UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number 001-33451
Albireo Pharma, Inc.
(Exact name of registrant as specified in its charter)
s | | |
Delaware |
| 90-0136863 |
| | |
10 Post Office Square, Suite (Address of principal executive offices) | | 02109 |
Registrant’s telephone number, including area code: (857) (857) 254-5555
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | ALBO | The Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | |
Large accelerated filer | ☐ | Accelerated filer |
| ☐ |
Non-accelerated filer |
|
| Smaller reporting company | ☒ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of November 1, 2017, the registrant had 8,899,451 October 28, 2021, there were 19,278,634shares of common stock,Common Stock, $0.01 par value per share, outstanding.
Albireo Pharma, Inc.
| | |
|
| Page |
| | |
| | |
| | |
| | |
| ||
|
| |
| | |
|
| |
| | |
|
| |
| | |
|
| |
| | |
| 9 | |
| | |
|
| |
| | |
Notes to Condensed Consolidated Financial Statements | |
|
| | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
|
| | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
|
| | |
|
| |
| | |
| | |
| | |
| 40 | |
| | |
|
| |
|
| |
| ||
|
| |
| | |
| 42 | |
| | |
| ||
| 43 |
All brand names, trademarks or service marks appearing in this quarterly report are the property of their respective owners. The registrant’s use or display of another party’s trademark, service mark, trade dress or product in this quarterly report is not intended to, and does not, imply a relationship with, or endorsement or sponsorship of, the registrant by such other party.
2
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTSThis quarterly report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, that relate to future events or to our future operationsoperating or financial performance. Any forward-looking statement involves known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statement. Forward-looking statements include statements, other than statements of historical fact, about, among other things:
| ● | our commercialization plans and expectations for commercializing Bylvay globally; |
| ● | the progress, number, scope, cost, duration or results of our development activities, nonclinical studies and clinical trials of Bylvay™ (odevixibat), elobixibat, A3907, A2342 or any of our other product candidates or programs, such as the target indication(s) for development or approval, the size, design, population, conduct, cost, objective or endpoints of any clinical trial, or the timing for initiation or completion of or availability of results from any clinical trial (including BOLD, our pivotal clinical trial of Bylvay in patients with biliary atresia or ASSERT, our pivotal trial of Bylvay in Alagille syndrome, or ALGS) for submission, review or approval of any regulatory filing, or for meeting with regulatory authorities; |
the progress, scope, cost, duration or results of our development activities, nonclinical studies and clinical trials of A4250, elobixibat, A3384 or any of our other product candidates or programs, such as the target indication(s) for development or approval, the size, design, population, conduct, cost, objective or endpoints of any clinical trial, or the timing for initiation or completion of or availability of results from any clinical trial (including our planned Phase 3 clinical trial of A4250 in patients with progressive familial intrahepatic cholestasis, or PFIC), for submission or approval of any regulatory filing (including for approval of a new drug application in Japan for elobixibat), or for meeting with regulatory authorities;
| ● | the potential benefits that may be derived from any of our product candidates; |
| ● | the timing of and our ability to obtain and maintain regulatory approval of our existing product candidates, any product candidates that we may develop, and any related restrictions, limitations, or warnings in the label of any approved product candidates; |
| ● | any payment that EA Pharma Co., Ltd., or EA Pharma, may make to us or any other action or decision that EA Pharma may make concerning elobixibat or our business relationship; |
| ● | the potential impacts of the COVID-19 pandemic on our business operations or financial condition; |
| ● | our future operations, financial position, revenues, costs, expenses, uses of cash, capital requirements, our need for additional financing or the period for which our existing cash resources will be sufficient to meet our operating requirements; or |
| ● | our strategies, prospects, plans, expectations, forecasts or objectives. |
the potential benefits that may be derived from any of our product candidates;
the timing of and our ability to obtain and maintain regulatory approval of our existing product candidates, any product candidates that we may develop, and any related restrictions, limitations, or warnings in the label of any approved product candidates;
any payment that EA Pharma Co., Ltd. (EA Pharma) may make to us or any other action or decision that EA Pharma may make concerning elobixibat or our business relationship;
our future operations, financial position, revenues, costs, expenses, uses of cash, capital requirements, our need for additional financing or the period for which our existing cash resources will be sufficient to meet our operating requirements; and
our strategies, prospects, plans, expectations or objectives.
Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “targets,” “likely,” “will,” “would,” “could,” “should,” “continue,” “scheduled” and similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on our estimates or projections of the future that are subject to known and unknown risks and uncertainties and other important factors that may cause our actual results, level of activity, performance, experience or achievements to differ materially from those expressed or implied by any forward-looking statement. Actual results, level of activity, performance, experience or achievements may differ materially from those expressed or implied by any forward-looking statement to differ. These risks, uncertainties and otheras a result of various important factors, include, among other things,including our critical accounting policies and:and risks and uncertainties relating, among other things, to:
| ● | the design, size, duration and endpoints for, and results from BOLD, our pivotal trial of Bylvay in biliary atresia, and ASSERT our pivotal trial of Bylvay in ALGS, or any other trials that will be required to obtain marketing approval for Bylvay to treat patients with Biliary atresia, ALGS or any other pediatric cholestatic liver disease or for A3907 and A2342 as potential treatments for adult liver and viral diseases; |
the design, size, duration and endpoints for, and results from, our planned Phase 3 clinical trials of A4250 in patients with PFIC, or that will be required to obtain marketing approval for A4250 to treat patients with PFIC or any other pediatric cholestatic liver disease or for A3384 to treat bile acid malabsorption, or BAM;
whether favorable findings from clinical trials of A4250 to date, including findings in indications other than PFIC, will be predictive of results from future clinical trials, including the trials comprising our planned Phase 3 PFIC program for A4250;
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
| ● | the outcome and interpretation by regulatory authorities of an ongoing third-party study pooling and analyzing long-term PFIC patient data; |
| ● | the timing for |
| ● | 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; |
| ● | 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 treatment for PFIC and potentially 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 |
| ● | 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 |
| ● | 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; |
4
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;Table of Contents
| ● | 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 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 A4250, elobixibat, A3384 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 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
Albireo Pharma, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
| | | | | | |
|
| September 30, |
| December 31, | ||
| | 2021 | | 2020 | ||
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 262,612 | | $ | 251,272 |
Accounts receivable, net | | | 1,307 | | | — |
Inventory | | | 196 | | | — |
Prepaid expenses and other current assets | |
| 7,779 | |
| 10,593 |
Total current assets | |
| 271,894 | |
| 261,865 |
Property and equipment, net | | | 775 | | | 478 |
Goodwill | |
| 17,260 | |
| 17,260 |
Other assets | |
| 6,516 | |
| 6,004 |
Total assets | | $ | 296,445 | | $ | 285,607 |
Liabilities and Stockholders' Equity | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 7,222 | | $ | 5,283 |
Accrued expenses | |
| 20,884 | |
| 19,051 |
Other current liabilities | |
| 5,043 | |
| 948 |
Total current liabilities | |
| 33,149 | |
| 25,282 |
Liability related to sale of future royalties | | | 68,513 | | | 65,894 |
Note payable, net of discount | | | 9,929 | | | 9,621 |
Other long-term liabilities | | | 3,138 | | | 3,579 |
Total liabilities | |
| 114,729 | |
| 104,376 |
Stockholders’ Equity: | | | | | | |
Preferred stock, $0.01 par value per share — 50,000,000 shares authorized at September 30, 2021 and December 31, 2020; 0 and 0 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | | | — | | | — |
Common stock, $0.01 par value per share — 60,000,000 and 30,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; 19,283,269 and 19,275,509 shares issued and outstanding at September 30, 2021, respectively, and 19,107,040 shares issued and outstanding at December 31, 2020 | |
| 193 | |
| 191 |
Additional paid-in capital | |
| 472,363 | |
| 456,472 |
Accumulated other comprehensive loss | |
| (722) | |
| (8,612) |
Accumulated deficit | |
| (289,888) | |
| (266,820) |
Treasury stock at cost, 7,760 shares and 0 shares at September 30, 2021 and December 31, 2020, respectively | | | (230) | | | — |
Total stockholders’ equity | |
| 181,716 | |
| 181,231 |
Total liabilities and stockholders’ equity | | $ | 296,445 | | $ | 285,607 |
See accompanying notes to Condensed Consolidated Financial Statements.
