| ● | whether either or both of the U.S. Food and Drug Administration, or FDA, and European Medicines Agency, or EMA, will determine that the primary endpoint and treatment duration of our completed Phase 3 trial in patients with PFIC is sufficient, even if such primary endpoint is met with statistical significance, to support approval of A4250 in the United States or the European Union, to treat PFIC, a symptom of PFIC or otherwise;the outcome and interpretation by regulatory authorities of the ongoing third-party study pooling and analyzing long-term PFIC patient data;
the timing for initiation or completion of, or for availability of data from, the trials comprising the planned Phase 3 PFIC program for A4250, and the outcomes of such trials;
whether changes made in the process of finalizing the protocol for the planned double blind Phase 3 trial of A4250 in patients with PFIC result in a delay in its initiation;
delays or other challenges in the recruitment of patients for the planned double blind Phase 3 trial of A4250;
3
| •
| whether our current cash resources will be sufficient to fund our planned Phase 3 clinical program for A4250 in patients with PFIC are sufficient, even though such primary endpoint was met with statistical significance, to completion;
support approval of Bylvay in the United States, or U.S., or the European Union, or E.U., to treat PFIC, a symptom of PFIC, a specific PFIC subtype(s) or otherwise; and whether either agency will complete their respective reviews within the target timelines, including the FDA’s Prescription Drug User Fee Act goal date of July 20, 2021, as a potential result of the impact of the COVID-19 pandemic or otherwise; |
| ● | the outcome and interpretation by regulatory authorities of an ongoing third-party study pooling and analyzing long-term PFIC patient data; |
| ● | the timing for initiation or completion of, or for availability of data from, our pivotal trial of Bylvay in biliary atresia and our pivotal trial of Bylvay in ALGS, and the outcomes of such trials; |
| ● | delays or other challenges in the recruitment of patients for the pivotal trial of Bylvay in biliary atresia and the pivotal trial of Bylvay in ALGS; |
| ● | whether Bylvay will meet the criteria to receive a rare pediatric disease priority review voucher from the FDA when applicable, whether a rare pediatric disease priority review voucher that we may receive in the future for Bylvay, if any, will be valuable to us, and, if necessary, whether the rare pediatric disease priority review voucher program will be renewed beyond 2026; |
| ● | the COVID-19 pandemic, which may negatively impact the conduct of, and the timing of initiation, enrollment, completion and reporting with respect to, our clinical trials; negatively impact the supply of drug product for our clinical and preclinical programs; and/or result in other adverse impacts on our business; |
| ● | the competitive environment and commercial opportunity for a potential treatment for PFIC and other orphan pediatric cholestatic liver diseases; |
| ● | the conduct and results of clinical trials and nonclinical studies and assessments of Bylvay, A3907, A2342 or any of our other product candidates and programs, including the performance of third parties engaged to execute them and difficulties or delays in patient enrollment and data analysis; |
| ● | the medical benefit that may be derived from Bylvay, A3907, A2342 or any of our other product candidates; |
| ● | the extent to which our agreement with EA Pharma for elobixibat generates nondilutive income for us; |
| ● | the timing and success of submission, acceptance and approval of regulatory filings and any related restrictions, limitations or warnings in the label of any approved product candidates; |
| ● | whether we are able to effectively commercialize Bylvay in patients with PFIC, if approved by the FDA or EMA; |
whether A4250 will meet the criteria to receive a pediatric priority review voucher from the FDA when applicable, and, if necessary, whether the pediatric priority review voucher program will be renewed beyond 2020;4
the competitive environment and commercial opportunity for a potential treatment for PFIC and other orphan pediatric cholestatic liver diseases;
| ● | the significant control or influence that EA Pharma has over the commercialization of elobixibat in Japan and the development and commercialization of elobixibat in EA Pharma’s other licensed territories; |
| ● | whether we elect to seek and, if so, our ability to establish a license or other partnering transaction with a third party for elobixibat in the United States or Europe; |
| ● | the accuracy of our estimates regarding expenses, costs, future revenues, uses of cash and capital requirements; |
| ● | our ability to obtain additional financing on reasonable terms, or at all; |
| ● | our ability to establish additional licensing, collaboration or similar arrangements on favorable terms and our ability to attract collaborators with development, regulatory and commercialization expertise; |
| ● | the success of competing third-party products or product candidates; |
| ● | our ability to successfully commercialize any approved product candidates, including their rate and degree of market acceptance; |
| ● | whether we are able to maintain compliance with the terms and conditions of our loan and security agreement with Hercules Capital, Inc.; |
| ● | our ability to expand and protect our intellectual property estate; |
| ● | regulatory developments in the United States and other countries; |
| ● | the effectiveness of our internal control over financial reporting; |
| ● | the performance of our third-party suppliers, manufacturers and contract research organizations and our ability to obtain alternative sources of raw materials; |
| ● | our ability to attract and retain key personnel; and |
| ● | our ability to comply with regulatory requirements relating to our business, and the costs of compliance with those requirements, including those on data privacy and security. |
the medical benefit that may be derived from A4250, elobixibat, A3384 or any of our other product candidates;
the extent to which our agreement with EA Pharma for elobixibat generates nondilutive income for us;
the timing and success of submission, acceptance and approval of regulatory filings, including in particular the new drug application submitted by EA Pharma in Japan for elobixibat for the treatment of chronic constipation, and any related restrictions, limitations or warnings in the label of any approved product candidates;
the significant control or influence that EA Pharma has over the development and commercialization of elobixibat in Japan and its other licensed territories;
whether we elect to seek and, if so, our ability to establish a license or other partnering transaction with a third party for elobixibat in the United States or Europe;
whether findings from nonclinical studies and clinical trials of IBAT inhibitors will be predictive of future clinical success for a product candidate of ours in the treatment of nonalcoholic steatohepatitis, or NASH;
the accuracy of our estimates regarding expenses, costs, future revenues, uses of cash and capital requirements;
our ability to obtain additional financing on reasonable terms, or at all;
our ability to establish additional licensing, collaboration or similar arrangements on favorable terms and our ability to attract collaborators with development, regulatory and commercialization expertise;
the success of competing third-party products or product candidates;
our ability to successfully commercialize any approved product candidates, including their rate and degree of market acceptance;
our ability to expand and protect our intellectual property estate;
regulatory developments in the United States and other countries;
the performance of our third-party suppliers, manufacturers and contract research organizations and our ability to obtain alternative sources of raw materials; and
our ability to attract and retain key personnel.
These and other risks and uncertainties are described in greater detail under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2020, in Exhibit 99.3 to our Current Report on Form 8-K filed May 23, 2017Item 1A of Part II of this quarterly report, and in other filings that we make with the Securities and Exchange Commission, or SEC. As a result of the risks and uncertainties, the results or events indicated by the forward-looking statements may not occur. We caution you not to place undue reliance on any forward-looking statement. In addition, any forward-looking statement in this quarterly report represents our views only as of the filing date of this quarterly report and should not be relied upon as representing our views as of any subsequent date. We anticipate that subsequent events and developments may cause our views to change. Although we may elect to update these forward-looking statements publicly at some point in the future, we specifically disclaim any obligation to do so, except as required by applicable law. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. PART I — FINANCI ALFINANCIAL INFORMATIONItem 1. Financial Statements Albireo Pharma, Inc.
Condensed Consolidated Balance Sheets (in thousands, except share data) (unaudited) | | | | | | | | | March 31, | | December 31, | | | 2021 | | 2020 | Assets | | | | | | | Current assets: | | | | | | | Cash and cash equivalents | | $ | 217,081 | | $ | 251,272 | Prepaid expenses and other current assets | | | 8,884 | | | 10,593 | Total current assets | | | 225,965 | | | 261,865 | Property and equipment, net | | | 440 | | | 478 | Goodwill | | | 17,260 | | | 17,260 | Other assets | | | 6,154 | | | 6,004 | Total assets | | $ | 249,819 | | $ | 285,607 | Liabilities and Stockholders' Equity | | | | | | | Current liabilities: | | | | | | | Accounts payable | | $ | 6,577 | | $ | 5,283 | Accrued expenses | | | 13,628 | | | 19,051 | Current portion of note payable, net of discount | | | 600 | | | — | Other current liabilities | | | 1,406 | | | 948 | Total current liabilities | | | 22,211 | | | 25,282 | Liability related to sale of future royalties | | | 67,113 | | | 65,894 | Note payable, net of discount | | | 9,136 | | | 9,621 | Other long-term liabilities | | | 3,441 | | | 3,579 | Total liabilities | | | 101,901 | | | 104,376 | Stockholders’ Equity: | | | | | | | Preferred stock, $0.01 par value per share — 50,000,000 authorized at March 31, 2021 and December 31, 2020; 0 and 0 issued and outstanding at March 31, 2021 and December 31, 2020, respectively | | | — | | | — | Common stock, $0.01 par value per share — 30,000,000 authorized at March 31, 2021 and December 31, 2020; 19,192,805 and 19,107,040 issued and outstanding at March 31, 2021 and December 31, 2020, respectively | | | 192 | | | 191 | Additional paid-in capital | | | 459,937 | | | 456,472 | Accumulated other comprehensive loss | | | (1,658) | | | (8,612) | Accumulated deficit | | | (310,553) | | | (266,820) | Total stockholders’ equity | | | 147,918 | | | 181,231 | Total liabilities and stockholders’ equity | | $ | 249,819 | | $ | 285,607 |
See accompanying notes to Condensed Consolidated Financial Statements. Albireo Pharma, Inc. Condensed Consolidated Statements of Operations (in thousands, except share and per share data) (unaudited) | | | | | | | | | Three Months Ended March 31, | | | 2021 | | 2020 | Revenue | | $ | 1,966 | | $ | 1,549 | Operating expenses: | | | | | | | Research and development | | | 19,943 | | | 16,130 | General and administrative | | | 15,273 | | | 8,153 | Other operating expense, net | | | 6,528 | | | 6,816 | Total operating expenses | | | 41,744 | | | 31,099 | Operating loss | | | (39,778) | | | (29,550) | Interest expense, net | | | (3,955) | | | (1,938) | Net loss | | $ | (43,733) | | $ | (31,488) | Net loss per common share - basic and diluted | | $ | (2.29) | | $ | (2.23) | Weighted-average common shares used to compute basic and diluted net loss per common share | | | 19,131,557 | | | 14,132,217 |
| | September 30, 2017 | | | December 31, 2016 | | ASSETS | | | | | | | | | Current assets: | | | | | | | | | Cash and cash equivalents | | $ | 57,073 | | | $ | 29,931 | | Trade receivables | | | 11 | | | | 26 | | Prepaid expenses and other assets | | | 326 | | | | 560 | | Other receivables | | | 730 | | | | 344 | | Total current assets | | | 58,140 | | | | 30,861 | | Property and equipment, net | | | 190 | | | | 21 | | Intangible assets | | | 1,000 | | | | 150 | | Goodwill | | | 17,260 | | | | 18,110 | | Other noncurrent assets | | | 503 | | | | 518 | | Total assets | | $ | 77,093 | | | $ | 49,660 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | Current liabilities: | | | | | | | | | Trade payables | | $ | 1,577 | | | $ | 972 | | Accrued expenses | | | 4,568 | | | | 7,548 | | Long-term debt, current portion | | | 1,470 | | | | 3,075 | | Warrant liability | | | — | | | | 844 | | Other liabilities | | | 315 | | | | 269 | | Total current liabilities | | | 7,930 | | | | 12,708 | | Long-term liabilities | | | 43 | | | | — | | Total liabilities | | | 7,973 | | | | 12,708 | | Stockholders' Equity: | | | | | | | | | Common stock, $0.01 par value per share — 30,000,000 authorized at September 30, 2017 and 200,000,000 authorized at December 31, 2016; 8,882,785 and 6,292,644 issued and outstanding at September 30, 2017 and December 31, 2016, respectively | | | 91 | | | | 63 | | Additional paid in capital | | | 113,515 | | | | 61,338 | | Accumulated other comprehensive income | | | 817 | | | | 1,496 | | Accumulated deficit | | | (45,303 | ) | | | (25,945 | ) | Total stockholders’ equity | | | 69,120 | | | | 36,952 | | Total liabilities and stockholders’ equity | | $ | 77,093 | | | $ | 49,660 | |
See accompanying notes to Condensed Consolidated Financial Statements. 5
Albireo Pharma, Inc.
Condensed Consolidated Statements of OperationsComprehensive Loss (in thousands, except share and per share data)thousands) (unaudited) | | | | | | | | | Three Months Ended March 31, | | | 2021 | | 2020 | Net loss | | $ | (43,733) | | $ | (31,488) | Other comprehensive (loss) income: | | | | | | | Foreign currency translation adjustment | | | 6,954 | | | 6,287 | Total other comprehensive income | | | 6,954 | | | 6,287 | Total comprehensive loss | | $ | (36,779) | | $ | (25,201) |
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Revenue | | $ | — | | | $ | 28 | | | $ | 2 | | | $ | 8,125 | | Operating expenses: | | | | | | | | | | | | | | | | | Research and development | | | 3,226 | | | | 2,062 | | | | 9,000 | | | | 6,372 | | General and administrative | | | 3,709 | | | | 1,346 | | | | 10,634 | | | | 5,680 | | Other (income) expense, net | | | (401 | ) | | | 58 | | | | (392 | ) | | | 193 | | Total operating expenses | | | 6,534 | | | | 3,466 | | | | 19,242 | | | | 12,245 | | Operating loss | | | (6,534 | ) | | | (3,438 | ) | | | (19,240 | ) | | | (4,120 | ) | Interest income (expense), net | | | 23 | | | | (508 | ) | | | (378 | ) | | | (1,546 | ) | Non-operating income (expense), net | | | — | | | | (84 | ) | | | 260 | | | | 536 | | Net loss before income taxes | | | (6,511 | ) | | | (4,030 | ) | | | (19,358 | ) | | | (5,130 | ) | Income tax | | | — | | | | — | | | | — | | | | — | | Net loss | | $ | (6,511 | ) | | $ | (4,030 | ) | | $ | (19,358 | ) | | $ | (5,130 | ) | Net loss per share - basic | | $ | (0.73 | ) | | $ | (13.32 | ) | | $ | (2.60 | ) | | $ | (17.96 | ) | Net loss per share - diluted | | $ | (0.73 | ) | | $ | (13.32 | ) | | $ | (2.60 | ) | | $ | (17.96 | ) | Weighted average shares outstanding - basic | | | 8,878,430 | | | | 302,584 | | | | 7,452,709 | | | | 285,668 | | Weighted average shares outstanding - diluted | | | 8,878,430 | | | | 302,584 | | | | 7,452,709 | | | | 285,668 | |
See accompanying notes to Condensed Consolidated Financial Statements. 6
Albireo Pharma, Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except share data) (unaudited) Condensed Consolidated Statements of Comprehensive Loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | Additional | | Other | | | | | Total | | | Common Stock | | Paid-In | | Comprehensive | | Accumulated | | Stockholders’ | | | Shares | | Amount | | Capital | | Income (loss) | | Deficit | | Equity | Balance--December 31, 2020 | | 19,107,040 | | $ | 191 | | $ | 456,472 | | $ | (8,612) | | $ | (266,820) | | $ | 181,231 | Stock-based compensation expense | | — | | | — | | | 3,062 | | | — | | | — | | | 3,062 | Exercise of options and vesting of RSUs | | 85,765 | | | 1 | | | 403 | | | — | | | — | | | 404 | Other comprehensive income | | — | | | — | | | — | | | 6,954 | | | — | | | 6,954 | Net loss | | — | | | — | | | — | | | — | | | (43,733) | | | (43,733) | Balance--March 31, 2021 | | 19,192,805 | | $ | 192 | | $ | 459,937 | | $ | (1,658) | | $ | (310,553) | | $ | 147,918 |
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | Additional | | Other | | | | | Total | | | Common Stock | | Paid-In | | Comprehensive | | Accumulated | | Stockholders’ | | | Shares | | Amount | | Capital | | Income (loss) | | Deficit | | Equity | Balance--December 31, 2019 | | 12,749,443 | | $ | 127 | | $ | 245,769 | | $ | 6,452 | | $ | (159,187) | | $ | 93,161 | Stock-based compensation expense | | — | | | — | | | 2,381 | | | — | | | — | | | 2,381 | Exercise of options and vesting of RSUs | | 37,662 | | | — | | | 94 | | | — | | | — | | | 94 | Issuance of common stock, net of costs | | 2,190,750 | | | 22 | | | 42,977 | | | — | | | — | | | 42,999 | Other comprehensive income | | — | | | — | | | — | | | 6,287 | | | — | | | 6,287 | Net loss | | — | | | — | | | — | | | — | | | (31,488) | | | (31,488) | Balance--March 31, 2020 | | 14,977,855 | | $ | 149 | | $ | 291,221 | | $ | 12,739 | | $ | (190,675) | | $ | 113,434 |
(unaudited)
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Net loss | | $ | (6,511 | ) | | $ | (4,030 | ) | | $ | (19,358 | ) | | $ | (5,130 | ) | Other comprehensive loss: | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | (589 | ) | | | (66 | ) | | | (679 | ) | | | (29 | ) | Total other comprehensive loss | | | (589 | ) | | | (66 | ) | | | (679 | ) | | | (29 | ) | Total comprehensive income loss | | $ | (7,100 | ) | | $ | (4,096 | ) | | $ | (20,037 | ) | | $ | (5,159 | ) |
See accompanying notes to Condensed Consolidated Financial Statements. 7
Albireo Pharma, Inc.
Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) | | | | | | | | | Three Months Ended March 31, | | | 2021 | | 2020 | Cash flows from operating activities: | | | | | | | Net loss | | $ | (43,733) | | $ | (31,488) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | Accretion of liability related to sale of future royalties | | | 3,100 | | | 2,040 | Accretion of debt discount and amortization of issuance costs | | | 115 | | | — | Depreciation and amortization | | | 37 | | | 39 | Share based compensation expense | | | 3,062 | | | 2,381 | Foreign currency adjustments | | | 6,479 | | | 6,544 | Changes in operating assets and liabilities: | | | | | | | Prepaid expenses and other current assets | | | 1,669 | | | 1,283 | Other assets | | | 152 | | | 135 | Accounts payable | | | 1,362 | | | 2,233 | Accrued expenses | | | (5,245) | | | (6,987) | Other current and long-term liabilities | | | (1,714) | | | 24 | Net cash used in operating activities | | | (34,716) | | | (23,796) | Cash flows from financing activities: | | | | | | | Proceeds from issuance of common stock, net of issuance costs | | | — | | | 42,999 | Proceeds from exercise of options | | | 404 | | | 94 | Net cash provided by financing activities | | | 404 | | | 43,093 | Effect of exchange rate changes on cash and cash equivalents | | | 121 | | | (625) | Net (decrease) increase in cash and cash equivalents | | | (34,191) | | | 18,672 | Cash and cash equivalents—beginning of period | | | 251,272 | | | 131,843 | Cash and cash equivalents—end of period | | $ | 217,081 | | $ | 150,515 | | | | | | | |
| | Nine Months Ended September 30, | | | | 2017 | | | 2016 | | Cash flows from operating activities: | | | | | | | | | Net loss | | $ | (19,358 | ) | | $ | (5,130 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | Accretion of debt discount and amortization of issuance costs | | | 387 | | | | 844 | | Depreciation and amortization | | | 23 | | | | 11 | | Change in fair value of financial instruments | | | (251 | ) | | | (536 | ) | Stock-based compensation expense | | | 2,861 | | | | 194 | | Noncash gain on foreign currency translation | | | (593 | ) | | | — | | Changes in operating assets and liabilities: | | | | | | | | | Trade receivables | | | 17 | | | | 1,264 | | Prepaid expenses and other current assets | | | 242 | | | | 299 | | Other receivables | | | (338 | ) | | | 7 | | Other noncurrent assets | | | 15 | | | | — | | Trade payables | | | 465 | | | | (870 | ) | Taxes payable | | | — | | | | — | | Accrued expenses | | | (3,244 | ) | | | 1,608 | | Other liabilities and long-term liabilities | | | 110 | | | | (15 | ) | Other noncurrent liabilities | | | 43 | | | | — | | Net cash used in operating activities | | | (19,621 | ) | | | (2,324 | ) | Cash flows from investing activities: | | | | | | | | | Purchase of property, plant and equipment | | | (187 | ) | | | (3 | ) | Net cash used in investing activities | | | (187 | ) | | | (3 | ) | Cash flows from financing activities: | | | | | | | | | Proceeds from issuance of Ordinary A shares | | | — | | | 40 | | Proceeds from issuance of warrants, net of issuance costs | | | — | | | 39 | | Proceeds from issuance of common stock, net of issuance costs | | | 48,500 | | | | — | | Exercise of stock options | | | 226 | | | | | | Payments of principal on borrowings | | | (2,159 | ) | | | (1,427 | ) | Net cash provided by (used in) financing activities | | | 46,567 | | | | (1,348 | ) | Effect of exchange rate changes on cash and cash equivalents | | | 383 | | | | 270 | | Net increase in cash and cash equivalents | | | 27,142 | | | | (3,405 | ) | Cash and cash equivalents—beginning of period | | | 29,931 | | | | 5,120 | | Cash and cash equivalents—end of period | | $ | 57,073 | | | $ | 1,715 | | Supplemental disclosures of cash flow information: | | | | | | | | | Cash paid for interest | | $ | 160 | | | $ | 454 | | Shares issued upon cashless exercise of Kreos warrants | | | 617 | | | | — | |
See accompanying notes to Condensed Consolidated Financial Statements. 8
Albireo Pharma, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) 1. Summary of significant accounting policies and basis of presentation Organization and Share Exchange Albireo Pharma, Inc. (Parent), together with its direct and indirect subsidiaries (the Company), is a clinical-stage biopharmaceutical company focused on the development and commercialization of novel bile acid modulators to treat orphan pediatric liver diseases and other liver and gastrointestinal diseases and disorders. The Company’s clinical pipeline includes onea Phase 3 product candidate, onea Phase 21 product candidate and a third product candidateelobixibat, which is approved in Japan for which an application for regulatory approval has been filed in Japan. A4250,the treatment of chronic constipation. Bylvay, the Company’s Phase 3 lead product candidate, is in development initially for the treatment of patients with progressive familial intrahepatic cholestasis (PFIC), biliary atresia and Alagille syndrome (ALGS), each a rare, life-threatening genetic disorder affecting young children. Prior to November 3, 2016, Parent’s name was Biodel Inc. (Biodel). On that date, Biodel effected a 1-for-30 reverse stock split
Since its inception, the Company has devoted substantially all of its resources to its research and development efforts, including activities to develop its product candidates and to prepare for potential commercialization of Bylvay in PFIC in 2021. and to provide general and administrative support for these operations. The Company has primarily funded its operations with proceeds from the sales of common stock, (Reverse Stock Split)the sale of royalties to HealthCare Royalty Partners III, L.P. (HCR) and completed a share exchange transactionproceeds from the issuance of debt. As of March 31, 2021, the Company has raised an aggregate of $356.7 million through the issuance common stock, net of issuance costs, $59.3 million from the sale of its future royalties and $9.5 million through the Loan and Security Agreement, net of issuance costs. The Company has incurred significant operating losses and negative cash flows from operations since inception. The Company expects to continue to incur significant expenses and operating losses for the foreseeable future. In addition, the Company anticipates that its expenses will increase significantly in connection with Albireo Limited, a limited company domiciled in London, United Kingdom, in accordance withongoing activities to support the termslaunch of an Amended and Restated Share Exchange Agreement, dated as of July 13, 2016, by and among Biodel, Albireo LimitedBylvay for PFIC and the shareholdersadvancement of Bylvay into later stage clinical trials and noteholdersproviding administrative support. The Company does not expect to generate significant revenue from sales of Albireo Limited (the Share Exchange Agreement). PursuantBylvay in 2021. As a result, the Company will need substantial additional funding to support its continued operations and growth strategy. Until such a time as the Share Exchange Agreement, each holderCompany can generate significant revenue from product sales, if ever, the Company expects to finance its operations through the sale of sharesequity, debt financings or notes convertibleother capital sources, including collaborations with other companies or other strategic transactions. The Company may be unable to raise additional funds or enter into sharessuch other agreements on favorable terms, or at all. If the Company fails to raise capital or enter into such agreements as, and when, needed, the Company may have to significantly delay, scale back or discontinue the development and commercialization of Albireo Limited received newly issued sharesone or more of Biodel common stockits product candidates or delay its pursuit of potential in-licenses or acquisitions. As of March 31, 2021, the Company had cash and Albireo Limited becamecash equivalents of $217.1 million. Management believes that its cash and cash equivalent resources at March 31, 2021, will be sufficient to allow the Company to fund its current operating plan through at least the next twelve months from the issuance of these financial statements. The Company is subject to those risks associated with any biopharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants. If the Company fails to become profitable or is unable to sustain profitability on a wholly owned subsidiary of Biodel (the Transaction). Following completion of the Transaction, the business of Albireo Limited became the business of Parentcontinuing basis, then it may be unable to continue its operations at planned levels and Parent changedbe forced to reduce its name to Albireo Pharma, Inc.operations. For accounting purposes, the Transaction was treated as a “reverse acquisition” and Albireo Limited was considered the accounting acquirer. Accordingly, with respect to periods prior to completion of the Transaction, the accompanying Condensed Consolidated Financial Statements reflect the historical results of Albireo Limited and its direct and indirect subsidiaries and do not include the historical results of Biodel prior to completion of the Transaction. All share and per share information for periods prior to completion of the Transaction has been retroactively adjusted to reflect the exchange of shares in the Transaction based on an exchange ratio of 0.06999 and, where applicable, the Reverse Stock Split.
Basis of presentation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and accompanying notes included in Parent’sour Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2020. In the opinion of management, all adjustments (including normal recurring accruals)adjustments) considered necessary for fair presentation have been included in the Condensed Consolidated Financial Statements. The results of operations for the three and nine months ended September 30, 2017March 31, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year, any other interim period or any future fiscal year. The Condensed Consolidated Financial Statements are prepared on a basis consistent with prior periods. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB). Any reference in these Condensed Consolidated Financial Statements to common stock or options or warrants to purchase shares of common stock of the Company means the common stock or options or warrants to purchase shares of common stock of Parent. Any reference in these Condensed Consolidated Financial Statements to common stock means, for periods prior to November 3, 2016, Ordinary shares of Albireo Limited. The Company has reclassified certain amounts in the Condensed Consolidated Balance Sheet as of December 31, 2016 from Advances from licensees and from Warrant liability to Other liabilities to conform to the current year presentation.
Error correction
In fiscal 2016, the Company under recognized stock-based compensation expense, a noncash item, by $788,000. The understatement of stock-based compensation expense was attributable to the use of an incorrect service period, and related period of expense recognition, for certain stock option awards. The Company recorded the prior period understatement in the second quarter. The Company determined that the error and subsequent correction are not material to its financial statements for any prior period and does not expect the correction to be material to its financial statements for the year ending December 31, 2017.
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Principles of consolidation The accompanying Condensed Consolidated Financial Statements include the accounts of Parentthe Company and its direct or indirect wholly owned subsidiaries, Albireo Limited, Albireo AB, Elobix AB, Albireo, Inc. and, for periods following completion of the Transaction, Biodel UK Limited.subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Foreign currency translation Functional and presentation currency Items included in the financial statements of each entity comprising the Company are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The functional currency for Parent and Albireo, Inc. is the U.S. Dollar (USD), the functional currency for Albireo Limited, Elobix AB and Biodel UK Limited is the Euro, and the functional currency for Albireo AB is the Swedish Krona (SEK). The Company consolidates its financial statements in USD. Transactions and balances Foreign currency transactions in each entity comprising the Company are remeasured into the functional currency of the entity using the exchange rates prevailing at the respective transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translationremeasurement at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized within Otherother operating (income) expense, net in the Condensed Consolidated Statements of Operations. The results and financial position of the Company and its subsidiaries that have a functional currency different from the presentation currencyUSD are translated into the presentation currency as follows: | a. | assets and liabilities presented are translated at the closing exchange rate as of September 30, 2017March 31, 2021 and December 31, 2016; 2020; |
| b. | income and expenses for each statement of comprehensive income (loss)loss are translated at the average exchange rate for the applicable period; and |
| c. | significant transactions use the closing exchange rate on the date of the transaction; and transaction. |
| d.
| all resulting exchange differences arising from such translation
12 All resulting exchange differences arising from such translations are recognized directly in other comprehensive income (loss) and presented as a separate component of equity. |
Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements and accompanying notes. Management must apply significant judgment in this process. On an ongoing basis, the Company evaluates its estimates and assumptions, including but not limited to accruals, including its clinical trial accruals, realizability of deferred tax assets and warrant liability estimated at fair value.the accretion of interest on the monetization liability. Actual results could materially differ from these estimates. Research and development expenses
Research and development costs are expensed as incurred and include primarily salaries, benefits and other staff-related costs; clinical trial and related clinical manufacturing costs; contract services and other outside costs.
The Company’s nonclinical studies and clinical trials are performed by third-party contract research organizations (CROs). Some of these expenses are billed monthly for services performed, while others are billed based upon milestones achieved. For nonclinical studies, the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved. For clinical trial expenses, the significant factors used in estimating accruals include the number of patients enrolled and percentage of work completed to date or contract milestones achieved. The Company’s estimates are highly dependent upon the timeliness and accuracy of the data provided by the respective CROs regarding the status of the contracted activity, with adjustments made when deemed necessary.
Revenue recognition Revenue is generated fromMilestone Payments
At the receiptinception of upfront or license fees,each arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments for pharmaceutical ingredient or related procurement services that are made pursuant to out-licensing or related supply agreements. 10
Where an out-licensing arrangement of the Company involves the provision of multiple elements that may contain different remuneration arrangements such as upfront payments, milestone payments or product sales, the arrangement is assessed to determine whether separate delivery of the individual elements of such arrangement comprises more than one unit of accounting. The delivered elements are separated if (a) they have value to the licensee on a stand-alone basis, (b) there is objective and reliable evidence of the fair value of the undelivered element(s) and (c) if the arrangement includes a general right of return relative to the delivered element(s), delivery or performance of the undelivered element(s) is considered probable and is substantially innot within the control of the Company. AllocationCompany or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the different elementsoverall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Royalties For arrangements that require separate accounting isinclude sales-based royalties, including milestone payments based on a level of sales, and the separate selling prices determined for each component, and total considerationlicense is then allocated pro rata acrossdeemed to be the componentspredominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the arrangement. If separate selling prices are not available,royalty has been allocated has been satisfied (or partially satisfied). In 2012, the Company will use its best estimate of such selling prices, consistent with the overall pricing strategy and relevant market factors. The Company has determined that each element of its out-licensing agreements is a separate and distinct unit of accounting, and, as such, the fair value of each element has been subscribed and recognized as follows:
Nonrefundable upfront payments received from the Company’s out-licensing agreements relating to technical expertise and intellectual property are recognized in income if all rights relating to the intellectual property and all obligations resulting from them have been relinquished under the contract terms and the Company has no continuing material obligation to perform under the agreement. However, if rights to the intellectual property continue to exist or obligations resulting from them have yet to be fulfilled, the payments received would be deferred until all rights and obligations have been fulfilled.
