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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________

Commission File Number 001-36352

 

AKEBIA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-8756903

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

245 First Street, Cambridge, MA

 

02142

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617871-2098

n/a

(Former name, former address and formal fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Common Stock, par value $0.00001 per share

Trading symbol(s)

AKBA

Name of each exchange on which registered

The Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Outstanding at April 30, 2020

130,265,945

 

 

 


NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that are being made pursuant to the provisions of the U.S. Private Securities Litigation Reform Act of 1995 with the intention of obtaining the benefits of the “safe harbor” provisions of that Act. All statements contained in this Quarterly Report on Form 10‑Q other than statements of historical fact are forward‑looking statements. These forward-looking statements may be accompanied by words such as “anticipate,” “believe,” “build,” “can,” “contemplate,” “continue,” “could,” “should,” “designed,” “estimate,” “project,” “expect,” “forecast,” “future,” “goal,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “strategy,” “seek,” “target,” “will,” “would,” and other words and terms of similar meaning, but the absence of these words does not necessarily mean that a statement is not forward‑looking. These forward-looking statements include, but are not limited to, statements about:

 

the potential direct or indirect impact of the coronavirus 2 (SARS-CoV-2) pandemic on our business, operations, and the markets and communities in which we and our partners, collaborators, vendors and customers operate;

 

the potential therapeutic benefits, safety profile, and effectiveness of our product candidates, including the potential for vadadustat to set a new standard of care in the treatment of anemia due to chronic kidney disease

 

the timing, investment and associated activities involved in continued commercialization of Auryxia® (ferric citrate);

 

the potential indications, demand and market potential and acceptance of our product and product candidates, including our estimates regarding the potential market opportunity for Auryxia, vadadustat or any other product candidates and the size of eligible patient populations

 

the potential therapeutic applications of the hypoxia inducible factor, or HIF, pathway; 

 

our pipeline, including its potential, and our research and development activities; 

 

our competitive position, including estimates, developments and projections relating to our competitors and their products and product candidates, and our industry

 

our expectations with respect to (i) the anticipated financial impact and potential benefits to us related to our merger with Keryx Biopharmaceuticals, Inc., or Keryx, that was completed on December 12, 2018, or the Merger, (ii) integration of the businesses subsequent to the Merger, and (iii) other matters related to the Merger;

 

our expectations, projections and estimates regarding our capital requirements, need for additional capital, financing our future cash needs, costs, expenses, revenues, capital resources, cash flows, financial performance, profitability, tax obligations, liquidity, growth, contractual obligations, the period of time our cash resources and collaboration funding will fund our current operating plan, internal control over financial reporting and remediation of any deficiencies, and disclosure controls and procedures

 

the timing of the availability and disclosure of clinical trial data and results;  

 

our and our collaborators’ strategy, plans and expectations with respect to the development, manufacturing, commercialization, launch, marketing and sale of our product candidates, and the associated timing thereof; 

 

the designs of our studies, and the type of information and data expected from our studies and the expected benefits thereof; 

 

the timing of or likelihood of regulatory filings and approvals, including labeling or other restrictions; 

 

our ability to maintain any marketing authorizations we currently hold or will obtain, including our marketing authorizations for Auryxia and our ability to complete post-marketing requirements with respect thereto;

 

our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms and processes on a timely basis, or at all, with third-party payors for Auryxia or any other product candidate that may be approved;

 

the targeted timing of enrollment of our clinical trials; 

 

the timing of initiation of our clinical trials and plans to conduct preclinical and clinical studies in the future; 

 

the timing and amounts of payments from or to our collaborators and licensees, and the anticipated arrangements and benefits under our collaboration and license agreements, including with respect to milestones and royalties; 


 

our intellectual property position, including obtaining and maintaining patents, and the timing, outcome and impact of administrative, regulatory, legal and other proceedings relating to our patents and other proprietary and intellectual property rights, as well as Abbreviated New Drug Applications filed by generic drug manufacturers and potential U.S. Food and Drug Administration approval thereof, and associated patent infringement suits that we have filed or may file, or other actions that we may take against such companies, and the timing and resolution thereof;  