6
Albireo Pharma, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | | | |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Revenue: | | | | | | | | | | | | | |
Product revenue, net | | $ | 1,060 | | $ | — | | $ | 1,060 | | $ | — | |
Royalty revenue | | | 2,604 | | | 2,131 | | | 6,998 | | | 5,592 | |
Total revenue | | | 3,664 | | | 2,131 | | | 8,058 | | | 5,592 | |
Cost of product revenue | | | 431 | | | — | | | 431 | | | — | |
Gross profit | | | 3,233 | | | 2,131 | | | 7,627 | | | 5,592 | |
Operating expenses: | | | | | | | | | | | | | |
Research and development | |
| 21,083 | |
| 22,200 | |
| 61,920 | |
| 56,727 | |
Selling, general and administrative | |
| 17,612 | |
| 11,663 | |
| 49,825 | |
| 28,290 | |
Other operating expense (income), net | |
| 3,719 | |
| (4,628) | |
| 7,873 | |
| (4,556) | |
Total operating expenses | |
| 42,414 | |
| 29,235 | |
| 119,618 | |
| 80,461 | |
Operating loss | |
| (39,181) | |
| (27,104) | |
| (111,991) | |
| (74,869) | |
Other income (loss): | | | | | | | | | | | | | |
Gain from sale of priority review voucher, net of transaction costs | | | 103,387 | | | — | | | 103,387 | | | — | |
Interest expense, net | |
| (3,331) | |
| (3,639) | |
| (10,675) | |
| (7,965) | |
Net income (loss) before income taxes | |
| 60,875 | |
| (30,743) | |
| (19,279) | |
| (82,834) | |
Provision for income taxes | |
| 3,789 | |
| — | |
| 3,789 | |
| — | |
Net income (loss) | | $ | 57,086 | | $ | (30,743) | | $ | (23,068) | | $ | (82,834) | |
Net income (loss) per share attributable to holders of common stock: | | | | | | | | | | | | | |
Basic | | $ | 2.96 | | $ | (1.96) | | $ | (1.20) | | $ | (5.54) | |
Diluted | | $ | 2.90 | | $ | (1.96) | | $ | (1.20) | | $ | (5.54) | |
Weighted-average common shares outstanding: | | | | | | | | | | | | | |
Basic | |
| 19,258,905 | |
| 15,704,293 | |
| 19,197,536 | |
| 14,942,213 | |
Diluted | | | 19,651,243 | | | 15,704,293 | | | 19,197,536 | | | 14,942,213 | |
|
| 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
7
Albireo Pharma, Inc.
Condensed Consolidated Statements of OperationsComprehensive Income (Loss)
(in thousands, except share and per share data)thousands)
(unaudited)
| | | | | | | | | | | | | |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Net income (loss) | | $ | 57,086 | | $ | (30,743) | | $ | (23,068) | | $ | (82,834) | |
Other comprehensive income (loss): | | | | | | | | | | | | | |
Foreign currency translation adjustment | |
| 3,657 | |
| (4,031) | |
| 7,890 | |
| (4,309) | |
Total other comprehensive income (loss) | |
| 3,657 | |
| (4,031) | |
| 7,890 | |
| (4,309) | |
Total comprehensive income (loss) | | $ | 60,743 | | $ | (34,774) | | $ | (15,178) | | $ | (87,143) | |
|
| 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
8
Albireo Pharma, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | | | | | | | ||
|
| |
| | |
| Additional |
| Other |
| | | | | Treasury Stock |
| Total | ||||||
| | Common Stock | | Paid-In | | Comprehensive | | Accumulated | | | At Cost | | Stockholders’ | ||||||||||
|
| Shares |
| Amount |
| Capital |
| Income (loss) |
| Deficit | |
| Shares |
| Amount |
| 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 |
Stock-based compensation expense | | — | |
| — | |
| 3,504 | |
| — | | | — | | | — | | | — | | | 3,504 |
Exercise of options and vesting of RSUs | | 47,490 | |
| — | |
| 1,224 | |
| — | | | — | | | — | | | — | | | 1,224 |
Other comprehensive loss | | — | |
| — | |
| — | |
| (2,721) | | | — | | | — | | | — | | | (2,721) |
Net loss | | — | |
| — | |
| — | |
| — | | | (36,421) | | | — | | | — | | | (36,421) |
Balance--June 30, 2021 | | 19,240,295 | | $ | 192 | | $ | 464,665 | | $ | (4,379) | | $ | (346,974) | | | — | | $ | — | | $ | 113,504 |
Stock-based compensation expense | | — | | | — | | | 6,706 | | | — | | | — | | | — | | | — | | | 6,706 |
Exercise of options and vesting of RSUs | | 35,466 | | | 1 | | | 751 | | | — | | | — | | | — | | | — | | | 752 |
Issuance of common stock under the at-the-market sales agreement, net of costs | | 7,508 | | | — | | | 241 | | | — | | | — | | | — | | | — | | | 241 |
Other comprehensive income | | — | | | — | | | — | | | 3,657 | | | — | | | — | | | — | | | 3,657 |
Purchases of treasury stock, at cost | | — | | | — | | | — | | | — | | | — | | | (7,760) | | | (230) | | | (230) |
Net income | | — | | | — | | | — | | | — | | | 57,086 | | | — | | | — | | | 57,086 |
Balance--September 30, 2021 | | 19,283,269 | | $ | 193 | | $ | 472,363 | | $ | (722) | | $ | (289,888) | | | (7,760) | | $ | (230) | | $ | 181,716 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | 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 | | | | | | |
Stock-based compensation expense | | — | |
| — | |
| 2,603 | |
| — | | | — | | | 2,603 | | | | | | |
Exercise of options and vesting of RSUs | | 11,166 | |
| — | |
| 138 | |
| — | | | — | | | 138 | | | | | | |
Issuance of warrants | | — | |
| — | |
| 113 | |
| — | | | — | | | 113 | | | | | | |
Other comprehensive loss | | — | | | — | | | — | | | (6,565) | | | — | | | (6,565) | | | | | | |
Net loss | | — | |
| — | |
| — | |
| — | | | (20,603) | | | (20,603) | | | | | | |
Balance--June 30, 2020 | | 14,989,021 | | $ | 149 | | $ | 294,075 | | $ | 6,174 | | $ | (211,278) | | $ | 89,120 | | | | | | |
Stock-based compensation expense | | — | | | — | | | 5,089 | | | — | | | — | | | 5,089 | | | | | | |
Exercise of options and vesting of RSUs | | 84,477 | | | 1 | | | 1,924 | | | — | | | — | | | 1,925 | | | | | | |
Issuance of common stock, net of costs | | 4,000,000 | | | 40 | | | 150,360 | | | — | | | — | | | 150,400 | | | | | | |
Other comprehensive loss | | — | | | — | | | — | | | (4,031) | | | — | | | (4,031) | | | | | | |
Net loss | | — | | | — | | | — | | | — | | | (30,743) | | | (30,743) | | | | | | |
Balance--September 30, 2020 | | 19,073,498 | | $ | 190 | | $ | 451,448 | | $ | 2,143 | | $ | (242,021) | | $ | 211,760 | | | | | | |
(in thousands)
(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.
79
Albireo Pharma, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | | | | | |
| | Nine Months Ended September 30, | ||||
|
| 2021 |
| 2020 | ||
Cash flows from operating activities: | | | | | | |
Net loss | | $ | (23,068) | | $ | (82,834) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| |
|
| |
Gain from sale of priority review voucher, net of transaction costs | | | (103,387) | | | — |
Accretion of liability related to sale of future royalties | |
| 9,428 |
|
| 7,670 |
Accretion of debt discount and amortization of issuance costs | |
| 308 |
|
| 135 |
Depreciation and amortization | |
| 167 |
|
| 119 |
Share based compensation expense | |
| 13,272 |
|
| 10,073 |
Foreign currency adjustments | | | 7,776 | | | (3,968) |
Changes in operating assets and liabilities: | |
| |
|
| |
Accounts receivable, net | | | (1,307) | | | — |
Inventory | | | (196) | | | — |
Prepaid expenses and other current assets | |
| 2,765 |
|
| 1,770 |
Other assets | |
| 293 |
|
| 425 |
Accounts payable | |
| 2,023 |
|
| (1,221) |
Accrued expenses | |
| 2,068 |
|
| (3,213) |
Other current and long-term liabilities | |
| (3,810) |
|
| (1,790) |
Net cash used in operating activities | |
| (93,668) |
|
| (72,834) |
Cash flows from investing activities: | |
| |
|
| |
Purchase of property and equipment | |
| (465) |
|
| (78) |
Proceeds from sale of priority review voucher, net of transaction costs | | | 103,387 | | | — |
Net cash provided by (used in) investing activities | |
| 102,922 |
|
| (78) |
Cash flows from financing activities: | |
| |
|
| |
Proceeds from issuance of note payable, net of issuance costs | |
| — |
|
| 9,521 |
Proceeds from issuance of common stock, net of issuance costs | |
| 241 |
|
| 193,399 |
Proceeds from royalty agreement, net of issuance costs | | | — | | | 14,750 |
Proceeds from exercise of options | | | 2,378 | | | 2,156 |
Payments related to repurchases of common stock | |
| (230) |
|
| — |
Net cash provided by financing activities | |
| 2,389 |
|
| 219,826 |
Effect of exchange rate changes on cash and cash equivalents | |
| (303) |
|
| (66) |
Net increase in cash and cash equivalents | |
| 11,340 |
|
| 146,848 |
Cash and cash equivalents—beginning of period | |
| 251,272 |
|
| 131,843 |
Cash and cash equivalents—end of period | | $ | 262,612 | | $ | 278,691 |
Supplemental disclosures of cash and non-cash activities | |
|
|
|
|
|
Warrants issued with long-term debt | | $ | — | | $ | 113 |
Deferred issuance costs included in accrued expenses | | $ | — |
| $ | 34 |
|
| 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
10
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-stagecommercial-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 clinicalproduct pipeline includes oneBylvay (odevixibat) approved in the US and Europe, elobixibat, approved in Japan for the treatment of chronic constipation, a Phase 3 product candidate, one Phase 21 product candidate and a third product candidate for which an application for regulatory approval has been filed in Japan. A4250,multiple preclinical candidates. Bylvay (odevixibat) was approved by the Company’s lead product candidate, is in development initiallyU.S. Food and Drug Administration on July 20, 2021 for the treatment of pruritis in patients with progressive familial intrahepatic cholestasis (PFIC) ages 3 months or older, and authorized by the European Medicines Agency on July 16, 2021 for the treatment of PFIC in patients 6 months or older. Bylvay was also granted marketing authorization by the UK Medicines and Healthcare Products Regulatory Agency (MHRA) in September 2021 for the treatment of PFIC in patients 6 months or older. Bylvay is also in Phase 3 development for the treatment of 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, 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, upfront and completed a share exchange transaction with Albireo Limited, a limited company domiciled in London, United Kingdom, in accordance withmilestone payments for regional agreements, proceeds from the termsissuance of an Amended and Restated Share Exchange Agreement, dated as of July 13, 2016, by and among Biodel, Albireo Limiteddebt, and the shareholders and noteholderssale of Albireo Limited (the Share Exchange Agreement)a Priority Review Voucher (PRV). Pursuant toAs of September 30, 2021, the Share Exchange Agreement, each holderCompany has raised an aggregate of shares or notes convertible into shares$356.9 million through the issuance of Albireo Limited received newly issued shares of Biodel common stock, net of issuance costs, $59.3 million from the sale of its future royalties, $9.5 million through the Loan and Albireo Limited became a wholly owned subsidiarySecurity Agreement, net of Biodel (the Transaction). Following completionissuance costs, and net proceeds of $103.4 million, after deducting commission costs, from the sale of the Transaction,PRV.