Nonrefundable payments that are linked to the achievement of significant and substantive development or regulatory milestones in the research and development process are recognized as revenue upon the achievement of the specified milestone.
Revenue and costs associated with procurement services associated with pharmaceutical ingredients are recognized net in revenue when title and risk of loss of the pharmaceutical ingredients have passed to the licensee as the Company is not the primary obligor, and revenue and costs associated with related procurement services are recognized net in revenue when the Company is contractually bound.
As of September 30, 2017, the Company hadentered into a license agreement (the Agreement) with EA Pharma Co., Ltd. (EA Pharma, formerly Ajinomoto Pharmaceuticals Co., Ltd.), entered into in 2012, to develop a select product candidate (elobixibat) for registration and subsequent commercialization in select markets. In conjunction with the Agreement, the Company granted EA Pharma an exclusive license to its intellectual property for development and commercialization activities in the designated field and territories. The Company satisfiedhas completed all of its material performance obligations under the agreement in 2012, upon the deliveryAgreement.
As of technical expertise and intellectual property rights to EA Pharma. Payments resulting from pharmaceutical ingredient or related procurement services are recognized as revenue as the activities are performed and are presented on a net basis. Revenue is recorded on a net basis because the Company acts as an agent, as it does not have discretion to change suppliers and does not perform any part of the services or manufacture of the subject pharmaceutical ingredients. The costs associated with these activities are netted against the related revenue in the Condensed Consolidated Statements of Operations.
For certain contingent payments under research and development arrangements, the Company recognizes revenue using the milestone method. Under the milestone method, a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is an event: (i) that can be achieved based in whole or in part on either the Company’s performance or on the occurrence of a specific outcome resulting from the Company’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to the Company. The determination that a milestone is substantive requires estimation and judgment and is made at the inception of the arrangement. Milestones are considered substantive when the consideration earned from the achievement of the milestone is: (A) commensurate with either the Company’s performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from the Company’s performance to achieve the milestone, (B) related solely to past performance and (C) reasonable relative to all deliverables and payment terms in the arrangement. In making the determination as to whether a milestone is substantive or not, management of the Company considers all facts and circumstances relevant to the arrangement, including factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the milestone, the level of effort and investment required to achieve the milestone and whether any portion of the milestone consideration is related to future performance or deliverables. The Company has evaluated each milestone specified under its license agreement with EA Pharma and determined the milestone to be substantive.
Under the terms of the license agreement with EA Pharma, the Company was eligible as of September 30, 2017 to receive up to approximately (a) €13.3 million ($15.7 million based on the Euro to USD exchange rate as of September 30, 2017) if specified regulatory events are achieved for elobixibat in Japan and (b) ¥3.5 billion ($31.2 million based on the Japanese Yen to USD exchange rate as of September 30, 2017) if specified sales milestones are achieved for elobixibat in EA Pharma’s licensed territory following
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regulatory approval in any country in EA Pharma’s licensed territory. The likelihood that the Company will achieve any particular milestone event with respect to elobixibat in any particular period, or at all, is uncertain, and the Company may not earn any future milestone payment with respect to elobixibat in any particular period, or ever. In addition,March 31, 2021, the Company is eligible to receive steppedan additional regulatory-based milestone payment under the Agreement of $5.0 million if a specified regulatory event is achieved for elobixibat. The cash payments and any other payments for milestones and royalties beginningfrom EA Pharma are non-refundable, non-creditable and not subject to set-off.
The Agreement will continue until the last royalty period for any product in the high single digits on any future elobixibat product sales. The Company will recognize royalty revenue interritory, which is defined as the period when there are no remaining patent rights or regulatory exclusivity in place for any products subject to royalties. EA Pharma may terminate the Agreement upon 180 days’ prior written notice to the Company. Either party may terminate the Agreement for the other party’s uncured material breach or insolvency and in certain other circumstances agreed to by the parties. Monetization of elobixibat,Future Royalties In December 2017, the Company entered into a royalty interest acquisition agreement (RIAA) with HCR pursuant to which it sold to HCR the right to receive all royalties from sales in Japan and sales milestones achieved from any covered territory potentially payable to the Company under the Agreement, up to a specified maximum “cap” amount of $78.8 million, based on the underlying contract terms, providedfunds the Company received from HCR. In January 2018, the Company received $44.5 million from HCR, net of certain transaction expenses, under the RIAA. On June 8, 2020, the parties entered into an amendment to the RIAA pursuant to which HCR agreed to pay the Company an additional $14.8 million, net of certain transaction expenses, in exchange for the elimination of the (i) $78.8 million cap amount on HCR’s rights to receive royalties on sales in Japan and sales milestones for elobixibat in certain other territories that may become payable by EA Pharma and (ii) the reported$15.0 million payable to the Company if a specified sales milestone is achieved for elobixibat in Japan. The Company is obligated to make royalty interest payments to HCR under the RIAA only to the extent it receives future Japanese royalties, sales milestones or other specified payments from EA Pharma. Although the Company sold its rights to receive royalties from the sales of elobixibat in Japan, as a result of its ongoing involvement in the cash flows related to these royalties, the Company will continue to account for these royalties and milestones as revenue. Upon receipt of the payments from HCR the Company recorded net cash totaling $59.3 million as a liability related to sale of future royalties (royalty obligation). The royalty obligation will be amortized using the effective interest rate method. The following table shows the activity within the liability account for the three month period ended March 31, 2021: | | | | | | March 31, 2021 | | | (in thousands) | Liability related to sale of future royalties—beginning balance | | $ | 68,594 | Accretion of interest expense on liability related to royalty monetization | | | 3,100 | Repayment of the liability | | | (2,665) | Liability related to sale of future royalties—ending balance | | $ | 69,029 | Less current portion classified within accrued expenses | | | (1,916) | Net ending liability related to sale of future royalties | | $ | 67,113 |
The Company records estimated royalties due for the current period in accrued expenses until the payment is received from EA Pharma at which time the Company then remits payment to HCR. As royalties are reliably measurableremitted to HCR, the balance of the royalty obligation will be effectively repaid over the life of the RIAA. In order to determine the accretion of the royalty obligation, the Company is required to estimate the total amount of future royalty payments to be received and submitted to HCR, as noted above. The sum of these amounts less the $59.3 million proceeds the Company received will be recorded as interest expense over the life of the royalty obligation. At March 31, 2021, the Company’s estimate of its total interest expense resulted in an annual effective interest rate of approximately 18.8%. The Company periodically assesses the estimated royalty payments to HCR and to the extent such payments are greater or less than its initial estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the accretion of interest on the royalty obligation. There are a number of factors that could materially affect the amount and the timing of royalty payments, most of which are not within the Company’s control. Such factors include, but are not limited to, the rate of elobixibat prescriptions, the number of doses administered, the introduction of competing products, manufacturing or other delays, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to HCR are in U.S. dollars while sales of elobixibat are in Japanese yen, and sales never achieving forecasted numbers, which would result in reduced royalty payments and reduced non-cash interest expense over the life of the royalty obligation. To the extent future royalties result in an amount less than the liability, the Company is not obligated to fund any such shortfall. Recent accounting pronouncements There are no recently issued accounting pronouncements the Company has no remaining performance obligations, assuming all other revenue recognition criteria are met.not yet adopted that will materially impact the Company’s consolidated financial statements. Loss contingencies
Loss contingencies are recorded as liabilities when it is probable that a liability has occurred and the amount
2. Fair Value of time. Estimating probable losses requires analysis that often depends on judgments about potential actions by third parties, such as regulators.financial instruments Business Combination Adjustment
At the time of the Transaction in November 2016, the Company preliminarily estimatedWhen measuring the fair value of Biodel’s in-process research and development (IPR&D) to be $150,000. Subsequently, the Company continued to evaluate the IPR&D acquired, including the underlying patents, based on information available to the Company as of November 2016. Upon a final evaluation of the IPR&D in 2017, the Company increased the acquisition date value of the IPR&D by $850,000 to $1.0 million. A deferred tax liability related to this step-up basis difference of $300,000 was recorded, with the remainder of the increase, $550,000, being recorded as a reduction of goodwill.
Recently adopted accounting pronouncements
In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which changes the accounting for stock-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2016 and for interim periods therein. The Company adopted this standard on a prospective basis as of January 1, 2017, which had no impact on the net deferred tax balances, the consolidated statement of cash flows or otherwise on the Company’s consolidated financial statements.
Accounting pronouncements issued but not yet adopted
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: (Topic 606).” This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in ASC Topic 605, “Revenue Recognition,” and most industry-specific guidance. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of ASC Topic 360, “Property, Plant, and Equipment,” and intangible assets within the scope of ASC Topic 350, “Intangibles-Goodwill and Other”) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised 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. In July 2015, the FASB deferred the effective date of ASU 2014-09. This ASU will be effective for the Company on January 1, 2018 (for the Company’s 2018 fiscal year). The Company plans to adopt this standard effective January 1, 2018 using the modified retrospective approach, whereby the cumulative effect of applying the standard would be recognized at the date of initial application within retained earnings. The Company currently has one contract that generates revenue and will be impacted by the adoption of the new guidance. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and currently does not plan to early adopt this standard.
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In September 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force),” which changes how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017 and for interim periods therein, with early adoption permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.
2. Fair value of financial instruments,
In measuring fair value, the Company evaluates valuation techniques such as the market approach, the income approach and the cost approach. A three-level valuation hierarchy, which prioritizes the inputs to valuation techniques that are used to measure fair value, is based upon whether such inputs are observable or unobservable.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows: Level 1—Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; Level 2—Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-derived valuations whose significant inputs are observable for substantially the full term of the assets or liabilities; and Level 3—Unobservable inputs that reflect the reporting entity’s estimate of assumptions that market participants would use in pricing the asset or liability. The following tables present the fair values forrepresent information about the Company’s financial instruments as well as the input levels used to determine these fair values as of September 30, 2017 and December 31, 2016. The Company values its current assets which include trade and other receivables, and liabilities, which include trade payables,that are measured at historical cost, which approximates fair value. The estimated fair value of the Loan Facility (see Note 7) was $1.4 million as of September 30, 2017. The Company used the income approach to value the Loan Facility. | | | | | | Total Carrying Value on the Condensed Consolidated Balance Sheet | | | Fair Value Measurements | | | | Fair Value Level | | | September 30, 2017 | | | December 31, 2016 | | | September 30, 2017 | | | December 31, 2016 | | | | | | | | (in thousands) | | Financial Instruments Recorded at Fair Value on a Recurring Basis | | | | | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | | | | | | | | | | | | Warrant liability | | | 3 | | | $ | — | | | $ | 844 | | | $ | — | | | $ | 844 | |
On December 17, 2014, the Company (in particular, Albireo Limited) executed a convertible loan instrument, which provided 1,251,000 €1.00 ($1.12) unsecured convertible loan notes (2014 Convertible Loans), denominated in Euros, and was subsequently amended on October 1, 2015. On October 1, 2015, the Company executed a convertible loan instrument which provided 5,000,000 $1.00 unsecured convertible loan notes (2015 Convertible Loans), denominated in USD. The valuation methods used to value the 2014 Convertible Loans, the 2015 Convertible Loans and their respective associated derivative liabilities were the income approach and the Monte Carlo simulation analysis. The fair value of the 2014 Convertible Loans increased by $229,000 and $246,000 for the three and nine months ended September 30, 2016, respectively. The fair value of the 2015 Convertible Loans increased by $273,000 and $400,000 for the three and nine months ended September 30, 2016, respectively. These adjustments to the fair values of the 2014 Convertible Loans and 2015 Convertible Loans are recorded in Non-operating income (expense), net. Immediately prior to completion of the Transaction on November 3, 2016, the conversion rights for the 2014 Convertible Loans and the 2015 Convertible Loans were exercised.
There were no transfers from one Level to another Level during the periods reported.
Warrants
In connection with the Loan Facility, the Company issued to Kreos Capital IV (Expert Fund) Limited (Kreos Capital) detachable warrants with a right to acquire shares at €720,000 (the Warrants). The Company recognized the Warrants at fair value at the time of execution of the Loan Facility and remeasured their fair value on a recurring basis thereafter. In connection with the Transaction, the Warrants were replaced with warrants to purchase 67,271 shares(in thousands):
| | | | | | | | | | | | March 31, 2021 | | | Level 1 | | Level 2 | | Level 3 | Cash Equivalents: | | | | | | | | | | Money market funds | | $ | 215,008 | | $ | — | | $ | — | Total | | $ | 215,008 | | $ | — | | $ | — |
| | | | | | | | | | | | December 31, 2020 | | | Level 1 | | Level 2 | | Level 3 | Cash Equivalents: | | | | | | | | | | Money market funds | | $ | 242,854 | | $ | — | | $ | — | Total | | $ | 242,854 | | $ | — | | $ | — |
The Company’s financial instruments consist mainly of the Company’s common stock at an exercise pricecash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses, other current liabilities, and note payable. The carrying amounts of $11.78 per share (the Replacement Kreos Warrants). The exchange was accounted for as a modification whereby thecash equivalents, prepaid expenses and other current liabilities, accounts payable, accrued expenses, and other current liabilities approximate their estimated fair value of 13
due to their short-term maturities. At March 31, 2021, the Replacement Kreos Warrants was compared toLoan and Security Agreement with Hercules Capital, Inc., the Company believes the carrying value approximates the fair value of the Warrants immediately before the terms were modified, measured based on the market price of the common stock of the Company and other pertinent factors on the date of the modification.note payable. On May 10, 2017, Kreos Capital notified the Company of its intent to exercise the Replacement Kreos Warrants on a “cashless” basis. In conjunction with the exercise, the Company remeasured the fair value of the Replacement Kreos Warrants to be $618,000 immediately prior to the exercise. The number of shares of the Company’s common stock issued in the cashless exercise, 29,831 shares, was determined by a formula specified in the warrant document. The existing liability of the fair value at date of exercise was reclassified to Additional paid in capital.
The fair value of the Replacement Kreos Warrants decreased by $226,000 for the period during the nine months ended September 30, 2017 prior to their exercise. The fair value of the Warrants increased by $76,000 and decreased by $689,000 for the three and nine months ended September 30, 2016, respectively.
See Note 7 for a further description of the Loan Facility, Warrants and Replacement Kreos Warrants.
3. Commitments and contingencies Operating lease commitments
Parent is a party to an Office Lease AgreementAgreements with SHIGO 10 PO Owner LLC for approximately 5,116 rentable square feet in the building located at 10 Post Office Square, Boston, Massachusetts, which serves as Parent’s executive offices. The initial term of the lease is 62 months beginning on March 1, 2017. Parent has the option to extend the lease one time for an additional 5-year period. Following an initial two-month rent abatement period, Parent is obligated to make monthly rent payments in an amount beginning at $20,997CROs and escalating by approximately 2% annually for the term of the lease. In addition, Parent is responsible under the lease for specified costs and charges, including certain operating expenses, utilities, taxes and insurance.
Albireo AB is a party to a 36-month building lease for approximately 5,113 square feet of office space in Gothenburg, Sweden. The current quarterly payment under the lease is SEK 318,197 ($36,932 based on the SEK to USD exchange rate as of September 30, 2017) and subject to change based on applicable taxes and otherwise to increase based on changes in the Swedish Consumer Price Index (CPI). The current term of the lease expires in November 2019, but renews automatically thereafter for consecutive three-year terms unless notice of nonrenewal is given by either party at least nine months prior to the end of the then-current term, subject to Albireo AB’s right to terminate the lease at any time upon six months’ notice.CMOs
As of September 30, 2017, future minimum commitments under facility operating leases were $1,280,000. Rent expense recognized under the Company’s operating leases was $283,000 and $81,000 for the nine months ended September 30, 2017 and 2016, respectively.