 

expected reliance on third parties, including with respect to the development, manufacturing, supply and commercialization of our product and product candidates;

 

accounting standards and estimates, their impact, and their expected timing of completion;

 

estimated periods of performance of key contracts;  

 

our facilities, lease commitments, and future availability of facilities;  

 

cybersecurity;

 

insurance coverage;

 

our employees, including our management team, employee compensation, employee relations, and our ability to attract and retain high quality employees;

 

the implementation of our business model, current operating plan, and strategic plans for our business, product candidates and technology, and business development opportunities including potential collaborations, alliances, mergers, acquisitions or licensing of assets; and

 

the timing, outcome and impact of current and any future legal proceedings.

Any or all of these forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. These forward-looking statements involve risks and uncertainties, including those that are described in Part II, Item 1A. Risk Factors included in this Quarterly Report on Form 10-Q and elsewhere in this Quarterly Report on Form 10-Q, that could cause our actual results, financial condition, performance or achievements to be materially different from those indicated in these forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to publicly update or revise these forward-looking statements for any reason. Unless otherwise stated, our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

This Quarterly Report on Form 10-Q also contains estimates and other information concerning our industry and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Unless otherwise expressly stated, we obtained this industry, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires, references to “Akebia,” “we,” “us,” “our,” “the Company,” and similar references refer to Akebia Therapeutics, Inc. and, where appropriate, its subsidiaries, including Keryx.

AURYXIA®, AKEBIA® Therapeutics and their associated logos are trademarks of Akebia and/or its affiliates. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. All website addresses given in this Quarterly Report on Form 10-Q are for information only and are not intended to be an active link or to incorporate any website information into this document.

 

 


Akebia Therapeutics, Inc.

Table of Contents

 

Part I. Financial Information

  

 

 

 

 

Item 1 – Financial Statements (Unaudited)

  

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

  

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019

  

6

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019

  

7

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

 

8

Notes to Condensed Consolidated Financial Statements

  

9

 

 

 

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

45

 

 

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

  

57

 

 

 

Item 4 – Controls and Procedures

  

57

 

 

 

Part II. Other Information

  

59

 

 

 

Item 1 – Legal Proceedings

  

59

 

 

 

Item 1A – Risk Factors

  

63

 

 

 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

  

113

 

 

 

Item 3 – Defaults Upon Senior Securities

  

113

 

 

 

Item 4 – Mine Safety Disclosures

  

113

 

 

 

Item 5 – Other Information

 

113

 

 

 

Item 6 – Exhibits

  

114

 

 

 

Signatures

  

115

 

 

 


PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements.

AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)  

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

115,374

 

 

$

147,449

 

Available for sale securities

 

 

 

 

 

245

 

Inventory

 

 

111,854

 

 

 

116,349

 

Accounts receivable, net

 

 

104,872

 

 

 

38,864

 

Prepaid expenses and other current assets

 

 

8,656

 

 

 

6,626

 

Total current assets

 

 

340,756

 

 

 

309,533

 

Property and equipment, net

 

 

9,855

 

 

 

10,380

 

Operating lease assets

 

 

28,026

 

 

 

29,038

 

Goodwill

 

 

55,053

 

 

 

55,053

 

Other intangible assets, net

 

 

282,112

 

 

 

291,212

 

Other assets

 

 

71,917

 

 

 

75,985

 

Total assets

 

$

787,719

 

 

$

771,201

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

54,379

 

 

$

39,217

 

Accrued expenses and other current liabilities

 

 

124,887

 

 

 

129,071

 

Short-term deferred revenue

 

 

34,886

 

 

 

39,830

 

Total current liabilities

 

 

214,152

 

 

 

208,118

 

Deferred revenue, net of current portion

 

 

42,799

 

 

 

33,120

 

Operating lease liabilities, net of current portion

 

 

26,207

 

 

 

27,528

 

Derivative liability

 

 

1,740

 

 

 

1,650

 

Long-term debt, net

 

 

76,072

 

 

 

