, 2019, the date of adoption, and we recorded lease ROU assets of $858,000 and related lease liabilities of $882,000 on our balance sheet related to our operating lease.

We have no financing leases.

There were no changes to our statements of operations or cash flows.

In July 2017, the FASB issued ASU No.

2017-11, Earnings Per Share (Topic 260);

Distinguishing Liabilities from Equity (Topic 480);Derivatives and Hedging (Topic 815) :

(Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, or ASU 2017-11.

Among others, Part I of ASU 2017-11 simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings.

ASU 2017-11 requires companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.

Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity.

ASU 2017-11 also addresses navigational concerns within the ASC related to an indefinite deferral available to private companies.

The provisions of the ASU 2017-11related to down rounds are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (fiscal 2019 for the Company).

We adopted ASU 2017-11 effective January 1, 2019 and it did not have a material effect on our financial statements and related disclosures.

Quantitative and Qualitati ve Disclosures About Market Risk.

Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.

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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-K

Item 7. Management’s Discussion and Analysis