Agreements with CROs
As of September 30, 2017,March 31, 2021, the Company had various agreements with CROs and CMOs for the conduct of specified research and development activities. Basedactivities and based on the terms of the respective agreements, the Company may be requiredis contractually obligated to make future payments of up to $6.4$7.6 million to CROs upon the completion of contracted work.
4. Net loss per share Each of basicBasic net loss per share, or Basic EPS, and diluted net loss per share, or Diluted EPS, is calculated by dividing the net loss attributable to holders of common stock by the weighted average number of shares of common stock outstanding. Diluted net loss per share, is calculated by dividing the net loss attributable to holders of common stock by the weighted average number of shares of common stock outstanding. If the Company were in a net income position, basicdiluted net income per share would be calculated by dividing the net income attributable to holders of common stock by the weighted-average number of shares of common stock plus dilutive common stock equivalents outstanding.
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The following table sets forth the computation of Basic EPSnet loss per share and Diluted EPSnet loss per share (in thousands, except for share and per share data): | | | | | | | | | Three Months Ended March 31, | | | 2021 | | 2020 | Basic and Diluted net loss per share: | | | | | | | Numerator | | | | | | | Net loss | | $ | (43,733) | | $ | (31,488) | Denominator | | | | | | | Weighted average number of shares outstanding | | | 19,131,557 | | | 14,132,217 | Basic and Diluted net loss per share: | | $ | (2.29) | | $ | (2.23) |
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Basic EPS: | | | | | | | | | | | | | | | | | Numerator | | | | | | | | | | | | | | | | | Net loss | | $ | (6,511 | ) | | $ | (4,030 | ) | | $ | (19,358 | ) | | $ | (5,130 | ) | Net loss | | $ | (6,511 | ) | | $ | (4,030 | ) | | $ | (19,358 | ) | | $ | (5,130 | ) | Denominator | | | | | | | | | | | | | | | | | Weighted average number of shares | | | 8,878,430 | | | | 302,584 | | | | 7,452,709 | | | | 285,668 | | Number of shares used for Basic EPS computation | | | 8,878,430 | | | | 302,584 | | | | 7,452,709 | | | | 285,668 | | Basic EPS | | $ | (0.73 | ) | | $ | (13.32 | ) | | $ | (2.60 | ) | | $ | (17.96 | ) | Diluted EPS: | | | | | | | | | | | | �� | | | | | Numerator | | | | | | | | | | | | | | | | | Net loss | | $ | (6,511 | ) | | $ | (4,030 | ) | | $ | (19,358 | ) | | $ | (5,130 | ) | Net loss | | $ | (6,511 | ) | | $ | (4,030 | ) | | $ | (19,358 | ) | | $ | (5,130 | ) | Denominator | | | | | | | | | | | | | | | | | Weighted average number of shares | | | 8,878,430 | | | | 302,584 | | | | 7,452,709 | | | | 285,668 | | Number of shares used for Diluted EPS computation | | | 8,878,430 | | | | 302,584 | | | | 7,452,709 | | | | 285,668 | | Diluted EPS | | $ | (0.73 | ) | | $ | (13.32 | ) | | $ | (2.60 | ) | | $ | (17.96 | ) |
As described in Note 1, “Organization and Share Exchange,” the share and per share information as of and for the period ended September 30, 2016 has been retroactively adjusted to reflect the exchange of shares in the Transaction based on an exchange ratio of 0.06999 and does not include the historical results of Biodel.
The following outstanding common stock equivalents were excluded from the computation of Diluted EPSnet loss per share for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 because including them would have been anti-dilutive: | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Convertible preference shares (on an as-converted basis) | | | — | | | | 2,754,386 | | | | — | | | | 2,754,386 | | Warrants to purchase ordinary A shares (on an as-converted basis) | | | — | | | | 99,131 | | | | — | | | | 53,933 | | Options to purchase common stock | | | 748,390 | | | | 207,822 | | | | 748,390 | | | | 98,406 | |
| | | | | | | Three Months Ended March 31, | | | 2021 | | 2020 | Options to purchase common stock, RSUs and warrants | | 3,141,689 | | 2,293,790 |
5. Income taxes The Company did not0t record a tax provision or benefit for either the three or nine months ended September 30, 2017March 31, 2021 or September 30, 2016.2020. The Company has continued to maintain a full valuation allowance against its net deferred tax assets. The Company has had an overall net operating loss position since its inception. The Company had approximately $53.3 million in valuation allowances recorded against its deferred tax assets as of both September 30, 2017 and December 31, 2016. 6. Stock-based CompensationNote Payable 2020 Loan and Security Agreement On November 3, 2016,June 8, 2020, the Albireo Pharma,Company entered into a Loan and Security Agreement with the several banks and other financial institutions or entities from time to time parties to the Loan and Security Agreement, as lenders, or collectively referred to as the Lender, and Hercules Capital, Inc. 2016 Equity Incentive Plan (the 2016 Equity Plan) was approved by the Company’s stockholders. The 2016 Equity Plan replaced Biodel’s 2010 Stock Incentive Plan, as amended (the 2010 Plan), in connection with completion ofits capacity as administrative agent and collateral agent for itself and Lender (in such capacity, the Transaction.Agent or Hercules). The 2016 Equity Plan authorized the issuanceLoan and Security Agreement provides for term loans in an aggregate principal amount of up to 635,000 shares, plus$80.0 million to be delivered in multiple tranches, (the Term Loans). The tranches consist of (i) a term loan advance to Company in an aggregate principal amount of up to 249,059 shares issued if awards outstanding$15.0 million, of which (A) the Company agreed to borrow an aggregate principal amount of $10.0 million on the date on which all conditions to the funding of the Term Loans by the Lender were met (the Closing Date), but the Company did not request that the Lender make an additional term loan advance to the Company in an aggregate principal amount of $5.0 million prior to December 15, 2020 as permitted under the 2010 Plan were cancelled, forfeitedagreement, (ii) subject to the achievement of certain initial performance milestones, or expiredPerformance Milestone I, the Company has the right to request that the Lender make additional term loan advances to the Company in an aggregate principal amount of up to $20.0 million from January 1, 2021 through December 15, 2021 in minimum increments of $10.0 million, and (iii) subject to the Lender’s investment committee’s sole discretion, the Company has the right to request that the Lender make additional term loan advances to the Company in an aggregate principal amount of up to $45.0 million through March 31, 2022 in minimum increments of $5.0 million. As of March 31, 2021, we borrowed an aggregate principal amount of $10.0 million. An aggregate principal amount of up to $20.0 million remains available for future borrowings upon request and an aggregate principal amount of up to $45.0 million remains available for future borrowing subject to approval from lender. The Company is required to pay an end of term fee (“End of Term Charge”) equal to 6.95% of the aggregate principal amount of the Term Loans advances upon repayment. The Term Loans mature on January 1, 2024, which is extendable to June 1, 2024 upon achievement of Performance Milestone I (the “Maturity Date”). The Term Loan bears interest at an annual rate equal to the greater of 9.15% and 9.15% plus the prime rate of interest minus 3.25%. Borrowings under the Loan and Security Agreement are repayable in monthly interest-only payments through January 1, 2022 and extendable to (i) July 1, 2022 upon achievement of Performance Milestone I and (ii) July 1, 2023 upon achievement of certain additional performance milestones. After the interest-only payment period, borrowings under the Loan and Security Agreement are repayable in equal monthly payments of principal and accrued interest until the Maturity Date. At the Company’s option, the Company may elect to prepay all, but not less than all, of the outstanding term loan by paying the entire principal balance and all accrued and unpaid interest thereon plus a prepayment charge equal to the following percentage of the principal amount being prepaid: 2.0% of the principal amount outstanding if the prepayment occurs after the first nine months following the Closing Date, but on or afterprior to 24 months following the Transaction. All stock optionsClosing Date, and 1.0% of the principal amount outstanding at any time thereafter but prior to the Maturity Date. In connection with the Loan and Security Agreement, the Company granted Agent a security interest senior to any current and future debts and to any security interest, in all of the Company’s right, title, and interest in, to and under all of Company’s property and other assets, and certain equity interests and accounts of Albireo AB, subject to limited exceptions including the Company’s intellectual property. The Loan and Security Agreement also contains certain events of default, representations, warranties and non-financial covenants of the Company. The debt discount and issuance costs are being accreted to the principal amount of debt and being amortized from the date of issuance through the Maturity Date to interest expense using the effective-interest rate method. The effective interest rate of the outstanding debt under the 2010 Plan remain in full forceLoan and effect pursuantSecurity Agreement is approximately 15.3%. As of March 31, 2021 the carrying value of the note payable consists of the following: | | | | | | March 31, 2021 | | | (in thousands) | Note payable, including End of Term Charge | | | 10,695 | Debt discount, net of accretion | | | (959) | Less: current portion, net of discount | | | (600) | Note payable net of discount, long-term | | $ | 9,136 |
During the three months ended March 31, 2021, the Company recognized $0.3 million, of interest expense related to theirthe Loan and Security Agreement. NaN interest expense was associated with the Loan and Security Agreement for the three months ended March 31, 2020. Estimated future principal payments due under the Loan and Security Agreement, including the contractual End of Term Charge, are as follows as of March 31, 2021: | | | | | | Note Principal Payments | | | | (in thousands) | Remainder of 2021 | | $ | — | 2022 | | | 4,553 | 2023 | | | 4,994 | 2024 | | | 1,148 |
As of March 31, 2021, based on Level 3 inputs and the borrowing rates available to the Company for loans with similar terms and the termsconsideration of the 2010 Plan. The 2016 Equity Plan is structured to comply withCompany’s credit risk, the requirements imposed by Section 162(m)carrying value of the Internal Revenue CodeCompany’s variable interest rate debt, excluding unamortized debt issuance costs, approximated fair value. Warrants Under the Loan and Security Agreement, the Company agreed to issue to Hercules warrants (the “Warrants”) to purchase a number of 1986, as amended, and related regulations. 15
On September 13, 2017, the Parent’s Board of Directors adopted the Albireo Pharma, Inc. 2017 Inducement Equity Incentive Plan (the 2017 Inducement Plan) without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. Pursuant to the 2017 Inducement Plan, Parent may grant stock options, stock awards and other stock-based awards for up to a total of 150,000 shares of common stock equal to new employees1% of the Company. As of September 30, 2017, no stock options, stock awards or other stock-based awards have been made under the 2017 Inducement Plan.
Prior to completionaggregate amount of the Transaction, Albireo Limited adoptedTerm Loans that are funded, as such amounts are funded. On the Closing Date, the Company issued a share option plan on March 18, 2016, providingWarrant for 5,311 shares of common stock. The Warrants are exercisable for a period of seven years from the date of the issuance of each Warrant at a per-share exercise price equal to $18.83, subject to certain adjustments as specified in the Warrants. In addition, the Company has granted to the holders of the Warrants certain registration rights. Specifically, the Company has agreed to use its commercially reasonable efforts to (i) file registration statements with the U.S. Securities and Exchange Commission within 60 days following the date of the issuance of each Warrant for purposes of registering the shares of common stock issuable upon exercise of the Warrants for resale by Hercules, and (ii) cause the registration statement to be declared effective as soon as practicable after filing, and in any event no later than 180 days after the date of the issuance of each Warrant.
The Company accounted for the grant of share options to employees, consultants, officers and directors of Albireo Limited or its subsidiaries (the Pre-Transaction Plan). The Pre-Transaction Plan was amended by Albireo Limited on April 18, 2016. Pursuant to the terms of the Pre-Transaction Plan and prior to completion of the Transaction, Albireo Limited issued or granted options to purchase 246,666 Ordinary A shares. These options were classifiedWarrants as a liability on the basis thatequity instruments since they were granted in a currency other than the functional currency of the employing entity of the recipients and were subjectindexed to revaluation until exercised or forfeited. The options were replaced with options to purchase shares of the Company’s common stock and met the criteria for classification in conjunction withstockholders’ equity. The relative fair value of the Transaction. The replacementWarrants related to the first tranche funding was accounted forapproximately $0.1 million, and was treated as a modification wherebydiscount to the Term Loans. This amount is being amortized to interest expense using the effective interest method over the life of the Term Loans. The Company estimated the fair value of the replacement awards was compared toWarrants using the fair value of the original award immediately before the terms were modified, measured based on the market price of the common stock of Biodel and other pertinent factors on the date of the modification. The options were then classified as equity awards with the liability reclassified to Additional paid in capital.Black-Scholes option-pricing model. The Company’s employment agreements with certain of its executives provide that, upon a change of control as defined, all of the then outstanding unvested options and any other rights to purchase Company shares will become fully vested and exercisable and any vesting-like restrictions will lapse in full, unless earlier vesting is provided for in the applicable program under which such option or other right to purchase Company shares was granted or under applicable law. The Transaction was not a change of control under the employment agreements.7. Equity Financings
The Company recognized stock-based compensation expense for employees of $810,000 and $139,000 for the three months ended September 30, 2017 and 2016, respectively, and $2,861,000 and $194,000 for the nine months ended September 30, 2017 and 2016, respectively. 2020 Underwritten Public Offerings
A summary of the outstanding stock options as of September 30, 2017 is as follows:
| | Stock Options Outstanding | | | | Number of Shares | | | Weighted Average Exercise Price Per Share | | | Weighted Average Remaining Contractual Term (Years) | | | Aggregate Intrinsic Value (in thousands) | | Outstanding—December 31, 2016 | | | 694,869 | | | $ | 26.71 | | | | 7.35 | | | $ | 6,435 | | Granted | | | 411,650 | | | $ | 21.01 | | | | — | | | $ | — | | Expirations | | | (48,888 | ) | | $ | 174.83 | | | | — | | | $ | — | | Exercises | | | (30,310 | ) | | $ | 7.40 | | | | — | | | $ | — | | Outstanding—September 30, 2017 | | | 1,027,321 | | | $ | 17.81 | | | | 8.71 | | | $ | 7,923 | | Exercisable—September 30, 2017 | | | 331,832 | | | $ | 19.43 | | | | 7.57 | | | $ | 6,413 | | Vested or expected to vest at—September 30, 2017 | | | 1,007,899 | | | $ | 18.13 | | | | 7.02 | | | $ | 7,535 | |
Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options.
Options to purchase 19,422 shares of common stock are performance based and vest upon the dateIn February 2020, the Company files a drug approval application for its product candidate A4250 for any orphan indication, if such filing occurs prior to a specified date. This unvested performance-based option is excluded from the vested or expected to vest balance as of September 30, 2017.
As of September 30, 2017, the total unrecognized compensation expense related to unvested options was $9.2 million, which the Company expects to recognize over a weighted average vesting period of 3.0 years.
In determining the estimated fair value of the stock-based awards, the Company uses the Black-Scholes option pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.