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 businessforeseeable future. In addition, the Company anticipates that its expenses will increase significantly in connection with ongoing activities to support the launch of Albireo Limited becameBylvay for PFIC and the businessadvancement of ParentBylvay in its later stage clinical trials and Parent changedproviding administrative support.
As a result, the Company will need substantial additional funding to support its namecontinued operations and growth strategy. Until such a time as the Company can generate significant revenue from product sales, if ever, the Company expects to Albireo Pharma, Inc.finance its operations through the sale of equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may be unable to raise additional funds or enter into such 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 one or more of its product candidates or delay its pursuit of potential in-licenses or acquisitions.
For accounting purposes,
As of September 30, 2021, the Transaction was treated asCompany had cash and cash equivalents of $262.6 million. Management believes that its cash and cash equivalent resources at September 30, 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.
11
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 “reverse acquisition”continuing basis, then it may be unable to continue its operations at planned levels and Albireo Limited was considered the accounting acquirer. Accordingly, with respectbe forced to periods prior to completion of the Transaction, the accompanying Condensed Consolidated Financial Statements reflect the historical results of Albireo Limited andreduce 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.operations.
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’sthe Company’s 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, 20172021 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.
9
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, |
12
b. | income and expenses for each statement of comprehensive |
c. | significant transactions use the closing exchange rate on the date of the |
|
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 and revenue deductions related to rebates, chargebacks and other discounts, 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.
ResearchRevenue recognition
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services in accordance with ASC 606 Revenue from Contracts with Customers. To determine revenue recognition for contracts with its customers, the Company performs the following five step assessment: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and development expenses(v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines which goods and services are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
ResearchProduct Revenue, net
The Company recognizes revenue on sales of Bylvay when a customer obtains control of the product, which occurs at a point in time and development costsupon delivery. The Company sells Bylvay to a limited number of specialty pharmacies and a specialty distributor which dispense the product directly to patients. The specialty pharmacies and specialty distributor are expensedreferred to as incurredthe Company’s customers. The Company also sells Bylvay to its customers in the European Union, which includes a limited number of pharmacies.
The Company provides the right of return to its customers for unopened product for a limited time before and after its expiration date. We currently estimate product returns using available industry data as well as the Company’s visibility into the inventory remaining in the distribution channel.
The Company has written contracts with each of its customers that have a single performance obligation to deliver products upon receipt of a customer order and these obligations are satisfied when delivery occurs and the customer receives Bylvay. The Company evaluates creditworthiness of each of its customers to determine whether collection is reasonably assured. The wholesale acquisition cost that the Company charges its customers for Bylvay is adjusted to arrive at our estimated net product revenues by deducting components of variable consideration which include primarily salaries, benefits(i) estimated government rebates and discounts related to Medicaid and other staff-related costs; clinical trialgovernment programs, (ii) estimated costs of incentives offered to certain indirect customers including patients, and related clinical manufacturing costs; contract services(iii) trade allowances, such as invoice discounts for prompt payment and customer fees. Product revenue, net in the U.S. was $0.8 million and $0.3 million in Europe for
13
the three months and nine months ended September 30, 2021. There was 0 product revenue for the three and nine months ended September 30, 2020.
Rebates and Discounts
The Company contracts with the Centers for Medicare & Medicaid Services and other outside costs.
The Company’s nonclinical studiesgovernment agencies in the U.S. to make Bylvay available to eligible patients. As a result, the Company estimates any rebates and clinical trialsdiscounts and deducts these estimated amounts from its gross product revenues at the time the revenues 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.recognized. The Company’s estimates of rebates and discounts are highly dependent uponbased on the timelinessgovernment mandated discounts, which are statutorily-defined and accuracyapplicable to these government funded programs and assumptions developed using historical experience with actual payments and redemptions. The Company recorded $0.1 million and $0.0 million in such estimates as of September 30, 2021 and December 31, 2020, respectively, in accounts receivable, net of allowance for credit losses and other liabilities on the dataconsolidated balance sheets.
The Company contracts with national authorities in Europe to make Bylvay available to eligible patients. In jurisdictions in which final pricing is subject to ongoing negotiations with the government, the Company estimates the rebate expected to be due and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. The Company’s estimates of such liabilities are based on current invoice pricing and total prior units sold and assumptions developed using benchmarks of Bylvay pricing approved in other relevant European jurisdictions. The Company recorded less than $0.1 million and $0.0 million in such estimates as of September 30, 2021 and December 31, 2020, respectively, in other liabilities on the consolidated balance sheets.
Other Incentives
Other incentives that the Company offers to indirect customers include co-pay assistance cards provided by the respective CROs regarding the statusCompany for patients who reside in states that permit co-pay assistance programs. The Company’s co-pay assistance program is intended to reduce each participating patient’s portion of the contracted activity, with adjustments madefinancial responsibility for Bylvay’s purchase price to a specified dollar amount. The Company estimates the amount of co-pay assistance provided to eligible patients based on the terms of the program when deemed necessary.product is dispensed by the specialty pharmacies to the patients. These estimates are based on redemption information provided by third-party claims processing organizations. The Company funds this incentive program through upfront payments which included a $0.1 million dollar payment in the quarter ended September 30, 2021. The Company recorded less than $0.1 million and $0.0 million in such estimates as of September 30, 2021 and December 31, 2020, respectively, in prepaid expenses and other current assets on the consolidated balance sheets.
Revenue recognition
RevenueTrade Allowances
The Company provides invoice discounts on Bylvay sales its customers for prompt payment and records these discounts as a reduction to gross product revenues. These discounts are based on contractual terms. The company also pays fees to its distributors for their services as well as data that they provide to the Company. Trade allowances are recorded in accounts receivable, net of allowance for credit losses on the consolidated balance sheets and were $0.1 million.
Trade Receivables, net
Accounts receivable, net related to product sales are recorded in accounts receivable, net of allowance for credit losses on the consolidated balance sheets were approximately $1.3 million and $0 million as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021 and December 31, 2020, we had 0 allowance for doubtful accounts. An allowance for doubtful accounts is generated fromdetermined based on the receiptcompany’s assessment of upfront or license fees,the credit worthiness and financial condition of our customers, aging of receivables, as well as the general economic environment. Any allowance would reduce the net receivables to the amount that is expected to be collected.
14
Milestone Payments
At the inception of 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 delivery of technical expertise and intellectual property rights to EA Pharma.Agreement.
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 asAs 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
11
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,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 saleFuture 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 elobixibat,$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
15
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 nine-month period ended September 30, 2021:
| | | |
|
| September 30, 2021 | |
|
| (in thousands) | |
Liability related to sale of future royalties—beginning balance |
| $ | 68,594 |
Accretion of interest expense on liability related to royalty monetization | | | 9,428 |
Repayment of the liability | | | (6,956) |
Liability related to sale of future royalties—ending balance |
| $ | 71,066 |
Less current portion classified within accrued expenses | | | (2,553) |
Long-term liability related to sale of future royalties |
| $ | 68,513 |
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 September 30, 2021, the Company’s estimate of its total interest expense resulted in an annual effective interest rate of approximately 18.7%.
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.