75,805

 

Other non-current liabilities

 

 

30,385

 

 

 

30,223

 

Total liabilities

 

 

391,355

 

 

 

376,444

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock $0.00001 par value, 25,000,000 shares authorized; 0 shares issued and

   outstanding at March 31, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock $0.00001 par value; 175,000,000 shares authorized at March 31,

   2020 and December 31, 2019; 130,251,440 and 121,674,568 shares issued and

   outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

1,251,164

 

 

 

1,188,810

 

Accumulated deficit

 

 

(854,801

)

 

 

(794,054

)

Total stockholders' equity

 

 

396,364

 

 

 

394,757

 

Total liabilities and stockholders' equity

 

$

787,719

 

 

$

771,201

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5


AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Product revenue, net

 

$

29,209

 

 

$

23,111

 

License, collaboration and other revenue

 

 

59,269

 

 

 

49,555

 

Total revenues

 

 

88,478

 

 

 

72,666

 

Cost of goods sold:

 

 

 

 

 

 

 

 

Product

 

 

18,613

 

 

 

22,157

 

Amortization of intangibles

 

 

9,100

 

 

 

9,100

 

Total cost of goods sold

 

 

27,713

 

 

 

31,257

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

81,231

 

 

 

82,351

 

Selling, general and administrative

 

 

37,983

 

 

 

34,291

 

License expense

 

 

676

 

 

 

736

 

Total operating expenses

 

 

119,890

 

 

 

117,378

 

Operating loss

 

 

(59,125

)

 

 

(75,969

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income (expense)

 

 

(1,972

)

 

 

869

 

Other income (expense)

 

 

350

 

 

 

(78

)

Net loss before income taxes

 

 

(60,747

)

 

 

(75,178

)

Benefit from income taxes

 

 

 

 

 

(2,757

)

Net loss

 

$

(60,747

)

 

$

(72,421

)

Net loss per share - basic and diluted

 

$

(0.47

)

 

$

(0.62

)

Weighted-average number of common shares - basic and diluted

 

 

128,395,163

 

 

 

117,063,352

 

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

 

$

(60,747

)

 

$

(72,421

)

Other comprehensive gain - unrealized gain on

   debt securities

 

 

 

 

 

225

 

Total comprehensive loss

 

$

(60,747

)

 

$

(72,196

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

6


AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share data)

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Number of

Shares

 

 

$0.00001

Par Value

 

 

Paid-In

Capital

 

 

Unrealized

Gain/(Loss)

 

 

Accumulated

Deficit

 

 

Stockholders'

Equity

 

Balance at December 31, 2018

 

 

116,887,518

 

 

$

1

 

 

$

1,150,583

 

 

$

(261

)

 

$

(514,395

)

 

$

635,928

 

Proceeds from sale of stock under

   employee stock purchase plan

 

 

39,977

 

 

 

 

 

 

188

 

 

 

 

 

 

 

 

 

188

 

Exercise of options

 

 

62,204

 

 

 

 

 

 

365

 

 

 

 

 

 

 

 

 

365

 

Share-based compensation expense

 

 

 

 

 

 

 

 

2,094

 

 

 

 

 

 

 

 

 

2,094

 

Restricted stock unit vesting

 

 

132,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain

 

 

 

 

 

 

 

 

 

 

 

225

 

 

 

 

 

 

225

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(72,421

)

 

 

(72,421

)

Balance at March 31, 2019

 

 

117,122,262

 

 

$

1

 

 

$

1,153,230

 

 

$

(36

)

 

$

(586,816

)

 

$

566,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

121,674,568

 

 

$

1

 

 

$

1,188,810

 

 

$

 

 

$

(794,054

)

 

$

394,757

 

Issuance of common stock, net of

   issuance costs

 

 

7,973,967

 

 

 

 

 

 

56,575

 

 

 

 

 

 

 

 

 

56,575

 

Proceeds from sale of stock under

   employee stock purchase plan

 

 

115,024

 

 

 

 

 

 

451

 

 

 

 

 

 

 

 

 

451

 