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The fair value of stock option awards granted during the three and nine months ended September 30, 2017 was estimated with the following assumptions:
| | Three Months Ended September 30, 2017 | | | Nine Months Ended September 30, 2017 | | Price per share of common stock | | $20.44-$24.48 | | | $17.05-$24.48 | | Expected term (in years) | | 5.2-6.9 | | | 5.2-6.9 | | Risk-free interest rate | | 1.9-2.2% | | | 1.9-2.2% | | Expected volatility | | 76.2-77.0 | | | 69.5-78.4 | | Dividend rate | | | 0% | | | | 0% | |
7. Long-term debt
| | September 30, 2017 | | | December 31, 2016 | | | | (in thousands) | | Long-term debt, including current portion: | | | | | | | | | Loan Facility | | $ | 1,470 | | | $ | 3,075 | | Total debt | | | 1,470 | | | | 3,075 | | Less: current portion | | | (1,470 | ) | | | (3,075 | ) | Long-term debt | | $ | — | | | $ | — | |
Loan Facility
The Company (in particular, Albireo Limited) executed a loan agreement (Loan Facility) with Kreos Capital IV (UK) Limited (Kreos UK) in December 2014, at which time the Company borrowed €6.0 million ($7.3 million). The Loan Facility has a term of 36 months with principal and interest payable monthly, with an annual interest rate of 11.5%. In addition, the Company is required to make an end-of-loan payment equal to 1.25% of the amounts lent by Kreos UK. The principal amount outstanding as of September 30, 2017 was $906,000 (€767,000). The outstanding amount is due and payable in average monthly installments of €256,000 ($302,000, based on the Euro to USD exchange rate as of September 30, 2017) and an end of loan payment of €670,000 ($792,000, based on the Euro to USD exchange rate as of September 30, 2017) due and payable on December 1, 2017.
The Company is accreting the debt discount of $30,000 remaining as of September 30, 2017 over the remaining three months of the loan term. Interest expense included $83,000 and $235,000 of discount accretion for the three months ended September 30, 2017 and 2016, respectively, and $387,000 and $707,000 of discount accretion for the nine months ended September 30, 2017 and 2016, respectively.
The Company has the option to redeem all outstanding amounts. Upon the occurrence of a sale or a change of control, the Company shall redeem the principal, accrued interest and other fees, and remaining interest payments calculated until the end of the term, discounted by 5%.
Parent’s subsidiary, Albireo Limited, has pledged its shares in its subsidiary, Albireo AB, and has granted a debenture (incorporating fixed and floating charges) over its assets by way of security for the obligations it owes under the Loan Facility.
The Loan Facility is guaranteed by Parent and two of Parent’s indirect subsidiaries, Elobix AB and Albireo AB, as the principal obligors that have severally agreed to indemnify and keep indemnified Kreos UK in full and on demand from and against all and any losses, costs, claims, liabilities, damages, demands and expenses suffered or incurred by Kreos UK arising out of, or in connection with, any failure of the Company to perform or discharge any of its obligations or liabilities.
In addition, Parent, Elobix AB and Albireo AB have agreed to pledge the following:
Parent shares in Albireo Limited
Albireo AB shares in Elobix AB
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| •
| Elobix AB elobixibat patents
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Although the bank accounts of Albireo AB and Elobix AB were pledged, Albireo AB and Elobix AB are not restricted from using the cash for working capital requirements.
The Company also pledged its present and future rights to fees, royalties and other payments due and payable any time under its license agreement with EA Pharma to Kreos UK in support of the Loan Facility.
On February 4, 2016, the Company (in particular, Albireo Limited) entered a Deed of Variation related to the Loan Facility. Under the terms of the Deed of Variation, the timing of principal payments was changed such that €512,000 ($605,000, based on the Euro to USD exchange rate as of September 30, 2017) of the payments was deferred to become payable at the end of the loan term. The total principal due under the Loan Facility remained unchanged. In addition, there were no changes to the maturity date or the stated interest rate. The Company accounted for the amendment to the Loan Facility prospectively in accordance with ASC 470-50, Modifications and Extinguishments, as there were no concessions granted to the Company by the lender and the difference in cash flows between the original and amended loans did not change by more than 10% per lender. As a result of the modification, the transaction costs incurred in connection with the amendment were expensed when incurred and the effective interest rate calculation was updated, resulting in an effective interest rate of 39.3%.
8. Derivatives
The following disclosures summarize the fair value of derivative instruments not designated as hedging instruments in the Condensed Consolidated Balance Sheet as of September 30, 2017 and the effects of changes in fair value related to those derivative instruments on the Condensed Consolidated Statements of Operations (in thousands):
Derivative Instruments Not Designated as
Hedging Instruments
| | Balance Sheet Location
| | September 30, 2017
| | | December 31, 2016
| | Warrants liability
| | Current liabilities
| | | —
| | | | 844
| |
Effect of Derivative Instruments Not | | Location of Gains | | Nine Months Ended September 30, | | Designated as Hedging Instruments | | (Losses) Recognized | | 2017 | | | 2016 | | Derivative liabilities | | Non-operating income (expense), net | | $ | — | | | $ | 153 | | Warrants liability | | Non-operating income (expense), net | | | 251 | | | | (689 | ) |
Effect of Derivative Instruments Not | | Location of Gains | | Three Months Ended September 30, | | Designated as Hedging Instruments | | (Losses) Recognized | | 2017 | | | 2016 | | Derivative liabilities | | Non-operating income (expense), net | | $ | — | | | $ | 298 | | Warrants liability | | Non-operating income (expense), net | | | — | | | | (1,454) | |
The derivative liabilities related to the conversion feature embedded in the 2014 Convertible Loans and 2015 Convertible Loans have been separately recognized at their respective fair values. The Company determined that embedded features met the definition of a derivative and were required to be recorded at fair value at issuance and remeasured for each reporting period thereafter. Immediately prior to completion of the Transaction on November 3, 2016, the conversion rights for the 2014 Convertible Loans and the 2015 Convertible Loans were exercised.
9. Financings
May 2017 Underwritten Public Offering
On May 30, 2017, Parent completed an underwritten public offering of 2,530,0002,190,750 shares of its common stock which included the full exercise of the underwriter's option to purchase 330,000 shares to cover overallotments, atunder a price to the public of $20.50 per share. Parent receiveduniversal shelf registration statement for net proceeds from this offering of $48.5approximately $43.0 million, after deducting underwriting discounts and commissions and offering expenses.
10. Subsequent Events
On October 13, 2017, Parent entered into a sales agreement with Cowen and Company, LLC (Cowen) with respect to an at-the-market offering program under which Parent may offer and sell, from time to time at its sole discretion, up to $50 million in sharesTable of its common stock through Cowen as its sales agent. The issuance and sale of shares under the sales agreement, if any, is subject to the effectiveness of Parent’s registration statement on Form S-3 that was filed with the Securities and Exchange Commission on October 13, 2017. Parent is not obligated to make any sales of common stock under the agreement.Contents
On October 26, 2017, Parent entered into an asset purchase agreement pursuant to which it sold legacy intellectual property of its predecessor, Biodel, for $4.5 million.
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8. Stock-based Compensation For the three months ended March 31, 2021, the Company granted 663,650 options at a weighted average exercise price of $35.49. For the three months ended March 31, 2021, the Company granted 151,100 RSUs. The Company recorded the following stock-based compensation expense: | | | | | | | | | Three Months Ended March 31, | | | 2021 | | 2020 | | | | | | | | Employee awards: | | | | | | | Research and development expense | | $ | 1,136 | | $ | 880 | General and administrative expense | | | 1,926 | | | 1,501 | Total stock-based compensation expense | | $ | 3,062 | | $ | 2,381 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included elsewhere in this quarterly report and our audited financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2016,2020, filed with the SEC. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results, performance or experience could differ materially from what is indicated by any forward-looking statement due to various important factors, risks and uncertainties, including, but not limited to, those set forth under “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this quarterly report or under “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 20162020, in Item 1A of Part II of this Quarterly Report on Form 10-Q, or in other filings that we make with the SEC. Overview Prior to November 3, 2016, we were a specialty biopharmaceutical company known as Biodel Inc. that historically had been focused on the development and commercialization of innovative treatments for diabetes. On November 3, 2016, we completed a share exchange transaction, or the Transaction, pursuant to an Amended and Restated Share Exchange Agreement dated July 13, 2016 that we entered into with Albireo Limited and the shareholders and noteholders of Albireo Limited. Upon the completion of the Transaction, we changed our name to “Albireo Pharma, Inc.,” the business of Albireo Limited became our business and we becameWe are a biopharmaceutical company focused on the development and commercialization of novel bile acid modulators to treat orphan pediatric liver diseases and other liver or gastrointestinal disorders where improper flow or absorptiondiseases and disorders. We are pursuing the development of bile causes serious medical conditions for which there is high unmet need. The initial target indication for our lead product candidate, A4250, isBylvay, for patients with progressive familial intrahepatic cholestasis, or PFIC, a rare, life-threatening genetic disorder affecting young children for which there is currently no approved drug treatment. We have completed aIn September 2020, we announced topline results from our Phase 2 clinical3 trial in children with chronic cholestasisPFIC, and in December 2020, we plan to initiate a Phase 3 clinical trial in patients with PFIC by the spring of 2018. In addition to PFIC,announced that we plan to consider conducting future clinical development of A4250 as a treatment for other pediatric cholestatic liver diseases and disorders. Our clinical-stage product candidates in addition to A4250 include elobixibat, for which our licensee has submitted a new drug application, or NDA, to the U.S. Food and Drug Administration, or FDA, and a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, seeking approval of Bylvay for the treatment of patients with PFIC, in anticipation of potential regulatory approval, issuance of a rare pediatric disease priority review voucher and commercial launch in the second half of 2021. In January 2021 we announced the FDA accepted our NDA for Bylvay for the treatment of patients with PFIC, which was submitted in November 2020, with priority review and a user fee goal date under the Prescription Drug User Fee Act (PDUFA) of July 20, 2021. There are currently no plans for a FDA advisory committee meeting regarding our NDA. We are also pursuing the development of Bylvay in biliary atresia and in Alagille syndrome, or ALGS, each of which is a rare, life threatening disease that affects the liver and for which there is no approved pharmacologic treatment option. We initiated a pivotal clinical trial of Bylvay in biliary atresia, the BOLD trial, in the first half of 2020, and continue to enroll patients in the trial. We expect topline results from the BOLD trial in 2024. We also initiated a pivotal trial of Bylvay in ALGS, the ASSERT trial, in the fourth quarter of 2020 and have dosed the first patients in the trial. We expect topline results from the ASSERT trial in 2022. Our most advanced product candidate in addition to Bylvay is elobixibat, which is approved in Japan for the treatment of chronic constipation. In August 2020, we announced topline results from our Phase 2 clinical trial as a treatment for nonalcoholic fatty liver disease, or NAFLD, and nonalcoholic steatohepatitis, or NASH, and based on the results of the trial, we decided not to treat chronic constipation, and A3384, which ispursue further development of elobixibat in NAFLD or NASH. We are expanding development to treatcompounds that are intended for adult liver and viral diseases. Our lead candidate for adult liver diseases, A3907, is a selective inhibitor of the apical sodium-dependent bile acid malabsorption.transporter (ASBT) that has, based on animal studies, high predicted systemic bioavailability in man. As a result, A3907 has the potential to not only affect the bile acid pool by increased bile acid excretion in the stools but also through other pathways, including increased urinary bile acid excretion. This unique approach may yield greater dosing flexibility, greater efficacy and lower rates of adverse events associated with the category, such as diarrhea. We initiated a Phase 1 clinical trial, with the first patient dosed in the first quarter of 2021, we expect topline results from that trial in 2021. If the Phase 1 trial is successful, we expect to initiate a Phase 2 trial for A3907 in adult liver disease in 2022. A US composition of matter and method of use patent for A3907 was issued with an expiration date between 2039 and 2040, not including patent term extension. We also have a preclinical program in nonalcoholic steatohepatitis,adult liver and viral diseases. Our lead preclinical candidate for adult viral and liver diseases is A2342, a potent small molecule inhibitor of the sodium-taurocholate co-transporting peptide (NTCP). NTCP is a key transporter of bile acids into the liver cells but also the entry mechanism for the hepatitis B (HBV) and hepatitis D (HDV) viruses. A2342 protects primary human hepatocytes from HBV infection in vitro. In addition, A2342 reduces markers of infection in HBV-infected humanized mice. A2342 has demonstrated target engagement in non-human primates with
biomarker increases comparable to increases achieved in humans by a now commercial subcutaneous peptide NTCP inhibitor. We plan to complete IND enabling studies with A2342 this year. Preclinical efforts with other bile acid modulator approaches continue. Bylvay — Our Lead Product Candidate for PFIC. In September 2020, we announced topline results from PEDFIC 1, our Phase 3 clinical trial for Bylvay, given once per day as an oral capsule or NASH. For accounting purposes,sprinkled over food, in children ages 6 months to 18 years with PFIC types 1 and 2, which was conducted at 45 global sites. PEDFIC 1 tested two doses of Bylvay, 40 µg/kg/day and 120 µg/kg/day, along with placebo, over a treatment period of 24 weeks. PEDFIC 1, met its two primary endpoints, demonstrating that Bylvay reduced serum bile acid responses, or sBAs, (p=0.003) and improved pruritus assessments (p=0.004) with a single digit diarrhea rate. In the Transaction was treatedprimary analysis, PEDFIC 1 met the U.S regulatory primary endpoint with the proportion of positive pruritus assessments being 53.5% in the Bylvay arms compared to 28.7% in the placebo arm (p=0.004). As a secondary endpoint, 42.9% of patients in the Bylvay arms had a clinically meaningful improvement in the pruritus score, defined as a “reverse acquisition” and Albireo Limiteddrop from baseline of 1.0 point or more on the 0-4 point scale, at week 24 compared to 10.5% in the placebo arm (p=0.018). PEDFIC 1 also met the E.U. regulatory primary endpoint with 33.3% of subjects in the Bylvay arms experiencing either a 70% reduction in sBAs or reaching a level of 70 µmol/L compared to no patients in the placebo arm (p=0.003). As an E.U. regulatory secondary endpoint, mean reduction of bile acids was considered114.3 µmol/L in the accounting acquirer. Accordingly, with respectBylvay arms compared to periods prior to completionan increase of 13.1 µmol/L in the placebo arm (p=0.002). Both doses of Bylvay were statistically significant for each of the Transaction, this discussionU.S. and analysis reflectsE.U. primary endpoints. Bylvay was well tolerated, with an overall adverse event incidence similar to placebo. There were no drug-related serious adverse events, or SAEs, reported during the historicalstudy. Diarrhea/frequent bowel movements were the most common treatment-related gastrointestinal adverse events, which occurred in 9.5% of Bylvay treated patients vs. 5.0% of placebo patients. In December 2020, we announced that we submitted an NDA to the FDA and an MAA to the EMA seeking approval of Bylvay for the treatment of PFIC, which affirms our eligibility to apply for a rare pediatric disease priority review voucher. In January 2021, we announced the FDA accepted our NDA for Bylvay for the treatment of patients with PFIC, with priority review and a PDUFA user fee goal date of July 20, 2021. In June 2018, the FDA granted a rare pediatric disease designation to Bylvay for the treatment of PFIC, and we applied for a rare pediatric disease priority review voucher in connection with the submission of our NDA in November 2020. In September 2018, the FDA granted fast track designation to Bylvay for the treatment of pruritus associated with PFIC. In July 2020, we initiated an Expanded Access Program (EAP) for Bylvay in the United States, Canada, Australia and Europe.