Inventory
The Company commenced capitalizing inventory for Bylvay upon FDA approval on July 20, 2021. All commercial manufacturing expenses were expensed as research and development expenses prior to FDA approval. Manufacturing of the Company’s active pharmaceutical ingredient (API) and drug product occurred prior to FDA approval. As a result, manufacturing costs, which totaled approximately $1.6 million, were not capitalized, and instead were expensed as research and development expenses from 2020 to 2021.All packaging of the Company’s drug product occurred after FDA approval and is included as capitalized inventory within Finished goods.
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
16
2. Fair Value of financial instruments
Loss contingencies are recorded as liabilities when it is probable that a liability has occurred and the amount of loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that an ultimate loss will be material. Contingent liabilities are often resolved over long periods of time. Estimating probable losses requires analysis that often depends on judgments about potential actions by third parties, such as regulators.
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.
12
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(in thousands):
| | | | | | | | | |
| | September 30, 2021 | |||||||
| | Level 1 | | Level 2 | | Level 3 | |||
Cash Equivalents: |
| | | | | | | | |
Money market funds | | $ | 256,451 | | $ | — | | $ | — |
Total | | $ | 256,451 | | $ | — | | $ | — |
| | | | | | | | | |
| | 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 cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses, other current liabilities, and note payable. The carrying amounts of cash equivalents, prepaid expenses and other current liabilities, accounts payable, accrued expenses, and other current liabilities approximate their estimated fair value due to their short-term maturities. At September 30, 2021, the Transaction,Company believes the Warrants were replaced with warrants to purchase 67,271 sharescarrying value of the Company’s common stock at an exercise price of $11.78 per share (the Replacement Kreos Warrants). The exchange was accounted for as a modification whereby the fair value of
13
the Replacement Kreos Warrants was compared toLoan and Security Agreement with Hercules Capital, Inc., 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, 2017,2021, 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$11.8 million to CROs upon the completion of contracted work.
Other Commitments17
4. Net lossincome (loss) per share
Each of basicBasic net lossincome (loss) per share, or Basic EPS, and diluted net loss per share, or Diluted EPS, is calculated by dividing the net lossincome (loss) attributable to holders of common stock by the weighted average number of shares of common stock outstanding. IfWhen the Company wereis in a net loss position, 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. When the Company is 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.
14
The following table sets forth the computation of Basic EPS and Diluted EPSnet income (loss) per share (in thousands, except for share and per share data):
| | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Basic and Diluted net loss per share: | | | | | | | | | | | | | |
Numerator | | | | | | | | | | | | | |
Net income (loss) | | $ | 57,086 |
| $ | (30,743) | | $ | (23,068) |
| $ | (82,834) | |
Denominator | |
| | |
| | |
| | |
| | |
Weighted average number of shares outstanding | | | | | | | | | | | | | |
Number of shares used for basic EPS computation | |
| 19,258,905 | |
| 15,704,293 | |
| 19,197,536 | |
| 14,942,213 | |
Effect of dilutive securities | | | | | | | | | | | | | |
Dilutive options | | | 380,934 | | | — | | | — | | | — | |
Dilutive stock units | | | 11,404 | | | — | | | — | | | — | |
Number of shares used for diluted EPS computation | | | 19,651,243 | | | 15,704,293 | | | 19,197,536 | | | 14,942,213 | |
Basic net income (loss) per share | | $ | 2.96 | | $ | (1.96) | | $ | (1.20) | | $ | (5.54) | |
Diluted net income (loss) per share | | $ | 2.90 |
| $ | (1.96) | | $ | (1.20) |
| $ | (5.54) | |
|
| 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 andFor purposes of a dilutive net loss per share informationcalculation, stock options, RSUs and warrants are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share in the periods where the Company has incurred a net loss, as their effect would be anti-dilutive given the Company’s net loss. Common stock equivalents may also be excluded from the calculation of anddiluted net income per share if the exercise prices exceed the average market price 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.reporting period.
The following outstanding common stock equivalents were excluded from the computation of Diluted EPSnet income (loss) per share for the three and nine months ended September 30, 20172021 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 September 30, | | Nine Months Ended September 30, | | ||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
|
Options to purchase common stock, RSUs and warrants | | 2,779,257 | | 2,403,090 | | 3,171,596 | | 2,403,090 | |
5. Income taxes
The Company did not recordrecorded a tax provision or benefitof $3.8 million for either the three orand nine months ended September 30, 2017 or September 30, 2016.2021, related to the sale of the PRV as it was considered a discrete event pursuant to ASC 740-270, offset by a tax benefit from the Company's ordinary losses. The Company has continuedexpects to have sufficient tax losses in the current year to offset the
18
income from the sale and thus no current year liability is expected. The Company expects 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. for the year.
6. Stock-based CompensationInventory
On November 3, 2016, the Albireo Pharma, 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 completionInventory consists of the Transaction. The 2016 Equity Plan authorized the issuance of up to 635,000 shares, plus up to 249,059 shares issued if awards outstanding under the 2010 Planfollowing:
| | | | | | |
|
| September 30, 2021 |
| December 31, 2020 | ||
Raw materials | | $ | — | | $ | — |
Work-in-process | | | — | | | — |
Finished goods | | | 196 | | | — |
Total inventory | | $ | 196 | | $ | — |
There were cancelled, forfeited or expired on or after the Transaction. All stock options outstanding under the 2010 Plan remain in full force0 write downs for excess and effect pursuant to their terms and the terms of the 2010 Plan. The 2016 Equity Plan is structured to comply with the requirements imposed by Section 162(m) of the Internal Revenue Code 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 to new employees 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 completion of the Transaction, Albireo Limited adopted a share option plan on March 18, 2016, providing 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 classified as a liability on the basis that they were granted in a currency other than the functional currency of the employing entity of the recipients and were subject to revaluation until exercised or forfeited. The options were replaced with options to purchase shares of the Company’s common stock in conjunction with the Transaction. The replacement was accounted for as a modification whereby the fair value of the replacement awards was compared to 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.
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.
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.
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 date 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.
16
The fair value of stock option awards grantedobsolete inventory during the three and nine months ended September 30, 2017 was estimated2021 or 2020 based on the finish goods inventory shelf life of 24 months, and an analysis over the future demand for Bylvay relative to the remaining shelf life of inventory as of September 30, 2021.
7. Note Payable
2020 Loan and Security Agreement
On June 8, 2020, the Company entered into a Loan and Security Agreement 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 |
| $ | — |
|
| $ | — |
|
several banks and other financial institutions or entities from time to time parties to the Loan Facility
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 itself 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 the Company (in particular, Albireo Limited) executed ain an aggregate principal amount of up to $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 agreement, (Loan Facility) with Kreos Capital IV (UK) Limited (Kreos UK)(ii) subject to the achievement of certain initial performance milestones, or Performance 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 2014, at which time15, 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 September 30, 2021, the Company borrowed €6.0an aggregate principal amount of $10.0 million. An aggregate principal amount of up to $20.0 million ($7.3 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 the Lender. 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 makepay an end-of-loan paymentend of term fee (the End of Term Charge) equal to 1.25%6.95% of the amounts lentaggregate 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 Kreos UK. Thepaying the entire principal balance and all accrued and unpaid interest thereon
19
plus a prepayment charge equal to the following percentage of the principal amount being prepaid: 2.0% of the principal amount outstanding asif the prepayment occurs after the first nine months following the Closing Date, but on or prior to 24 months following the Closing 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 Loan and Security Agreement is approximately 13.0%.
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 on2021 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 monthscarrying value of the loan term. Interest expense included $83,000 and $235,000note payable consists of discount accretion forthe following:
| | | |
| | September 30, 2021 | |
| | (in thousands) | |
Note payable, including End of Term Charge | | | 10,695 |
Debt discount, net of accretion | | | (766) |
Note payable net of discount, long-term | | $ | 9,929 |
During 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,2021, the Company shall redeem the principal, accruedrecognized $0.3 million and $1.0 million, respectively, of 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
Albireo AB bank accounts
Albireo AB A4250 patents
17
Elobix AB bank accounts
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 Variationexpense related to the Loan Facility. Underand Security Agreement. During the termsthree and nine months ended September 30, 2020, the Company recognized $0.3 million and $0.4 million, respectively, of interest expense related to the Deed of Variation, the timing ofLoan and Security Agreement.
Estimated future principal payments was changed such that €512,000 ($605,000, based ondue under the Euro to USD exchange rateLoan and Security Agreement, including the contractual End of Term Charge, are as follows as of September 30, 2017)2021:
| | | |
| | Note Principal Payments | |
| | | (in thousands) |
Remainder of 2021 | | $ | — |
2022 | | | — |
2023 | | | 5,254 |
2024 | | | 5,441 |
As of September 30, 2021, based on Level 3 inputs and the borrowing rates available to the Company for loans with similar terms and consideration of the payments was deferred to become payable atCompany’s credit risk, the endcarrying value of the loan term. The total principal due underCompany’s variable interest rate debt, excluding unamortized debt issuance costs, approximated fair value.