Share-based compensation expense

 

 

 

 

 

 

 

 

4,916

 

 

 

 

 

 

 

 

 

4,916

 

Exercise of options

 

 

64,126

 

 

 

 

 

 

412

 

 

 

 

 

 

 

 

 

412

 

Restricted stock unit vesting

 

 

423,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60,747

)

 

 

(60,747

)

Balance at March 31, 2020

 

 

130,251,440

 

 

$

1

 

 

$

1,251,164

 

 

$

 

 

$

(854,801

)

 

$

396,364

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements

7


AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(60,747

)

 

$

(72,421

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

525

 

 

 

439

 

Amortization of intangibles

 

 

9,100

 

 

 

9,100

 

Amortization of premium/discount on investments

 

 

 

 

 

(477

)

Non-cash interest expense

 

 

437

 

 

 

169

 

Non-cash operating lease expense

 

 

(647

)

 

 

(614

)

Fair value write-up of inventory sold

 

 

11,180

 

 

 

14,586

 

Write-down of inventory

 

 

139

 

 

 

1,664

 

Stock-based compensation

 

 

4,916

 

 

 

2,094

 

Deferred income taxes

 

 

 

 

 

(2,757

)

Change in fair value of derivative liability

 

 

90

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(66,008

)

 

 

(31,769

)

Inventory

 

 

(8,163

)

 

 

(16,064

)

Prepaid expenses and other current assets

 

 

(1,898

)

 

 

1,317

 

Other long-term assets

 

 

46

 

 

 

719

 

Accounts payable

 

 

20,470

 

 

 

(20,746

)

Accrued expense

 

 

(4,209

)

 

 

(17,500

)

Operating lease liabilities

 

 

445

 

 

 

549

 

Deferred revenue

 

 

4,735

 

 

 

(6,218

)

Net cash used in operating activities

 

 

(89,589

)

 

 

(137,929

)

Investing activities:

 

 

 

 

 

 

 

 

Purchase of equipment

 

 

 

 

 

(1,928

)

Proceeds from the maturities of available for sale securities

 

 

245

 

 

 

78,691

 

Proceeds from sales of available for sale securities

 

 

 

 

 

33,710

 

Net cash provided by investing activities

 

 

245

 

 

 

110,473

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from the issuance of common stock, net of issuance costs

 

 

56,485

 

 

 

 

Proceeds from the sale of stock under employee stock purchase plan

 

 

451

 

 

 

188

 

Proceeds from the exercise of stock options

 

 

412

 

 

 

365

 

Payments on debt

 

 

 

 

 

(15,000

)

Net cash provided by financing activities

 

 

57,348

 

 

 

(14,447

)

Increase in cash, cash equivalents, and restricted cash

 

 

(31,996

)

 

 

(41,903

)

Cash, cash equivalents, and restricted cash at beginning of the period

 

 

149,804

 

 

 

107,099

 

Cash, cash equivalents, and restricted cash at end of the period

 

$

117,808

 

 

$

65,196

 

Non-cash financing activities

 

 

 

 

 

 

 

 

Unpaid offering costs

 

$

90

 

 

$

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 


8


Akebia Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)  

 

1. Nature of Organization and Operations

Akebia Therapeutics, Inc., referred to as Akebia or the Company, was incorporated in the State of Delaware in 2007. Akebia is a biopharmaceutical company with the purpose of bettering the lives of people living with kidney disease. Akebia’s lead investigational product candidate, vadadustat, is an oral therapy in Phase 3 development. The Company believes vadadustat has the potential to set a new standard of care in the treatment of anemia due to CKD, acting via a novel hypoxia inducible factor, or HIF, pathway. HIF is the primary regulator of the production of red blood cells, or RBCs, in the body, as well as other important metabolic functions. The Company’s commercial product, Auryxia® (ferric citrate) is currently approved by the U.S. Food and Drug Administration, or FDA, and marketed for two indications in the United States: the control of serum phosphorus levels in adult patients with chronic kidney disease, or CKD, on dialysis, or DD-CKD, and the treatment of iron deficiency anemia, or IDA, in adult patients with CKD not on dialysis, or NDD-CKD. Ferric citrate is also approved and marketed in Japan as an oral treatment for the improvement of hyperphosphatemia in patients with DD-CKD and NDD-CKD under the trade name Riona® (ferric citrate hydrate).