PEDFIC 2, our long term, open label extension study, includes a cohort of patients who completed 24 weeks in PEDFIC 1 or moved into PEDFIC 2 after 12 weeks in PEDFIC 1, as well as an additional cohort of PFIC patients who were not eligible for PEDFIC 1. Patients in PEDFIC 2 receive Bylvay 120 µg/kg once per day over 72 weeks. Primary outcome measures in PEDFIC 2 are change in pruritus as indexed by caregiver reported observed scratching using our proprietary PRUCISION instrument, and change in sBAs, in each case from baseline over 72 weeks. In November 2020, we announced interim results from 69 patients through 24 weeks of Albireo Limitedtreatment in PEDFIC 2 that show that the reductions in sBAs and/or pruritus observed in patients receiving Bylvay in PEDFIC 1 was maintained or increased during continued Bylvay treatment in PEDFIC 2. For patients who were treatment naïve to Bylvay (patients who received placebo in PEDFIC 1 or patients who enrolled directly into PEDFIC 2), reductions in sBAs and its directpruritus were similar to those observed during Bylvay treatment in PEDFIC 1. Continued treatment with Bylvay in PEDFIC 2 resulted in increased growth rates and indirect subsidiariescatch-up growth in children with PFIC. Four patients with PFIC type 3 enrolled into PEDFIC 2 and does not includehad 12 weeks of data available at the historical results of Biodel prior to completiontime of the Transaction.interim data cut; reductions in both sBAs and pruritus were also observed in these patients. No deaths or treatment related serious adverse events had been reported in PEDFIC 2 at the time of the interim data cut as of July 15, 2020. Bylvay was generally well tolerated; diarrhea was reported in 10.1% of patients, all mild or moderate in severity. Biodel was incorporated
The precise prevalence of PFIC is unknown, and we are not aware of any patient registries or other method of establishing with precision the actual number of patients with PFIC in any geography. PFIC has been estimated to affect between one in every 75,000 children born worldwide. Based on the published incidence, published regional populations, and estimated median life expectancies, we estimate the prevalence of PFIC across the spectrum of the disease to be approximately 15,000 patients worldwide, not including China and India, but we are not able to estimate the prevalence of PFIC with precision. We hold global rights to Bylvay unencumbered. Our current plan is to commercialize Bylvay ourselves in the United States and Europe. We have entered into a Co-Promotion Agreement with Travere Therapeutics, Inc. for the co-promotion of Bylvay in the United States. The initial term of the arrangement is two years from launch of Bylvay, terminable at will by either party after one year following launch. We have also entered into license agreements with third parties to commercialize Bylvay in certain other jurisdictions, subject to regulatory approval in those jurisdictions including, Medison Pharma Ltd. in Israel, Gen İlaç ve Sağlık Ürünleri Sanayi ve Ticaret A.Ş. in Turkey and Genpharm Services for Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and the UAE, and we are identifying potential partners for other regions. There are currently no drugs approved for the treatment of PFIC. First-line treatment for PFIC is typically off-label ursodeoxycholic acid, or UDCA, which is approved in France only for PFIC type 3, and in the United States and elsewhere for the treatment of primary biliary cholangitis, or PBC. However, many PFIC patients do not respond well to UDCA, undergo partial external bile diversion, or PEBD, surgery and often require liver transplantation. PEBD surgery is a life-altering and undesirable procedure in which bile is drained outside the body to a stoma bag that must be worn by the patient 24 hours a day. Other Indications Under Development for Bylvay. We are also pursuing the development of Bylvay in patients with biliary atresia, another rare, life-threatening disease that affects the liver and for which there is no approved pharmacologic treatment option. In December 20032018, the European Commission granted orphan designation to Bylvay for the treatment of biliary atresia, and commenced active operations in January 2004. Albireo Limited’s business began when Albireo Limited was spun out2019, the FDA granted orphan drug designation to Bylvay for the treatment of AstraZeneca ABbiliary atresia. We initiated the BOLD clinical trial, a global pivotal trial and the largest prospective intervention trial ever conducted in 2008.biliary atresia, in the first half of 2020. The first patients have been enrolled in the trial, and we plan for full site activation in the first half of 2021, subject to any potential impacts of COVID-19 on the ability of sites to complete required activities. We expect topline results from the BOLD trial in 2024. We believe biliary atresia is one of the most common rare pediatric liver diseases, and is the leading cause of liver transplants in children. Our double-blind, placebo controlled pivotal trial in biliary atresia is designed to enroll approximately 200 patients at 70 sites globally. Patients will receive either placebo or high-dose (120µg/kg) Bylvay once daily. The primary endpoint is survival with native liver after two years of treatment. Biliary atresia is a partial or total blocking or absence of large bile ducts that causes cholestasis and resulting accumulation of bile that damages the liver. The estimated worldwide incidence of biliary atresia is between 6 and 10 for every 100,000 live births. We estimate the prevalence of biliary atresia to be approximately 18,100 patients across the U.S. and Europe, and approximately 27,000 combined in other jurisdictions worldwide, but we are not able to estimate the prevalence of biliary atresia with precision. There are currently no drugs approved for the treatment of biliary atresia. The current standard of care is a surgery known as the Kasai procedure, or hepatoportoenterostomy, in which the obstructed bile ducts are removed and a section of the small intestine is connected to the liver directly. However, only an estimated 25% of those initially undergoing the Kasai procedure will survive to their twenties without need for liver transplantation. In addition, we initiated a pivotal trial of Bylvay in ALGS, the ASSERT trial, in the fourth quarter of 2020. The trial is expected to enroll approximately 45 patients aged 0 to 17 years of age with a genetically confirmed diagnosis of ALGS across 35 sites in North America, Europe, Middle East and Asia Pacific. We plan for full site activation in the first half of 2021, subject to any potential impacts of COVID-19 on the ability of sites to complete required activities. The first patients have been dosed in the trial and we expect topline data to be available in 2022, before the announcement of the topline results from the BOLD trial. ALGS is a genetic condition associated with liver, heart, eye, kidney and skeletal abnormalities. In particular, ALGS patients have fewer than normal bile ducts inside the liver, which leads to cholestasis and the accumulation of bile and causes scarring in the liver. ALGS is estimated to affect between one in every 50,000 children born worldwide. We estimate the prevalence of ALGS to be approximately 11,700 patients across the U.S. and Europe, and approximately 13,000 combined in other jurisdictions worldwide, but we are not able to estimate the prevalence of ALGS with precision. There are currently no drugs approved for the treatment of ALGS. Current treatment for ALGS is generally in line with current treatments for PFIC as described above. In August 2012, the European Commission granted orphan designation to Bylvay for the treatment of ALGS. In October 2018, the FDA granted orphan drug designation to Bylvay for the treatment of ALGS. We continue to evaluate potential clinical development in other indications, including primary sclerosing cholangitis, which refers to swelling (inflammation), scarring, and destruction of bile ducts inside and outside of the liver. The first symptoms are typically fatigue, itching and jaundice, and many patients with sclerosing cholangitis also suffer from inflammatory bowel disease. The estimated incidence of primary sclerosing cholangitis is 9 cases per 100,000 people. There are currently no drugs approved for the treatment of sclerosing cholangitis. First-line treatment is typically off-label UDCA, although UDCA has not been established to be safe and effective in patients with sclerosing cholangitis in well controlled clinical trials. Since inception, we have incurred significant operating losses. As of September 30, 2017,March 31, 2021, we had an accumulated deficit of $45.3$310.6 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next few years as we continue our development of, and seek marketing approvals for, our product candidates, prepare for and begin the commercialization of any approved products, and add infrastructure and personnel to support our product development efforts and operations as a public company in the United States. As a clinical-stage company, our revenues, expenses and results of operations are likely to fluctuate significantly from quarter to quarter and year to year. Accordingly, weWe believe that period-to-period comparisons of our results of operations should not be relied upon as indicative of our future performance. As of September 30, 2017,March 31, 2021, we had $57.1approximately $217.1 million in cash and cash equivalents. Financial Operations Overview The following discussion sets forth certain components of our consolidated statements of operations as well as factors that impact those items. Revenue We generate revenue primarily from the receipt of royalty revenue, upfront or license fees and milestone payments and payment for pharmaceutical ingredient or related procurement services that are made pursuant to license agreements or related supply agreements.payments. License agreements with commercial partners generally include nonrefundable upfront fees and milestone payments, the receipt of which is 20
dependent upon the achievement of specified development, regulatory or commercial milestone events, as well as royalties on product sales of licensed products, if and when such product sales occur, and payments for pharmaceutical ingredient or related procurement services. For these agreements, management applies judgment in the allocation of total agreement consideration to the separately identifiable componentsperformance obligations on a reliable basis that reasonably reflects the selling prices that might be expected to be achieved in stand-alone transactions. For additional information about our revenue recognition, refer to Note 1 to our condensed consolidated financial statements included in this quarterly report. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of personnel costs (including salaries, benefits and stock-based compensation) for employees in research and development functions, costs associated with nonclinical and clinical development services, including clinical trials and related manufacturing costs, third-party contract research organizations, or CROs, and related services and other outside costs, including fees for third-party professional services such as consultants. Our nonclinical studies and clinical studies are performed by CROs. We expect to continue to focus our research and development efforts on nonclinical studies and clinical trials of our product candidates. As a result, we expect our research and development expenses to continue to increase for the foreseeable future. Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs such as fees paid to CROs and others in connection with our nonclinical and clinical development activities and related manufacturing. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified. Successful development of our current and potential future product candidates is highly uncertain. Completion dates and costs for our programs can vary significantly by product candidate and are difficult to predict. As a result, we cannot estimate with any degree of certainty the costs we will incur in connection with development of any of our product candidates. We anticipate we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the results of ongoing and future clinical trials, our ability to enter into licensing, collaboration and similar arrangements with respect to current or potential future product candidates, the success of research and development programs and our assessments of commercial potential. General and Administrative Expenses General and administrative expenses consist primarily of personnel costs (including salaries, benefits and stock-based compensation) for our executive, finance and other administrative employees. In addition, general and administrative expenses include fees for third-party professional services, including consulting, information technology, legal and accounting services and other corporate expenses and allocated overhead. Other Operating Expense, net Other operating expense, net consists primarily of foreign currency exchange gains or losses associated with revaluation of intercompany loans. Interest Expense, net Interest expense, net consists primarily of non-cash interest expense recorded in connection with the sale of future royalties, related to sales of elobixibat in Japan in addition to interest expense associated with our note payable. In addition, interest expense, net includes interest income associated with our interest-bearing cash and cash equivalents. Critical Accounting Policies and Estimates Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles for interim financial information. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates and assumptions on historical experience and on various assumptions that we believe are reasonable under the circumstances, and we evaluate them on an ongoing basis. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenues and expenses that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates and judgments. In addition, our reported financial condition and results of operations could vary if new accounting standards are enacted that are applicable to our business. Our significantcritical accounting policies are described in Note 1 to our audited consolidated financial statements included in our Annual Report on Form 10-K forand the fiscal year ended December 31, 2016methodologies and in Note 1 to our condensed consolidated financial statements included in this quarterly report. We believe that our accounting policies relating to revenue recognition, research and development expenses, stock-based compensation and fair value of financial instruments areassumptions we apply under them have not materially changed since February 25, 2021, the most critical to understanding and evaluating our reported financial results. We have identified these policies as critical because they are both important to the presentation of our financial condition and results of operations and require us to make judgments and estimates on matters that are inherently uncertain and may change in future periods. These policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” indate we filed our Annual Report on Form 10-K for the year ended December 31, 2016.2020. For more information on our critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2020. Results of Operations Three Months Ended September 30, 2017March 31, 2021 and September 30, 2016March 31, 2020 Result of Operations | | | | | | | | | | | | Three Months Ended March 31, | | Change | | | 2021 | | 2020 | | $ | | | | (in thousands) | Revenue | | $ | 1,966 | | $ | 1,549 | | $ | 417 | Operating Expenses | | | | | | | | | | Research and development | | | 19,943 | | | 16,130 | | | 3,813 | General and administrative | | | 15,273 | | | 8,153 | | | 7,120 | Other operating expense, net | | | 6,528 | | | 6,816 | | | (288) | Total operating expenses | | | 41,744 | | | 31,099 | | | 10,645 | Operating loss | | | (39,778) | | | (29,550) | | | (10,228) | Interest expense, net | | | (3,955) | | | (1,938) | | | (2,017) | Net loss | | $ | (43,733) | | $ | (31,488) | | $ | (12,245) |
Revenue | | Three Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | Revenue | | $ | — | | | $ | 28 | | | $ | (28 | ) |
| | | | | | | | | | | | Three Months Ended March 31, | | Change | | | 2021 | | 2020 | | $ | | | | (in thousands) | Revenue | | $ | 1,966 | | $ | 1,549 | | $ | 417 |
There was no$2.0 million in revenue for the three months ended September 30, 2017March 31, 2021 compared with $28,000 for the three months ended September 30, 2016, a decrease of $28,000. Research and development expenses
| | Three Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | Research and development expenses | | $ | 3,226 | | | $ | 2,062 | | | $ | 1,164 | |
Research and development expenses were $3.2$1.5 million for the three months ended September 30, 2017 compared with $2.1March 31, 2020, an increase of $0.4 million. The higher revenue is due to the estimated royalty revenue to be received from EA Pharma for elobixibat for the treatment of chronic constipation.
Research and development expenses | | | | | | | | | | | | Three Months Ended March 31, | | Change | | | 2021 | | 2020 | | $ | | | | (in thousands) | Research and development expenses | | $ | 19,943 | | $ | 16,130 | | $ | 3,813 |
Research and development expenses were $19.9 million for the three months ended September 30, 2016,March 31, 2021 compared with $16.1 million for the three months ended March 31, 2020, an increase of $1.2$3.8 million. The higherincreased research and development expenses for the 20172021 period were principally due to increases of $1.0 millionpersonnel expenses as we continue to increase our headcount and program activities. The increase in costs associated with development of A4250, including costs incurred for manufacturing and clinical developmentprogram activities in preparation for a planned Phase 3 clinical trial in patients with PFIC, and $97,000 in costs related to nonclinical development activities associated with A3384. Bylvay for regulatory submissions in PFIC, the additional indications for biliary atresia and Alagille syndrome, and for A3907 were partially offset by elobixibat and preclinical programs. The following table summarizes our principal product development programs and the out-of-pocket third-party expenses incurred with respect to each clinical-stage product candidate and our preclinical programs for the three months ended September 30, 2017March 31, 2021 and 2016.2020. | | | | | | | | | | | | Three Months Ended March 31, | | Change | | | 2021 | | 2020 | | $ | | | | (in thousands) | Direct third-party project costs: | | | | | | | | | | Bylvay | | $ | 11,737 | | $ | 8,689 | | $ | 3,048 | Elobixibat | | | — | | | 868 | | | (868) | A3384 | | | — | | | 59 | | | (59) | A3907 | | | 1,605 | | | — | | | 1,605 | Preclinical | | | 813 | | | 1,295 | | | (482) | Total | | $ | 14,155 | | $ | 10,911 | | $ | 3,244 | Other project costs(1): | | | | | | | | | | Personnel costs | | $ | 5,660 | | $ | 3,963 | | $ | 1,697 | Other costs(2) | | | 128 | | | 1,256 | | | (1,128) | Total | | $ | 5,788 | | $ | 5,219 | | $ | 569 | Total research and development costs | | $ | 19,943 | | $ | 16,130 | | $ | 3,813 |
| | Three Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | Direct third-party project costs: | | | | | | | | | | | | | A4250 | | $ | 1,988 | | | $ | 950 | | | $ | 1,038 | | Elobixibat | | | 23 | | | | 43 | | | | (20 | ) | A3384 | | | 93 | | | | (4 | ) | | | 97 | | Preclinical | | | 95 | | | | 73 | | | | 22 | | Total | | $ | 2,199 | | | $ | 1,062 | | | $ | 1,137 | | Other project costs(1): | | | | | | | | | | | | | Personnel costs | | $ | 387 | | | $ | 749 | | | $ | (362 | ) | Other costs(2) | | | 640 | | | | 251 | | | | 389 | | Total | | $ | 1,027 | | | $ | 1,000 | | | $ | 27 | | Total research and development costs | | $ | 3,226 | | | $ | 2,062 | | | $ | 1,164 | |
(1) | Other project costs are leveraged across multiple programs. |
(2) | Other costs include facility, supply, patent, consultant and overhead costs that support multiple programs. |
General and administrative expenses | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Change | | | 2021 | | 2020 | | $ | | | | (in thousands) | General and administrative expenses | | $ | 15,273 | | $ | 8,153 | | $ | 7,120 |
| | Three Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | General and administrative expenses | | $ | 3,709 | | | $ | 1,346 | | | $ | 2,363 | |
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General and administrative expenses were $3.7$15.3 million for the three months ended September 30, 2017March 31, 2021 compared with $1.3$8.2 million for the three months ended September 30, 2016,March 31, 2020, an increase of $2.4$7.1 million. The higher generalincrease is attributable to personnel and administrativerelated expenses for the 2017 period were principally dueas we continue to increases of $589,000 in stock-based compensation expense, $465,000 in patent, facility-relatedincrease our headcount, and other costs, $436,000 in costs associated with being a public company, $430,000 in costs for accounting, legal and consulting services, and $412,000 in salary and benefits resulting from new hires made in the second half of 2016. We expect that we will incur increased accounting, audit, legal, regulatory, compliance, and investor and public relations expenses associated with operating as a public company in future periods.commercialization readiness activity related to PFIC. Other (income)operating expense, net | | | | | | | | | | | | | Three Months Ended March 31, | | Change | | | | 2021 | | 2020 | | $ | | | | | (in thousands) | | Other operating expense, net | | $ | 6,528 | | $ | 6,816 | | $ | (288) | |
| | Three Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | Other (income) expense, net | | $ | (401 | ) | | $ | 58 | | | $ | (459 | ) |
Other (income)operating expense, net totaled $401,000 of income$6.5 million for the three months ended September 30, 2017March 31, 2021 compared with $58,000expense of expense$6.8 million for the three months ended September 30, 2016, a difference of $459,000.March 31, 2020. The difference resulted from differencesprimarily relates to changes in foreign currency exchange rates in the two periods. Interest income (expense),expense, net | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Change | | | 2021 | | 2020 | | $ | | | | (in thousands) | Interest expense, net | | $ | (3,955) | | $ | (1,938) | | $ | (2,017) |
| | Three Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | Interest income (expense), net | | $ | 23 | | | $ | (508 | ) | | $ | 531 | |
26 Interest income (expense),expense, net totaled $23,000 of income$4.0 million for the three months ended September 30, 2017March 31, 2021 compared with $508,000 of expense$1.9 million for 2016, a difference of $531,000.the three months ended March 31, 2020. The difference was principally attributable to an increase inhigher non-cash interest income due to higher balances following the receipt of $48.5 million in net proceeds from an equity offering completed in May 2017, the conversion of convertible loan notes issued in 2014 and 2015 into equityexpense recorded in connection with the completionsale of the Transaction in November 2016 and a reduction in the amount of interest paid under our loan facility in accordance with its terms. Non-operating income (expense), net
| | Three Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | Non-operating income (expense), net | | $ | — | | | $ | (84 | ) | | $ | 84 | |
There was no non-operating income (expense), net for the three months ended September 30, 2017 compared with net non-operating expense of $84,000 for the three months ended September 30, 2016, a difference of $84,000. The absence of net non-operating expense for the 2017 period reflects the exercise of warrants by our lender in May 2017.