Warrants
Under the Loan Facility remained unchanged.and Security Agreement, the Company agreed to issue to Hercules warrants (the Warrants) to purchase a number of shares of common stock equal to 1% of the aggregate amount of the Term Loans that are funded, as such amounts are funded. On the Closing Date, the Company issued a Warrant 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, there were no changesthe Company has granted to the maturityholders 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 orof the stated interest rate. issuance of each Warrant for purposes of registering the shares of common stock issuable upon
20
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 amendmentWarrants as equity instruments since they were indexed to the Loan Facility prospectivelyCompany’s common stock and met the criteria for classification in accordance with ASC 470-50, Modifications and Extinguishments, as there were no concessions grantedstockholders’ equity. The relative fair value of the Warrants related to the Company byfirst tranche funding was approximately $0.1 million, and was treated as a discount to 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 andTerm Loans. This amount is being amortized to interest expense using the effective interest rate calculation was updated, resulting in an effective interest ratemethod over the life of 39.3%.
8. Derivatives
the Term Loans. The following disclosures summarizeCompany estimated the fair value of derivative instruments not designated as hedging instruments in the Condensed Consolidated Balance Sheet as of September 30, 2017 andWarrants using the effects of changes in fair value related to those derivative instruments on the Condensed Consolidated Statements of Operations (in thousands):Black-Scholes option-pricing model.
|
|
|
| |||||||
|
|
|
| |||||||
Effect of Derivative Instruments Not |
| Location of Gains |
| Nine Months Ended September 30, |
| |||||
| (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.
9.8. Equity Financings
May 20172020 Underwritten Public OfferingOfferings
On May 30, 2017, Parent In February 2020, the Company completed an underwritten public offering of 2,530,0002,190,750 shares of its common stock which includedunder a universal shelf registration statement for net proceeds of approximately $43.0 million, after deducting underwriting discounts and commissions and offering expenses.
On September 9, 2020, the full exerciseCompany completed an underwritten public offering of the underwriter's option to purchase 330,0004,000,000 shares to cover overallotments, at a price to the public of $20.50 per share. Parentits common stock. The Company received net proceeds from this offering of $48.5approximately $150.4 million, after deducting underwriting discounts and, commissions andbut before deducting offering expenses.
2021 At-the-Market Offering Program Sales Agreement
18
On October 13, 2017, ParentFebruary 25, 2021, the Company entered into a new sales agreement, with Cowen and Company, LLC (Cowen)(the 2021 Sales Agreement) with respect to an at-the-market offering program under which Parentthe Company may offer and sell, from time to time at itsthe Company’s sole discretion, up to $50 million in shares 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 underhaving an aggregate offering price of up to $100 million. Subsequently in July 2021, the agreement.Company sold 7,508 shares of common stock for net proceeds of approximately $0.2 million pursuant to the 2021 Sales Agreement.
9. Stock-based Compensation
For the nine months ended September 30, 2021, the Company granted 824,450 options at a weighted average exercise price per share of $34.82. For the nine months ended September 30, 2021, the Company granted 187,450 RSUs.
The Company recorded the following stock-based compensation expense:
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
| | 2021 |
| 2020 | | 2021 |
| 2020 | ||||
| | (in thousands) | ||||||||||
Employee awards: | | | | | | | | | | | | |
Research and development expense | | $ | 2,817 | | $ | 2,044 | | $ | 5,330 | | $ | 3,966 |
General and administrative expense | | | 3,889 | | | 3,045 | | | 7,942 | | | 6,107 |
Total stock-based compensation expense | | $ | 6,706 | | $ | 5,089 | | $ | 13,272 | | $ | 10,073 |
21
10. Gain from Sale of Priority Review Voucher, net of transaction costs
On October 26, 2017, ParentAugust 31, 2021, the Company entered into an asset purchasea definitive agreement pursuant to sell the rare pediatric disease PRV that it received from the FDA in connection with the approval of the Company’s product Bylvay (odevixibat), for cash proceeds of $105.0 million. On September 28, 2021, the Company completed its sale of the PRV and received net proceeds of $103.4 million, after deducting commission costs, which it sold legacy intellectual propertywas recorded as a gain from sale of its predecessor, Biodel, for $4.5 million.priority review voucher, net of transaction costs within other income (loss).
1922
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results ofYou 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 wereWe are 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 became acommercial-stage 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. Our product Bylvay has been approved in the United States for the treatment of bile causes serious medical conditions for which there is high unmet need. The initial target indication for our lead product candidate, A4250, ispruritis in patients with progressive familial intrahepatic cholestasis (PFIC) ages 3 months or older, and authorized in Europe for the treatment of PFIC in patients ages 6 months or older. In October 2021, the FDA granted the Company orphan drug exclusivity for Bylvay for the treatment of pruritis in patients ages 3 months or older with PFIC. In July 2021, the EMA granted the Company orphan drug exclusivity for Bylvay for the treatment of patients 6 months or older with PFIC. PFIC is a rare, life-threatening genetic disorder affecting young children and Bylvay is the first approved drug treatment in the disease. 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 currently no approved drug treatment.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 completeddosed 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 and Thailand for the treatment of chronic constipation. We are expanding development to compounds 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 transporter (ASBT) that has, based on animal studies, high predicted oralbioavailability and systemic exposures 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, such as diarrhea, associated with the non-systemic IBAT inhibitors acting locally in the intestine. We initiated a Phase 21 clinical trial, with the first patient dosed in children with chronic cholestasisthe first quarter of 2021, and we planexpect topline results from that trial by year end 2021. If the Phase 1 trial supports continued development, we expect to initiate a Phase 3 clinical2 trial for A3907 in patientsadult liver disease in 2022. A U.S. composition of matter and method of use patent for A3907 was issued with PFIC by the spring of 2018. In addition to PFIC, we plan to consider conducting future clinical development of A4250 as a treatment for other pediatric cholestatic liver diseasesan expiration date between 2039 and disorders. Our clinical-stage product candidates in addition to A4250 include elobixibat, for which our licensee has submitted a new drug application for approval in Japan to treat chronic constipation, and A3384, which is in development to treat bile acid malabsorption.2040, not including patent term extension. We also have a preclinical program in nonalcoholic steatohepatitis, or NASH.
For accounting purposes, the Transaction was treated asadult liver and viral diseases. Our lead preclinical candidate for adult viral and liver diseases is A2342, a “reverse acquisition” and Albireo Limited was considered the accounting acquirer. Accordingly, with respect to periods prior to completionpotent small molecule inhibitor of the Transaction, this discussionsodium-taurocholate co-transporting peptide (NTCP). NTCP is a key transporter of bile acids into the liver cells and analysis reflectsalso serves as the historical resultsentry 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 Albireo Limitedinfection 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. A composition of matter patent for A2342 has been allowed, and its directIND enabling studies are being completed. Preclinical efforts with other bile acid modulator approaches continue.
23
Bylvay — Our Lead Product for PFIC.
Bylvay (odevixibat) was approved by the FDA on July 20, 2021 for the treatment of pruritis in patients ages 3 months or older with PFIC, and indirect subsidiariesauthorized by the European Medicines Agency on July 16, 2021 for the treatment of patients 6 months or older with PFIC. Bylvay was also granted marketing authorization by the MHRA on September 7, 2021 for the treatment of patients 6 months or older with PFIC. We also received a rare pediatric disease priority review voucher (PRV) from the FDA in connection with the U.S. approval of Bylvay. In September 2021, we sold the PRV for $105 million. We further announced in September 2021 that Bylvay became available by prescription to patients in Germany. In July 2021, the EMA granted the Company orphan drug exclusivity for Bylvay for the treatment of patients 6 months or older with PFIC. In October 2021, the FDA granted the Company orphan drug exclusivity for Bylvay for the treatment of pruritis in PFIC patients ages 3 months or older.
The precise prevalence of PFIC is unknown, and doeswe are not includeaware of any patient registries or other method of establishing with precision the historical resultsactual number of Biodel priorpatients with PFIC in any geography. PFIC has been estimated to completionaffect 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 Transaction.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. for Israel, Gen İlaç ve Sağlık Ürünleri Sanayi ve Ticaret A.Ş. for Turkey, Genpharm Services for Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and the UAE, Jadeite Medicines Inc. for Japan, and Swixx Biopharma AG for Central and Eastern European Countries, and we are identifying potential partners for other regions. Bylvay is currently the only approved drug for the treatment of PFIC. Ursodeoxycholic acid, or UDCA, 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.
Biodel was incorporatedOther 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. We continue to enroll patients in the trial and expect topline results 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 Bylvay once daily at 120µg/kg. 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.
24
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 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, 2017,2021, we had an accumulated deficit of $45.3$289.9 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-stagecommercial-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, 2017,2021, we had $57.1approximately $262.6 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.as well as product revenue following our commercial launch of Bylvay detailed below. 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.
25
We commenced our commercial launch of Bylvay for the treatment of pruritus in patients with PFIC ages 3 months or older in the United States in July 2021 after we received FDA approval of Bylvay on July 20, 2021.
We sell Bylvay to a limited number of specialty pharmacies and a specialty distributor which dispense the product directly to patients. The specialty pharmacies and specialty distributor are referred to as our customers. We also sell Bylvay to our customers in the European Union, which includes a limited number of pharmacies.
Product Revenue, Net
We recognize revenue upon delivery of Bylvay to our customers. We provide the right of return to our customers for unopened product for a limited time before and after its expiration date.