Since inception, the Company has devoted most of its resources to research and development, including its preclinical and clinical development activities, and providing general and administrative support for these operations. The Company began recording revenue from the U.S. sales of Auryxia and revenue from sublicensing rights to Auryxia in Japan to the Company’s Japanese partners Japan Tobacco, Inc. and its subsidiary Torii Pharmaceutical Co., Ltd., collectively, JT and Torii, on December 12, 2018 following the consummation of a merger with Keryx Biopharmaceuticals, Inc., or Keryx, or the Merger. The Company has not generated a profit to date and may never generate profits from product sales. The Company’s product candidates are subject to long development cycles, and the Company may be unsuccessful in its efforts to develop, obtain marketing approval for or market its product candidates. If the Company does not successfully commercialize any of its products or product candidates, it may be unable to achieve profitability.

 

The Company’s management completed its going concern assessment in accordance with ASC 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, or ASC 205-40. The Company believes that its cash resources will be sufficient to allow the Company to fund its current operating plan through at least the next twelve months from the filing of this Quarterly Report on Form 10-Q, as required by ASC 205-40. There can be no assurance, however, that the current operating plan will be achieved in the time frame anticipated by the Company, or that its cash resources will fund the Company’s operating plan for the period anticipated by the Company or that additional funding will be available on terms acceptable to the Company, or at all. The Company will require additional capital for the further commercialization of Auryxia and continued development and potential commercialization of the Company’s existing product candidates and would need to raise additional funds to pursue development activities related to any additional product candidates. If and until the Company can generate a sufficient amount of product revenue, the Company expects to finance future cash needs through public or private equity or debt transactions, payments from its collaborators, royalty transactions, strategic transactions, or a combination of these approaches. However, adequate additional financing may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on attractive terms, it may be forced to delay, reduce or eliminate its research and development programs or any commercialization efforts.

 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S., or GAAP, for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Update, or ASU, of the Financial Accounting Standards Board, or FASB.

In the opinion of management, all adjustments, consisting of normal recurring accruals and revisions of estimates, considered necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. Interim results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other future period.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Management has determined that the Company operates in one segment, which is the business of developing and commercializing novel therapeutics for people with kidney disease. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission on March 12, 2020, or the 2019 Annual Report on Form 10-K.

9


The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements for the three months ended March 31, 2020 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2019 Annual Report on Form 10-K and are updated below as necessary.

New Accounting Pronouncements – Recently Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. Previously, U.S. GAAP delayed recognition of the full amount of credit losses until the loss was probable of occurring. Under this ASU, the income statement will reflect an entity’s current estimate of all expected credit losses. The Company adopted this new standard on January 1, 2020 using the modified retrospective approach, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption with prior periods not restated. The cumulative-effect adjustment recorded on January 1, 2020, is not material. Please see the description of the Company’s “Credit Losses” accounting policy in the “Significant Accounting Policies” section below.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements. The Company adopted this new standard on January 1, 2020 using the prospective approach for amendments applicable to the Company. The adoption of this standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangible-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This standard clarifies the accounting for implementation costs in cloud computing arrangements. This standard became effective for us on January 1, 2020, and was adopted on a prospective basis. The adoption of this standard did not have a material impact to the Company’s unaudited condensed consolidated financial statements and disclosures.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard makes targeted improvements for collaborative arrangements as follows:

 

Clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606, Revenue from Contracts with Customers, when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in ASC 606 should be applied, including recognition, measurement, presentation and disclosure requirements;

 

Adds unit-of-account guidance to ASC 808, Collaborative Arrangements, to align with the guidance in ASC 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606; and

 

Precludes a company from presenting transactions with collaborative arrangement participants that are not directly related to sales to third parties with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer.

This standard became effective for the Company on January 1, 2020, and did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.