Nine Months Ended September 30, 2017 and September 30, 2016
Revenue
| | Nine Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | Revenue | | $ | 2 | | | $ | 8,125 | | | $ | (8,123 | ) |
Revenue was $2,000 for the nine months ended September 30, 2017 compared with $8.1 million for the nine months ended September 30, 2016, a decrease of $8.1 million. The decrease for the 2017 period was primarily attributable to a nonrefundable one-
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time payment of $8.0 million received from EA Pharma Co., Ltd., or EA Pharma, in April 2016 in connection with a renegotiated payment stream under our license agreement with EA Pharma.
Research and development expenses
| | Nine Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | Research and development expenses | | $ | 9,000 | | | $ | 6,372 | | | $ | 2,628 | |
Research and development expenses were $9.0 million for the nine months ended September 30, 2017 compared with $6.4 million for the nine months ended September 30, 2016, an increase of $2.6 million. The higher research and development expenses for the 2017 period were principally due to increases of $2.4 million in costsfuture royalties related to A4250, including costs incurred for manufacturing and clinical development activitiessales of elobixibat in preparation for a planned Phase 3 clinical trialJapan, in patients with PFIC, for a Phase 2 clinical trial in children with cholestatic liver disease completed in the first half of 2017, for a clinical trialaddition to assess absorption, distribution, metabolism and excretion and for nonclinical carcinogenicity studies, and $201,000 in costs related to nonclinical development activitiesinterest expense associated with A3384.
The following table summarizes our principal product development programs and the out-of-pocket third-party expenses incurred with respect to each clinical-stage product candidate and our preclinical programs for the nine months ended September 30, 2017 and 2016.
| | Nine Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | Direct third-party project costs: | | | | | | | | | | | | | A4250 | | $ | 5,473 | | | $ | 3,020 | | | $ | 2,453 | | Elobixibat | | | 19 | | | | 124 | | | | (105 | ) | A3384 | | | 201 | | | | — | | | | 201 | | Preclinical | | | 179 | | | | 217 | | | | (38) | | Total | | $ | 5,872 | | | $ | 3,361 | | | $ | 2,511 | | Other project costs(1): | | | | | | | | | | | | | Personnel costs | | $ | 1,331 | | | $ | 1,747 | | | $ | (416 | ) | Other costs(2) | | | 1,797 | | | | 1,264 | | | | 533 | | Total | | $ | 3,128 | | | $ | 3,011 | | | $ | 117 | | Total research and development costs | | $ | 9,000 | | | $ | 6,372 | | | $ | 2,628 | |
(1)
| Other project costs are leveraged across multiple programs.
|
(2)
| Other costs include facility, supply, patent, consultant and overhead costs that support multiple programs.
|
General and administrative expenses
| | Nine Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | General and administrative expenses | | $ | 10,634 | | | $ | 5,680 | | | $ | 4,954 | |
General and administrative expenses were $10.6 million for the nine months ended September 30, 2017 compared with $5.7 million for the nine months ended September 30, 2016, an increase of $5.0 million. The higher general and administrative expenses for the 2017 period were principally attributable to increases of $2.5 million in stock-based compensation expense, which included $788,000 attributable to the correction of an understatement of stock-based compensation expense for the year ended December 31, 2016 due to the use of incorrect service periods in determining the expense, $1.5 million in costs associated with being a public company, $1.4 million in salary and benefits resulting from new hires made in the second half of 2016, $765,000 in patent, facility-related and other costs, and $104,000 in costs for consulting services, partially offset by a decrease of $1.6 million in legal and accounting costs resulting from the completion of the Transaction in November 2016.
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Other (income) expense, net
| | Nine Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | Other (income) expense, net | | $ | (392) | | | $ | 193 | | | $ | (585 | ) |
Other (income) expense, net totaled $392,000 of income for the nine months ended September 30, 2017 compared with $193,000 of expense for the nine months ended September 30, 2016, a difference of $585,000. The difference resulted from changes in currency exchange rates between the two periods.
Interest income (expense), net
| | Nine Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | Interest income (expense), net | | $ | (378 | ) | | $ | (1,546 | ) | | $ | 1,168 | |
Interest income (expense), net totaled $378,000 of expense for the nine months ended September 30, 2017 compared with $1.5 million of expense for the nine months ended September 30, 2016, a decrease of $1.2 million. The lower net interest expense was attributable to the conversion of convertible loan notes issued in 2014 and 2015 into equity in connection with the completion of the Transaction in November 2016, a reduction in the amount of interest paid under our loan facility in accordance with its terms and an increase in interest income due to higher balances following the receipt of $48.5 million in net proceeds from an equity offering completed in May 2017.
Non-operating income (expense), net
| | Nine Months Ended September 30, | | | Change | | | | 2017 | | | 2016 | | | $ | | | | (in thousands) | | Non-operating income (expense), net | | $ | 260 | | | $ | 536 | | | $ | (276 | ) |
Non-operating income (expense), net was $260,000 of income for the nine months ended September 30, 2017 compared with $536,000 of income for the nine months ended September 30, 2016, a decrease of $276,000. The lower net non-operating income reflected a change in the mark-to-market adjustments on warrants between the periods and the exercise of warrants by our lender in May 2017.note payable.
Liquidity and Capital Resources Sources of Liquidity We do not expect to generate significant revenue from product sales unless and until we or a potential future licensee or collaborator obtains regulatorymarketing approval offor, and commercializes, one or more of our current or any potential future product candidates.candidates (other than elobixibat as a treatment for chronic constipation in Japan), which we do not expect to occur until at least the second half of 2021, if at all. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of and seek regulatory approvals for our product candidates. We are subject to all of the risks applicable to the development of new pharmaceutical products and may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. We expect that we will need substantial additional funding to complete development of and potentially commercialize our product candidates. Our operations have historically been financed primarily through issuances of preference shares or convertible debt,equity, upfront fees paid upon entering into license agreements, payments received upon the achievement of specified milestone events under license agreements, grants and venture debt borrowings.borrowings and the HCR royalty monetization transactions. Our primary uses of capital are, and we expect will continue to be, personnel-related costs, third party expenses associated with our research and development programs, including the conduct of clinical trials, and manufacturing-related costs for our product candidates.candidates as well as pre-commercialization efforts. 25As of March 31, 2021, our cash and cash equivalents were approximately $217.1 million.
During the first quarter of 2018, following the Japanese MHLW’s approval of elobixibat for the treatment of chronic constipation in January 2018, we received a $44.5 million payment, net of certain transaction expenses, from HCR under our RIAA. Additionally, this approval triggered a milestone payment to us from EA Pharma of $11.2 million. In May 2017,June 2020, we completedentered into an underwritten public offering of 2,530,000 shares of our common stock at a priceamendment to the public of $20.50 per share. Our net proceeds from the offering, after underwriting discounts, commissions and offering expenses, were $48.5 million. In November 2016, we completed the Transaction and, immediately priorRIAA with HCR pursuant to the Transaction,which HCR agreed to pay us an associated equity financing of $10.0 million. In the Transaction, we acquired cash of approximately $20additional $14.8 million, net of Biodel’s commitments, that Biodel had on hand oncertain transaction expenses in exchange for the closing date.
In December 2014, we (Albireo Limited) entered into a loan facility agreement with Kreos Capital IV (UK) Limited, or Kreos UK, enabling us to borrow up to €6.0 million ($7.3 million). The loan facility has a term of 36 months, with principal and interest payable monthly after an initial six-month interest-only period, at an annual rate of 11.5%. In addition, we are required to make an end-of-loan payment equal to 1.25%elimination of the amounts lent(i) $78.8 million cap amount on HCR’s rights to receive royalties on sales in Japan and sales milestones for elobixibat in certain other territories that may become payable by Kreos UK. On the date of the agreement, we borrowed the full €6.0EA Pharma and (ii) $15.0 million ($7.3 million). In February 2016, we amended the loan facilitypayable to reduce principal repaymentsus if a specified sales milestone is achieved for a period of six months.elobixibat in Japan. As of September 30, 2017, the outstanding balance due on the loan facility, including interestMarch 31, 2021, we have received approximately $59.3 million in upfront and the end-of-loan payment, was €1.2 million ($1.4 million based on the Euro to USD exchange rate as of September 30, 2017).
In April 2012, we (Albireo AB) entered intomilestone payments from EA Pharma under a license agreement with EA Pharma for the development and commercialization of elobixibat in specified countries in Asia. Albireo AB subsequently transferred the agreement to its wholly owned subsidiary, Elobix AB, and the agreement was amended in January 2015 and April 2016. As of September 30, 2017, we have received approximately $34.7 million in upfront and milestone payments from EA Pharma under this agreement. We are eligible to receive additional paymentsamounts of up to €13.3$5.0 million under the amended agreement, ($15.7 million based on the Euro to USD exchange rate as of September 30, 2017) if a specified regulatory events areevent is achieved for elobixibat and up to ¥3.5 billion ($31.2 million based on the Japanese Yen to USD exchange rate as of September 30, 2017) if specified sales milestones are achieved for elobixibat. We are also eligible for stepped royalties at rates beginning in the high single digits on any future elobixibat product sales.
As of September 30, 2017, our cash and cash equivalents were $57.1 million.
In October 2017, followingaddition, in February 2020, we completed an underwritten public offering of 2,190,750 shares of our common stock under our universal shelf registration statement for net proceeds of approximately $43.0 million. On May 7, 2020, we filed a new universal shelf registration statement on Form S-3, or the end of2020 Form S-3, with the third quarter ended September 30, 2017, we entered into an asset purchase agreementSEC, which was declared effective on May 18, 2020, pursuant to which we sold legacy intellectual propertyregistered for sale up to $200.0 million of any combination of our predecessor, Biodel,common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine. On May 7, 2020, we also entered into a new sales agreement, with respect to an at-the-market offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million. This agreement terminated on September 9, 2020. On June 8, 2020, we entered into a Loan and Security Agreement with the several banks and other financial institutions or entities from time to time parties to the Loan and Security Agreement, as lenders, or collectively referred to as the Lender, and Hercules Capital, Inc., in its capacity as administrative agent and collateral agent for $4.5itself and Lender (in such capacity, the Agent or Hercules). The Loan and Security Agreement provides for term loans in an aggregate principal amount of up to $80.0 million to be delivered in multiple tranches, (the Term Loans). The tranches consist of (i) a term loan advance to Company in an aggregate principal amount of up to $15.0 million, of which (A) we agreed to borrow an aggregate principal amount of $10.0 million on the date on which all conditions to the funding of the Term Loans by the Lender were met (the Closing Date), but we did not request that the Lender make an additional term loan advance to us in an aggregate principal amount of $5.0 million prior to December 15, 2020 as permitted under the agreement, (ii) subject to the achievement of certain initial performance milestones, or Performance Milestone I, we have the right to request that the Lender make additional term loan advances to us in an aggregate principal amount of up to $20.0 million from January 1, 2021 through December 15, 2021 in minimum increments of $10.0 million, and (iii) subject to the Lender’s investment committee’s sole discretion, we have the right to request that the Lender make additional term loan advances to us in an aggregate principal amount of up to $45.0 million through March 31, 2022 in minimum increments of $5.0 million. As of March 31, 2021, we borrowed an aggregate principal amount of $10.0 million. An aggregate principal amount of up to $20.0 million remains available for future borrowing upon request and an aggregate principal amount of up to $45.0 million remains available for future borrowing subject to approval from lender. On September 14, 2020, we completed an underwritten public offering of 4,000,000 shares of our common stock under this registration statement. We received net proceeds from this offering of approximately $150.4 million, after deducting underwriting discounts and commissions, but before deducting offering expenses. As of March 31, 2021, $40.0 million of securities remain available for issuance under the 2020 Form S-3. As of March 31, 2021, $40.0 million of securities remain available for issuance under the 2020 Form S-3. On February 25, 2021, we filed an automatic shelf registration statement on Form S-3 with the SEC, which became effective upon filing, pursuant to which we registered for sale an unlimited amount of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, so long as we continue to satisfy the requirements of a “well-known seasoned issuer” under SEC rules, which we refer to as the 2021 Form S-3. This registration statement will remain in effect for up to three years from the date it became effective. On February 25, 2021, we also entered into a new sales agreement, which we refer to as the 2021 Sales Agreement, with respect to an at-the-market offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $100 million. We make no assurances as to the continued effectiveness of the 2021 Form S-3. Cash Flows Nine Months Ended September 30, 2017Three months ended March 31, 2021 and September 30, 2016March 31, 2020
| | | | | | | | | Three Months Ended March 31, | | | 2021 | | 2020 | | | | (in thousands) | Net cash (used in) provided by: | | | | | | | Operating activities | | $ | (34,716) | | | (23,796) | Financing activities | | | 404 | | | 43,093 | Total | | $ | (34,312) | | $ | 19,297 | Effect of exchange rate changes on cash and cash equivalents | | | 121 | | | (625) | Net (decrease) increase in cash and cash equivalents | | | (34,191) | | | 18,672 |
| | Nine Months Ended September 30, | | | | 2017 | | | 2016 | | | | (in thousands) | | Net cash provided by (used in): | | | | | | | | | Operating activities | | $ | (19,621 | ) | | | (2,324 | ) | Investing activities | | | (187 | ) | | | (3 | ) | Financing activities | | | 46,567 | | | | (1,348 | ) | Total | | $ | 26,759 | | | $ | (3,675 | ) | Effect of exchange rate changes on cash and cash equivalents | | | 383 | | | | 270 | | Net increase in cash and cash equivalents | | | 27,142 | | | | (3,405 | ) |
28 Operating activities Net cash used in operating activities for the nine months ended September 30, 2017 was $19.6 million compared to net cashCash used in operating activities of $2.3$34.7 million forduring the corresponding 2016 period, an increasethree months ended March 31, 2021 was primarily a result of $17.3our $43.7 million net loss from operations and a net decrease in assets and liabilities of $3.8 million. The higher net cashdecrease in operating assets and liabilities during the three months ended March 31, 2021 was primarily driven by decreases in accrued expenses, other current and long-term liabilities, prepaid expenses and other current assets, offset by increases in accounts payable. This decrease was offset by non-cash items, including $6.5 million of foreign currency adjustments, $3.1 million of stock-based compensation expense, and $3.1 million of accretion of liability related to sale of future royalties. Cash used in operating activities forof $23.8 million during the 2017 period principally resulted from an increase in the 2017 periodthree months ended March 31, 2020 was primarily a result of $14.2our $31.5 million in net loss due to a higher level of clinical trial activity and higher personnel expensesfrom operations and a one-time payment from EA Pharmanet decrease in assets and liabilities of $8.0 million received$3.3 million. The net decrease in April 2016 in connection with a renegotiated payment stream, partially offsetoperating assets and liabilities during the three months ended March 31, 2020 was primarily driven by a decrease of $4.9 million in the 2017 perioddecreases in accrued expenses due mainly to severance paid to former Biodel personnel.