Under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), we have written contracts with each of our customers that have a single performance obligation - to deliver products upon receipt of a customer order - and these obligations are satisfied when delivery occurs and the customer receives Bylvay. We evaluate the creditworthiness of each of our customers to determine whether collection is reasonably assured. The wholesale acquisition cost that we charge our customers for Bylvay is adjusted to arrive at our estimated net product revenues by deducting (i) estimated government rebates and discounts related to Medicaid and other government programs, (ii) estimated costs of incentives offered to certain indirect customers including patients, and (iii) trade allowances, such as invoice discounts for prompt payment and customer fees.
We recognized net sales of Bylvay of $1.1 million and $1.1 million for the three and nine months ended September 30, 2021, respectively. No revenue was recognized for the three and nine months ended September 20, 2021.
Royalty Revenue
For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Cost of Product Revenue
Cost of product revenue consists of manufacturing costs for sales of Bylvay. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval on July 20, 2021, certain of the Bylvay costs during the nine months ended September 30, 2021 were expensed prior to July 20, 2021 and, therefore, are not included in costs of sales during the current period. These costs expensed prior to regulatory approval were determined to be immaterial after estimating the cost of sales, with or without such costs, compared to the net sales of Bylvay as a whole. Cost of product revenues for the next 24 months, when pre-approval inventory will be depleted, will reflect a lower average per unit cost of sales. Manufacturing costs, which totaled approximately $1.6 million, were not capitalized, and instead were expensed as research and development expenses from 2020 to 2021.
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.
26
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.
Selling, General and Administrative Expenses
GeneralSelling, 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, selling, general and administrative expenses include fees for third-party professional services, including consulting, information technology, legal and accounting servicesservices. Other selling, general and administrative expenses include allocated overhead, marketing expenses related to the commercial launch of Bylvay, as well as other corporate expensesexpenses.
Other Operating Expense (income), net
Other operating (income) expense, net consists primarily of foreign currency exchange gains or losses associated with revaluation of intercompany loans.
Gain from sale of priority review voucher, net of transaction costs
Gain from sale of priority review voucher, net of transaction costs consists of cash proceeds recorded in connection with the sale of the rare pediatric disease priority review voucher received from the FDA in connection with the approval of the Company’s product Bylvay (odevixibat).
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 and allocated overhead.Thailand in addition to both cash and non-cash interest expense associated with our note payable. In addition, interest expense, net includes interest income associated with our interest-bearing cash and cash equivalents.
Provision for Income Taxes
Provision for income taxes consists of taxes related to the sale of the PRV, offset by a tax benefit from our ordinary losses. We expect to have sufficient tax losses in the current year to offset the income from the sale and thus no current year liability is expected. We expect to maintain a full valuation allowance against its net deferred tax assets for the year.
27
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. Due to the commercialization of Bylvay (odevixibat) the Company implemented accounting policies related to revenue recognition and inventory. See Note 1, “Summary of significant accounting policies and basis of presentation” for more information on revenue recognition and inventory accounting policies. For more information on other critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2020.
21
Three Months Ended September 30, 20172021 and September 30, 20162020
Result of Operations
| | | | | | | | | |
| | Three Months Ended September 30, | | Change | |||||
| | 2021 |
| 2020 |
| $ | |||
| | (in thousands) | |||||||
Revenue | | | | | | | | | |
Product revenue, net | | $ | 1,060 | | $ | — | | $ | 1,060 |
Royalty revenue | | | 2,604 | | | 2,131 | | | 473 |
Total revenue | | | 3,664 | | | 2,131 | | | 1,533 |
Cost of product revenue | | | 431 | | | — | | | 431 |
Gross profit | | | 3,233 | | | 2,131 | | | 1,102 |
Operating Expenses | | | | | | | | | |
Research and development | | | 21,083 | | | 22,200 | | | (1,117) |
Selling, general and administrative | | | 17,612 | | | 11,663 | | | 5,949 |
Other operating expense (income), net | | | 3,719 | | | (4,628) | | | 8,347 |
Total operating expenses | | | 42,414 | | | 29,235 | | | 13,179 |
Operating loss | | | (39,181) | | | (27,104) | | | (12,077) |
Other income (loss) | | | | | | | | | |
Gain from sale of priority review voucher, net of transaction costs | | | 103,387 | | | — | | | 103,387 |
Interest expense, net | | | (3,331) | | | (3,639) | | | 308 |
Net income (loss) before income taxes | | | 60,875 | | | (30,743) | | | 91,618 |
Provision for income taxes | | | 3,789 | | | — | | | 3,789 |
Net income (loss) | | $ | 57,086 | | $ | (30,743) | | $ | 87,829 |
28
Revenue
| | | | | | | | | | |
| | Three Months Ended September 30, | | Change | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
| | (in thousands) | | |||||||
Product revenue, net | | $ | 1,060 | | $ | — | | $ | 1,060 | |
Royalty revenue | | | 2,604 | | | 2,131 | | | 473 | |
Total revenue | | $ | 3,664 | | $ | 2,131 | | $ | 1,533 | |
Product revenue, net was $1.1 million for the three months ended September 30, 2021 due to net revenue recognized upon Bylvay sales. There was no product revenue for the three months ended September 30, 2017 compared with $28,000 for the three months ended September 30, 2016, a decrease of $28,000. 2020.
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 $3.2Royalty revenue was $2.6 million for the three months ended September 30, 20172021 compared with $2.1 million for the three months ended September 30, 2016,2020, an increase of $1.2$0.5 million. The higherincrease relates to estimated royalty revenue to be received from EA Pharma for elobixibat for the treatment of chronic constipation.
Cost of product revenue
| | | | | | | | | |
| | Three Months Ended September 30, | | Change | |||||
|
| 2021 |
| 2020 |
| $ | |||
| | (in thousands) | |||||||
Cost of product revenue | | $ | 431 | | $ | — | | $ | 431 |
Cost of product revenue was $0.4 million for the three months ended September 30, 2021. Following Bylvay approval certain manufacturing and quality headcount costs are now included in cost of product revenue. There were no material costs, as materials related to current product sold, was expensed prior to approval. Bylvay was approved during this quarter, therefore there was no cost of product revenue for the three months ended September 30, 2020.
Research and development expenses
| | | | | | | | | |
| | Three Months Ended September 30, | | Change | |||||
|
| 2021 |
| 2020 |
| $ | |||
| | (in thousands) | |||||||
Research and development expenses | | $ | 21,083 | | $ | 22,200 | | $ | (1,117) |
Research and development expenses were $21.1 million for the three months ended September 30, 2021 compared with $22.2 million for the three months ended September 30, 2020, a decrease of $1.1 million. The decrease in research and development expenses for the 20172021 period werewas principally due to increases of $1.0 million 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 developmentBylvay, elobixibat, and preclinical programs and were offset by the increase in program activities associated with A3384. related to odevixibat in biliary atresia and Alagille syndrome and A3907.
29
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, 20172021 and 2016.2020.
| | | | | | | | | | |
| | Three Months Ended September 30, | | Change | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
| | (in thousands) | | |||||||
Direct third-party project costs: | | | | | | | | | | |
Bylvay | | $ | 3,697 | | $ | 9,463 | | $ | (5,766) | |
Odevixibat | | | 7,254 | | | 2,579 | | | 4,675 | |
Elobixibat | |
| — | |
| 1,077 | |
| (1,077) | |
A3907 | | | 1,423 | | | — | | | 1,423 | |
Preclinical | |
| 915 | |
| 1,717 | |
| (802) | |
Total | | $ | 13,289 | | $ | 14,836 | | $ | (1,547) | |
Other project costs(1): | | | | | | | | | | |
Personnel costs | | $ | 7,741 | | $ | 7,179 | | $ | 562 | |
Other costs(2) | |
| 53 | |
| 185 | |
| (132) | |
Total | | $ | 7,794 | | $ | 7,364 | | $ | 430 | |
Total research and development costs | | $ | 21,083 | | $ | 22,200 | | $ | (1,117) | |
| 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, |
GeneralSelling, general and administrative expenses
| | | | | | | | | | |
|
| |
| |
|
| ||||
| | Three Months Ended September 30, | | Change | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
| | (in thousands) | | |||||||
Selling, general and administrative | | $ | 17,612 | | $ | 11,663 | | $ | 5,949 | |
| Three Months Ended September 30, |
|
| Change |
| |||||||
|
| 2017 |
|
| 2016 |
|
| $ |
| |||
|
| (in thousands) |
| |||||||||
General and administrative expenses |
| $ | 3,709 |
|
| $ | 1,346 |
|
| $ | 2,363 |
|
22
GeneralSelling, general and administrative expenses were $17.6 million for the three months ended September 30, 2021 compared with $11.7 million for the three months ended September 30, 2020, an increase of $5.9 million. The increase is attributable to personnel and related expenses as we continue to increase our headcount, and commercial expenses to launch Bylvay.