New Accounting Pronouncements – Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods therein, and is applicable to the Company in fiscal year 2021. Early adoption is permitted. ASU 2019-12 requires certain amendments to be applied using a modified retrospective approach, which requires a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, while other amendments should be applied on a prospective basis. The Company does not expect that the adoption of this standard will have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.

10


Derivative Financial Instruments

The Company accounts for warrants and other derivative financial instruments as either equity or liabilities in accordance with ASC Topic 815, Derivatives and Hedging, or ASC 815, based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded at fair value as of the date of issuance on the Company’s unaudited condensed consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as liabilities are recorded on the Company’s unaudited condensed consolidated balance sheets at their fair value on the date of issuance and will be revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. The warrant issued by the Company in connection with the Janssen Pharmaceutica NV Research and License Agreement, the Janssen Agreement, is classified as equity in the Company’s unaudited condensed consolidated balance sheet. (See Note 12). The derivative liability recorded in connection with the Company’s Loan Agreement with Pharmakon is classified as a liability in the Company’s unaudited condensed consolidated balance sheet. (See Note 11).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: prepaid and accrued research and development expense, operating lease assets and liabilities, derivative liabilities, other non-current liabilities, stock-based compensation expense, product and collaboration revenues including various rebates and reserves related to product sales, inventories, income taxes, intangible assets and goodwill. The Company has made estimates of the impact of COVID-19 within the unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods including changes to sales, payer mix, reserves and allowances, intangible assets and goodwill. While the COVID-19 pandemic has not had a material adverse impact on the Company’s financial condition, the future impacts of the pandemic and any resulting economic impact is largely unknown and rapidly evolving.

Credit Losses

Available for sale debt securities. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. The Company classifies all securities as available for sale and includes them in current assets as they are intended to fund current operations. The Company's investment portfolio at any point in time contains investments in money market mutual funds, U.S. government debt securities, certificates of deposit and corporate debt securities. The Company segments its portfolio based on the underlying risk profiles of the securities and have a zero loss expectation for money market mutual funds, U.S. government debt securities and certificates of deposit. The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. During the quarter ended March 31, 2020, the Company’s only available for sales securities consisted of certificates of deposit and therefore the Company did not recognize any credit losses.

Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents consist of all cash on hand, deposits and funds invested in available for sale securities with original maturities of three months or less at the time of purchase. Cash equivalents are reported at fair value. At March 31, 2020, the Company’s cash is primarily in money market funds. The Company may maintain balances with its banks in excess of federally insured limits.

Restricted cash represents amounts required for security deposits under the Company’s office and lab space lease agreements and, at March 31, 2019, cash balances held as collateral for the Company’s employee credit card program. Restricted cash is included in “prepaid expenses and other current assets” and “other assets” in the unaudited condensed consolidated balance sheets.

11


The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the unaudited condensed consolidated balance sheet that sum to the total of the amounts reported in the unaudited condensed consolidated statement of cash flows (in thousands):

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Cash and cash equivalents

 

$

115,374

 

 

$

62,741

 

Prepaid expenses and other current assets

 

 

395

 

 

 

263

 

Other assets

 

 

2,039

 

 

 

2,192

 

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

 

$

117,808

 

 

$

65,196

 

 

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation. Assets under capital lease are included in property and equipment. Property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Such costs are periodically reviewed for recoverability when impairment indicators are present. Such indicators include, among other factors, operating losses, unused capacity, market value declines and technological obsolescence. Recorded values of asset groups of equipment that are not expected to be recovered through undiscounted future net cash flows are written down to current fair value, which generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable value (assets held for sale).

The following is the summary of property and equipment and related accumulated depreciation as of March 31, 2020 and December 31, 2019.

 

 

 

Useful Life

 

March 31, 2020

 

 

December 31, 2019

 

 

 

 

 

(in thousands)

 

Computer equipment and software

 

3

 

$

1,010

 

 

$

1,010

 

Furniture and fixtures

 

5 - 7

 

 

2,086

 

 

 

2,086

 

Equipment