26
Investing activities
Net cash used in investing activities was $187,000 for the nine months ended September 30, 2017 compared to $3,000 for the corresponding 2016 period,and prepaid expenses and other current assets, and an increase to accounts payable. This decrease was offset by non-cash items, including $6.5 million of $184,000. The increase was dueforeign currency adjustments, $2.4 million of stock- based compensation expense and $2.0 million of non-cash interest on liability related to greater property and equipment purchases in connection with our move to different offices in Boston.sale of future royalties.
Financing activities Net cashCash provided by financing activities forof $0.4 million during the ninethree months ended September 30, 2017March 31, 2021 was $46.6 million comparedprimarily related to net cash used inproceeds from exercise of options. Cash provided by financing activities of $1.3$43.1 million forduring the corresponding 2016 period, a difference of $47.9 million. The differencethree months ended March 31, 2020 was principally dueprimarily related to our receipt of $48.5 million in net proceeds from a public offering in May 2017the issuance of common stock, net of issuance costs of $43.0 million and theproceeds from exercise of compensatory stock options partially offset by higher principal payments under the loan facility with Kreos in the 2017 period following a February 2016 amendment to reduce principal payments for six months.of $0.1 million.
Funding Requirements Cash used to fund operating expenses is affected by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We believe that our existing cash and cash equivalents will be sufficient to meet our projected operating requirements through at least 2019, assuming receiptinto 2023 including for the commercial launch of a contingent milestone payment from EA PharmaBylvay, if approved, for our open-label trial in 2018.PFIC for Bylvay, in addition to Phase 3 clinical programs for Bylvay in biliary atresia and ALGS, as well as A3907, A2342 and our preclinical programs. We anticipate an operating cash burn rate in the range of $130.0 to $135.0 million in 2021. However, our operating plans may change as a result of many factors, including those described below, and we may need additional funds sooner than planned to meet operational needs and capital requirements. In addition, if the conditions for raising capital are favorable we may seek to raise additional funds at any time. Our future funding requirements will depend on many factors, including the following: | ● | any unfavorable development or delay in our Bylvay program in PFIC, including the review or approval of our Bylvay marketing applications in the United States and Europe for PFIC and the costs and timing of our pre-commercialization preparations; |
| ● | the costs, design, duration and any potential delays of the pivotal clinical trial of Bylvay in biliary atresia and the pivotal clinical trial of Bylvay in ALGS; |
| ● | the scope, number, progress, initiation, duration, cost, results and timing of clinical trials and nonclinical studies of our current or future product candidates; |
| ● | whether and to what extent milestone events are achieved under our license agreement with EA Pharma or any potential future licensee or collaborator; |
| ● | the outcomes and timing of regulatory reviews, approvals or other actions; |
| ● | our ability to obtain marketing approval for our product candidates; |
the costs, design, timing of initiation, duration and any potential delays of, and the results of, our planned Phase 3 clinical trial of A4250;29
the scope, number, progress, duration, cost, results and timing of clinical trials and nonclinical studies of our current or potential future product candidates;
whether and to what extent milestone events are achieved under our license agreement with EA Pharma or any potential future licensee or collaborator;Table of Contents
| ● | our ability to establish and maintain additional licensing, collaboration or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement; |
| ● | the success of any other business, product or technology that we acquire or in which we invest; |
| ● | our ability to maintain, expand and defend the scope of our intellectual property portfolio; |
| ● | our ability to manufacture any approved products on commercially reasonable terms; |
| ● | our ability to establish a sales and marketing organization or suitable third-party alternatives for any approved product; |
| ● | the number and characteristics of product candidates and programs that we pursue; |
| ● | the current and potential impacts of the COVID-19 pandemic on our business; |
| ● | the costs of acquiring, licensing or investing in businesses, product candidates and technologies; |
| ● | our need and ability to hire additional management and scientific and medical personnel; |
| ● | the costs to operate as a public company in the United States, including the need to implement additional financial and reporting systems and other internal systems and infrastructure for our business; |
| ● | market acceptance of our product candidates, to the extent any are approved for commercial sale; and |
| ● | the effect of competing technological and market developments. |
the outcomes and timing of regulatory reviews, approvals or other actions;
our ability to obtain marketing approval for our product candidates;
our ability to establish and maintain additional licensing, collaboration or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;
the success of any other business, product or technology that we acquire or in which we invest;
our ability to maintain, expand and defend the scope of our intellectual property portfolio;
our ability to manufacture any approved products on commercially reasonable terms;
our ability to establish a sales and marketing organization or suitable third-party alternatives for any approved product;
the number and characteristics of product candidates and programs that we pursue;
the costs of acquiring, licensing or investing in businesses, product candidates and technologies;
our need and ability to hire additional management and scientific and medical personnel;
the costs to operate as a public company in the United States, including the need to implement additional financial and reporting systems and other internal systems and infrastructure for our business;
market acceptance of our product candidates, to the extent any are approved for commercial sale; and
the effect of competing technological and market developments.
We cannot determine precisely the dates of potential regulatory approval of Bylvay in PFIC or the dates of our potential commercial launch, or the completion dates and related costs of our development programs due to inherent uncertainties in outcomes of clinical trials and the regulatory approval process. We cannot be certain that we will be able to successfully complete our pre-commercialization activities or research and development programs or establish licensing, collaboration or similar arrangements for our 27
product candidates. Our failure or the failure of any current or potential future licensee to complete research and development programs for our product candidates could have a material adverse effect on our financial position or results of operations. We expect to continue to incur losses. Our ability to achieve and maintain profitability is dependent upon the successful development, regulatory approval and commercialization of our product candidates and achieving a level of revenues adequate to support our cost structure. We may never achieve profitability. If the conditions for raising capital are favorable, we may seek to finance future cash needs through public or private equity or debt offerings or other financings. We previously filed a universal shelf registration statement on Form S-3 with the SEC, which was declared effective on January 10, 2017, pursuant to which we registered for sale $100 million of any combination of our common stock, preferred stock, debt securities, warrants, rights, purchase contracts and/or units. On May 30, 2017, we closed an underwritten public offering of 2,530,000 shares of our common stock for gross proceeds of $51.9 million under a previous shelf registration statement. Following that closing, approximately $48.1 million of securities remain available for issuance under this shelf registration statement. On October 13, 2017, we filed a new universal shelf registration statement on Form S-3 with the SEC to register for sale $125 million of any combination of our common stock, preferred stock, debt securities, warrants, rights, purchase contracts and/or units, including $50 million of our common stock in an at-the-market offering under a sales agreement with Cowen and Company, LLC, from time to time and at prices and on terms that we may determine. The new shelf registration statement has not yet been declared effective, but, when it becomes effective, the new registration statement will remain effective for up to three years from the effective date. In addition, our previous shelf registration statement discussed above will be terminated at the time the new universal shelf registration is declared effective. Additionally, if we need to raise additional capital to fund our operations, complete our ongoing and planned clinical trials, or potentially commercialize our product candidates, we may likewise seek to finance future cash needs through public or private equity or debt offerings or other financings. The necessary funding may not be available to us on acceptable terms or at all. We have an effective universal shelf registration statement on Form S-3 with the SEC, pursuant to which we registered for sale up to $200 million of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine,. As of March 31, 2021, $40.0 million of securities remain available for issuance under the shelf registration statement, which we refer to as the 2020 Form S-3. On February 25, 2021, we filed an automatic shelf registration statement on Form S-3 with the SEC, pursuant to which we registered for sale an unlimited amount of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, so long as we continue to satisfy the requirements of a “well-known seasoned issuer” under SEC rules, which we refer to as the 2021 Form S-3, including up to $100 million of our common stock pursuant to the new sales agreement with respect to an at-the-market offering program. We make no assurances as to the continued effectiveness of the 2021 Form S-3. The sale of additional equity or convertible debt securities may result in significant dilution to our stockholders, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. In addition, following the closing of our September 2020 public offering of common stock, we have a limited number of authorized shares of common stock available for future issuance that are not already issued or reserved for issuance. The incurrence of additional debt financing would result in debt service obligations and the instruments governing such debt may provide for operating and financing covenants that would restrict our operations. We may also seek to finance future cash needs through potential future licensing, collaboration or similar arrangements. These arrangements may not be available on acceptable terms or at all, and we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our development programs or obtain funds through third-party arrangements that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently. Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk Not required for smaller reporting companies. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures OurAs of March 31, 2021, our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-Q, have concluded that, based on such evaluation, and as a result of the material weaknesses discussed below, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Material Weaknesses and Remediation of Material Weaknesses
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. We have identified material weaknesses in our internal control over financial reporting, as described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
28
reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We became a public company via a share exchange transaction completed in November 2016. Prior to that, our parent company was a private entity domiciled in the United Kingdom. We have historically not had the people, processes and systems in place in order to have appropriately designed and operating controls over our financial statement close process.
As previously reported in connection with our 2016 financial statements, we identified a material weakness in our internal control over financial reporting, specifically a lack of controls over the identification and review of complex accounting issues involving significant judgment or estimates in the financial statement closing process resulting from our limited in-house accounting and finance team. We have historically relied on consultants and external advisors to provide assistance with financial reporting in accordance with the requirements of U.S. generally accepted accounting principles (GAAP) and the rules and regulations of the SEC, and these consultants and external advisors may not have had direct knowledge of all of our business, transactions and contracts. Specifically, we determined that we did not have sufficient resources with GAAP and SEC financial reporting knowledge to ensure a timely and sufficient financial statement close process that includes resolution of complex accounting issues involving significant judgment and estimates.
Additionally, our financial accounting information system has limited functionality and certain closing and consolidating activities are managed and processed outside of the system. These system limitations, as well as a lack of sufficient accounting staff, negatively affect the design and operation of our financial statement close process. Deficiencies in our financial statement close process have limited our ability to adequately monitor certain adjustments and perform appropriate account analyses and reconciliations. These deficiencies constitute a material weakness in internal control over financial reporting and have resulted in financial statement errors not being identified on a timely basis.
We are working to remediate the material weaknesses. In particular, we hired a full-time chief financial officer in July 2016, a controller in March 2017 and a staff accountant in Sweden in September 2017. Also, we expect to implement a new accounting information system in the fourth quarter of this year and we will be redesigning our close process upon implementation of this new system. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively.
Changes in Internal Control over Financial Reporting Other than as described above, thereThere were no changes in our internal controlcontrols over financial reporting identified in connection with the evaluation of such internal controlcontrols that occurred during the three months ended September 30, 2017March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols over financial reporting.
PART II — OTHE ROTHER INFORMATIONItem 1. Legal Proceedings We are not currently a party to any material legal proceedings. Item 1A. Risk Factors In additionThere have been no material changes to the other information set forth in this report and the risk factors discussed in Part I, Item 1A. “Risk Factors”described in our Annual Report on Form 10-K for the year ended December 31, 2016, you should carefully consider the “Risk Factors” discussed in Exhibit 99.3 to our Current Report on Form 8-K, as2020, filed with the Securities and Exchange Commission, or SEC, on May 23, 2017, which could materially affect our business, financial condition or resultsFebruary 25, 2021.
Item 6. Exhibits | | | | | | | | | | | Exhibit No. |
| Description |
| Filed
Herewith |
| Incorporated
by
Reference
Herein from
Form or
Schedule |
| Filing
Date |
| SEC File/
Req. Number | | | | | | | | | | | | 3.1.1
| | Restated Certificate of Incorporation of the Registrant, as amended.
| | | | S-3
(Exhibit 4.1.1)
| | 10/13/17
| | 333-220958
| | | | | | | | | | | | 3.1.210.1*
| | Certificate of Designation of Series A Convertible Preferred Stock of the Registrant, filed with the Secretary of State of the State of Delaware on May 17, 2011.Nonemployee Director Compensation Policy.
| | X | | 8-K
(Exhibit 4.6)
| | 5/19/2011
| | 001-33451
| | | | | | | | | | | | 10.2* | | Sales Agreement, dated February 25, 2021 by and between the Registrant and Cowen and Company, LLC. | | | | 8-K (Exhibit 10.1) | | 2/25/2021 | | 001-33451 | 3.1.3
| | Certificate of Designation of Series B Convertible Preferred Stock of the Registrant, filed with the Secretary of State of the State of Delaware on June 26, 2012.
| | | | 8-K
(Exhibit 4.8)
| | 6/27/2012
| | 001-33451
| 31.1 | | | | | | | | | | | | | | | | | | | | | | 10.1
| | Albireo Pharma, Inc. 2017 Inducement Equity Incentive Plan
| | X
| | | | | | | | | | | | | | | | | | 31.1
| | Certification of the Registrant’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | X | | | | | | | | | | | | | | | | | | 31.2 | | Certification of the Registrant’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | X | | | | | | | | | | | | | | | | | | 32.1 | | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | X | | | | | | | | | | | | | | | | | | 101 | | The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,March 31, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (unaudited) at September 30, 2017March 31, 2021 and December 31, 2016,2020, (ii) Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2017March 31, 2021 and 2016,2020, (iii) Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2017March 31, 2021 and 2016,2020, (iv) Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the three months ended March 31, 2021 and 2020, (v) Condensed Consolidated Statements of Cash Flows (unaudited) for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, and (v)(vi) Notes to Condensed Consolidated Financial Statements (unaudited). | | X | | | | | | | | | | | | | | | | | | 104 | | Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101). | | X | | | | | | |
* Management contract or compensatory plan or arrangement. SIGNATURESSIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | | ALBIREO PHARMA, INC. | | | | | Dated: November 14, 2017May 6, 2021 | By: | | /s/ Ronald H.W. Cooper | | | | Ronald H.W. Cooper | | | | President and Chief Executive Officer |
|