Other operating expense (income), net
| | | | | | | | | | |
| | Three Months Ended September 30, | | Change | | |||||
|
| 2021 |
| 2020 |
| $ | | |||
| | (in thousands) | | |||||||
Other operating expense (income), net | | $ | 3,719 | | $ | (4,628) | | $ | 8,347 | |
Other operating expense, net totaled $3.7 million for the three months ended September 30, 20172021 compared with $1.3income of $4.6 million for the three months ended September 30, 2016, an increase of $2.4 million.2020. The higher general and administrative expenses for the 2017 period were principally duedifference primarily relates to increases of $589,000changes in stock-based compensation expense, $465,000 in patent, facility-related 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 madeforeign currency exchange rates in the second halftwo periods.
Gain from sale 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.
Other (income) expense, net
| Three Months Ended September 30, |
|
| Change |
| |||||||
|
| 2017 |
|
| 2016 |
|
| $ |
| |||
|
| (in thousands) |
| |||||||||
Other (income) expense, net |
| $ | (401 | ) |
| $ | 58 |
|
| $ | (459 | ) |
Other (income) expense,priority review voucher, net of transaction costs
| | | | | | | | | | |
| | Three Months Ended September 30, | | Change | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
| | (in thousands) | | |||||||
Gain from sale of priority review voucher, net of transaction costs | | $ | 103,387 | | $ | — | | $ | 103,387 | |
30
Gain from sale of priority review voucher, net of transaction costs totaled $401,000 of income$103.4 million for the three months ended September 30, 2017 compared with $58,000 of expense for the three months ended September 30, 2016, a difference of $459,000. The difference resulted from differences in currency exchange rates in the two periods.
Interest income (expense), net
| Three Months Ended September 30, |
|
| Change |
| |||||||
| 2017 |
|
| 2016 |
|
| $ |
| ||||
|
| (in thousands) |
| |||||||||
Interest income (expense), net |
| $ | 23 |
|
| $ | (508 | ) |
| $ | 531 |
|
Interest income (expense), net totaled $23,000 of income for the three months ended September 30, 2017 compared with $508,000 of expense for 2016, a difference of $531,000. The difference was principally attributable to 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, the conversion of convertible loan notes issued in 2014 and 2015 into equity in connection with the completion 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 |
|
2021. There was no non-operating income (expense),gain from the sale of priority review voucher, net for the three months ended September 30, 2017 compared with2020.
Interest expense, net non-operating
| | | | | | | | | | |
��� | | Three Months Ended September 30, | | Change | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
| | (in thousands) | | |||||||
Interest expense, net | | $ | (3,331) | | $ | (3,639) | | $ | 308 | |
Interest expense, of $84,000net totaled $3.3 million for the three months ended September 30, 2016, a difference of $84,000. The absence of net non-operating expense2021 compared with $3.6 million for the 2017 period reflectsthree months ended September 30, 2020. The difference was principally attributable to lower non-cash interest expense recorded in connection with the exercisesale of warrantsfuture royalties related to sales of elobixibat in Japan, in addition to interest expense associated with our note payable.
Provision for income taxes
| | | | | | | | | |
|
| Three Months Ended |
| |
| ||||
| | September 30, | | Change | |||||
|
| 2021 |
| 2020 |
| $ | |||
| | In thousands | |||||||
Provision for income taxes | | $ | 3,789 | | $ | — | | $ | 3,789 |
We recorded a tax provision of $3.8 million for the three months ended September 30, 2021, primarily related to the sale of the PRV, offset by a tax benefit from our lenderordinary losses. We expect to have sufficient tax losses in May 2017.the current year to offset the income from the sale and thus no current year liability is expected. We expect to maintain a full valuation allowance against its net deferred tax assets for the year.
Nine Months Ended September 30, 20172021 and September 30, 20162020
Result of Operations
| | | | | | | | | |
| | Nine Months Ended September 30, | | Change | |||||
| | 2021 |
| 2020 |
| $ | |||
| | (in thousands) | |||||||
Revenue | | | | | | | | | |
Product revenue, net | | $ | 1,060 | | $ | — | | $ | 1,060 |
Royalty revenue | | | 6,998 | | | 5,592 | | | 1,406 |
Total revenue | | | 8,058 | | | 5,592 | | | 2,466 |
Cost of product revenue | | | 431 | | | — | | | 431 |
Gross profit | | | 7,627 | | | 5,592 | | | 2,035 |
Operating Expenses | | | | | | | | | |
Research and development | | | 61,920 | | | 56,727 | | | 5,193 |
Selling, general and administrative | | | 49,825 | | | 28,290 | | | 21,535 |
Other operating expense (income), net | | | 7,873 | | | (4,556) | �� | | 12,429 |
Total operating expenses | | | 119,618 | | | 80,461 | | | 39,157 |
Operating loss | | | (111,991) | | | (74,869) | | | (37,122) |
Other income (loss) | | | | | | | | | |
Gain from sale of priority review voucher, net of transaction costs | | | 103,387 | | | — | | | 103,387 |
Interest expense, net | | | (10,675) | | | (7,965) | | | (2,710) |
Net loss before income taxes | | | (19,279) | | | (82,834) | | | 63,555 |
Provision for income taxes | | | 3,789 | | | — | | | 3,789 |
Net loss | | $ | (23,068) | | $ | (82,834) | | $ | 59,766 |
31
Revenue
| | | | | | | | | | |
| | Nine Months Ended September 30, | | Change | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
| | (in thousands) | | |||||||
| | | | | | | | | | |
Product revenue, net | | $ | 1,060 | | $ | — | | $ | 1,060 | |
Royalty revenue | | | 6,998 | | | 5,592 | | | 1,406 | |
Total revenue | | $ | 8,058 | | $ | 5,592 | | $ | 2,466 | |
|
| Nine Months Ended September 30, |
|
| Change |
| ||||||
|
| 2017 |
|
| 2016 |
|
| $ |
| |||
|
| (in thousands) |
| |||||||||
Revenue |
| $ | 2 |
|
| $ | 8,125 |
|
| $ | (8,123 | ) |
RevenueProduct revenue, net was $2,000 for the nine months ended September 30, 2017 compared with $8.1$1.1 million for the nine months ended September 30, 2016, a decrease of $8.1 million. The decrease2021 due to revenue recognized upon Bylvay sales. There was no product revenue for the 2017 periodnine months ended September 30, 2020.
Royalty revenue was primarily attributable to a nonrefundable one-
23
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$7.0 million for the nine months ended September 30, 20172021 compared with $6.4$5.6 million for the nine months ended September 30, 2016,2020, an increase of $2.6$1.4 million. The higherincrease relates to estimated royalty revenue to be received from EA Pharma for elobixibat for the treatment of chronic constipation.
Cost of product revenue
| | | | | | | | | |
| | Nine Months Ended September 30, | | Change | |||||
|
| 2021 |
| 2020 |
| $ | |||
| | (in thousands) | |||||||
Cost of product revenue | | $ | 431 | | $ | — | | $ | 431 |
Cost of product revenue was $0.4 million for the nine months ended September 30, 2021 due to the approval of Bylvay in July 2021. Following Bylvay approval certain manufacturing and quality headcount costs are now included in cost of product revenue. There were no material costs, as materials related to current product sold, was expensed prior to approval. Bylvay was approved during this quarter, therefore there was no cost of product revenue for the nine months ended September 30, 2020.
Research and development expenses
| | | | | | | | | | |
| | Nine Months Ended September 30, | | Change | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
| | (in thousands) | | |||||||
Research and development expenses | | $ | 61,920 | | $ | 56,727 | | $ | 5,193 | |
Research and development expenses were $61.9 million for the nine months ended September 30, 2021 compared with $56.7 million for the nine months ended September 30, 2020, an increase of $5.2 million. The increased research and development expenses for the 20172021 period were principally due to increases of $2.4 millionclinical programs and personnel expenses, including stock-based compensation as we continue to increase our headcount and program activities. The increase in costsprogram activities related to A4250, including costs incurred for manufacturingodevixibat in biliary atresia and clinical development activities in preparation for a planned Phase 3 clinical trial in patients withAlagille syndrome and A3907 and were partially offset by Bylvay PFIC for a Phase 2 clinical trial in children with cholestatic liver disease completed in the first halfexpenses, elobixibat and preclinical programs.
32
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, 20172021 and 2016.2020.
| | | | | | | | | | |
| | | Nine Months Ended September 30, | Change | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
| | (in thousands) | | |||||||
Direct third-party project costs: | | | | | | | | | | |
Bylvay | | $ | 15,181 | | $ | 26,119 | | $ | (10,938) | |
Odevixibat | | | 18,008 | | | 5,616 | | | 12,392 | |
Elobixibat | |
| — | |
| 2,834 | |
| (2,834) | |
A3384 | |
| — | |
| 93 | |
| (93) | |
A3907 | | | 5,241 | | | — | | | 5,241 | |
Preclinical | |
| 2,873 | |
| 4,200 | |
| (1,327) | |
Total | | $ | 41,303 | | $ | 38,862 | | $ | 2,441 | |
Other project costs(1): | | | | | | | | | | |
Personnel costs | | $ | 19,668 | | $ | 15,774 | | $ | 3,894 | |
Other costs(2) | |
| 949 | |
| 2,091 | |
| (1,142) | |
Total | | $ | 20,617 | | $ | 17,865 | | $ | 2,752 | |
Total research and development costs | | $ | 61,920 | | $ | 56,727 | | $ | 5,193 | |
|
| 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, |
General
Selling, general and administrative expenses
| | | | | | | | | | |
|
| |
| | |
| ||||
| | Nine Months Ended September 30, | | Change | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
| | (in thousands) | | |||||||
Selling, general and administrative | | $ | 49,825 | | $ | 28,290 | | $ | 21,535 | |
|
| Nine Months Ended September 30, |
|
| Change |
| ||||||
|
| 2017 |
|
| 2016 |
|
| $ |
| |||
|
| (in thousands) |
| |||||||||
General and administrative expenses |
| $ | 10,634 |
|
| $ | 5,680 |
|
| $ | 4,954 |
|
GeneralSelling, general and administrative expenses were $10.6$49.8 million for the nine months ended September 30, 20172021 compared with $5.7$28.3 million for the nine months ended September 30, 2016,2020, an increase of $5.0$21.5 million. The higher general and administrative expenses for the 2017 period were principallyincrease is attributable to increases of $2.5 million in stock-based compensation expense, which included $788,000 attributablepersonnel and related expenses as we continue to the correction of an understatement of stock-based compensation expense for the year ended December 31, 2016 dueincrease our headcount, and commercialization readiness activities related 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.
24
|
| Nine Months Ended September 30, |
|
| Change |
| ||||||
|
| 2017 |
|
| 2016 |
|
| $ |
| |||
|
| (in thousands) |
| |||||||||
Other (income) expense, net |
| $ | (392) |
|
| $ | 193 |
|
| $ | (585 | ) |
Bylvay.
Other operating expense (income), net
| | | | | | | | | | |
| | Nine Months Ended September 30, | | Change | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
| | (in thousands) | | |||||||
Other operating expense (income), net | | $ | 7,873 | | $ | (4,556) | | $ | 12,429 | |
Other operating expense, net totaled $392,000 of income$7.9 million for the nine months ended September 30, 20172021 compared with $193,000income of expense$4.6 million for the nine months ended September 30, 2016, a difference of $585,000.2020. The difference resulted fromprimarily relates to changes in foreign currency exchange rates betweenin the two periods.
33
Gain from sale of priority review voucher, net of transaction costs
| | | | | | | | | | |
| | Nine Months Ended September 30, | | Change | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
| | (in thousands) | | |||||||
Gain from sale of priority review voucher, net of transaction costs | | $ | 103,387 | | $ | — | | $ | 103,387 | |
Gain from sale of priority review voucher, net of transaction costs totaled $103.4 million for the three months ended September 30, 2021. There was no gain from the sale of priority review voucher, net for the three months ended September 30, 2020.
Interest income (expense),expense, net
| | | | | | | | | | |
| | Nine Months Ended September 30, | | Change | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
| | (in thousands) | | |||||||
Interest expense, net | | $ | (10,675) | | $ | (7,965) | | $ | (2,710) | |
|
| Nine Months Ended September 30, |
|
| Change |
| ||||||
|
| 2017 |
|
| 2016 |
|
| $ |
| |||
|
| (in thousands) |
| |||||||||
Interest income (expense), net |
| $ | (378 | ) |
| $ | (1,546 | ) |
| $ | 1,168 |
|
Interest income (expense),expense, net totaled $378,000 of expense$10.7 million for the nine months ended September 30, 20172021 compared with $1.5$8.0 million of expense for the nine months ended September 30, 2016, a decrease of $1.2 million.2020. The lower netdifference was principally attributable to higher non-cash interest expense was attributable to the conversion of convertible loan notes issued in 2014 and 2015 into equityrecorded in connection with the completionsale of the Transactionfuture royalties related to sales of elobixibat in November 2016,Japan, in addition to interest expense associated with our note payable.
Provision for income taxes
| | | | | | | | | |
| | Nine Months Ended | | |
| ||||
| | September 30, | | Change | |||||
|
| 2020 |
| 2019 |
| $ | |||
| | In thousands | |||||||
Provision for income taxes | | $ | 3,789 | | $ | — | | $ | 3,789 |
We recorded a reduction in the amounttax provision 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$3.8 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 $536,0002021, primarily related to the sale of the PRV, offset by a tax benefit from our ordinary losses. We expect to have sufficient tax losses in the current year to offset the income from the sale and thus no current year liability is expected. We expect to maintain a full valuation allowance against its net deferred tax assets 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.year.
Liquidity and Capital Resources
Sources of Liquidity
We do not expect to generateanticipate generating low single digit U.S. $ million revenue from product sales unless and until we or a licensee obtains regulatory approval of and commercializes our current or any potential future product candidates.Bylvay in 2021. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we commercialize Bylvay and continue the development of and seek regulatory approvals for our other 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 other 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.
2534
In May 2017, we completed an underwritten public offeringTable of 2,530,000 shares of our common stock at a price 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.Contents
In November 2016, we completed the Transaction and, immediately prior to the Transaction, an associated equity financing of $10.0 million. In the Transaction, we acquired cash of approximately $20 million, net of Biodel’s commitments, that Biodel had on hand on 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% of the amounts lent by Kreos UK. On the date of the agreement, we borrowed the full €6.0 million ($7.3 million). In February 2016, we amended the loan facility to reduce principal repayments for a period of six months. As of September 30, 2017,2021, our cash and cash equivalents were approximately $262.6 million.
During the outstanding balance duefirst 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 June 2020, we entered into an amendment to the RIAA with HCR pursuant to which HCR agreed to pay us an additional $14.8 million, net of certain transaction expenses in exchange for the elimination of the (i) $78.8 million cap amount on the loan facility, including interestHCR’s rights to receive royalties on sales in Japan and the end-of-loan payment, was €1.2sales milestones for elobixibat in certain other territories that may become payable by EA Pharma and (ii) $15.0 million ($1.4 million based on the Europayable to USD exchange rate asus if a specified sales milestone is achieved for elobixibat in Japan. As of September 30, 2017).
In April 2012,2021, we (Albireo AB) entered intohave received approximately $59.3 million in upfront and milestone 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 are 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 areevent is achieved for elobixibat. To the extent we receive future Japanese royalties, sales milestones or other specified payments from EA Pharma, we are obligated to pay those amounts as royalty interest payments to HCR under the RIAA.
In addition, 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 2020 Form S-3, with the SEC, which was declared effective on May 18, 2020, pursuant to which we registered for sale up to $200.0 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. On September 14, 2020, we completed an underwritten public offering of 4,000,000 shares of our common stock under this registration statement. We are also eligible for stepped royalties at rates beginning in the high single digits on any future elobixibat product sales.
received net proceeds from this offering of approximately $150.4 million, after deducting underwriting discounts and commissions, but before deducting offering expenses. As of September 30, 2017,2021, $40.0 million of securities remain available for issuance under the 2020 Form S-3.
On May 7, 2020, we also entered into a sales agreement, with respect to an at-the-market offering program under which we may offer and sell, from time to time at our cash and cash equivalents were $57.1sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million. This agreement terminated on September 9, 2020.
In October 2017, following the end of the third quarter ended September 30, 2017,
On June 8, 2020, we entered into a Loan and Security Agreement with 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 itself and Lender (in such capacity, the Agent or Hercules). The Loan and Security Agreement provides for term loans in an asset purchaseaggregate 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 us 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 September 30, 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 the Lender.
35
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 sold legacy intellectual propertyregistered for sale an unlimited amount 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, 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 $4.5up 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. Subsequently in July, 2021 we sold 7,508 shares of our common stock for net proceeds of approximately $0.2 million pursuant to the 2021 Sales Agreement. We make no assurances as to the continued effectiveness of the 2021 Form S-3.
On August 31, 2021, we entered into a definitive agreement to sell the rare pediatric disease priority review voucher (“PRV”) that we received from the FDA in connection with the approval of the Company’s product Bylvay (odevixibat), for cash proceeds of $105.0 million. On September 28, 2021, we completed our sale of the PRV and received net proceeds of $103.4 million, after deducting commission costs, which was recorded as a gain from sale of priority review voucher, net of transaction costs.
Cash Flows
Nine Months Endedmonths ended September 30, 20172021 and September 30, 20162020
| | | | | | | |
| | Nine Months Ended September 30, | | ||||
|
| 2021 |
| 2020 |
| ||
| | (in thousands) | | ||||
Net cash (used in) provided by: | | | | | | |
|
Operating activities | | $ | (93,668) |
| | (72,834) | |
Investing activities | |
| 102,922 |
| | (78) | |
Financing activities | |
| 2,389 |
| | 219,826 | |
Total | | $ | 11,643 |
| $ | 146,914 | |
Effect of exchange rate changes on cash and cash equivalents | |
| (303) |
| | (66) | |
Net increase in cash and cash equivalents | | | 11,340 | | | 146,848 | |
|
| 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 | ) |
Operating activities
Net cashCash used in operating activities forof $93.7 million during the nine months ended September 30, 20172021 was $19.6primarily a result of our $23.1 million compared to net cash usedloss from operations, $103.4 million net gain from sale of PRV, and a net increase in assets and liabilities of $1.8 million. The net increase in operating activities of $2.3 million for the corresponding 2016 period, an increase of $17.3 million. The higher net cash used in operating activities for the 2017 period principally resulted from an increase in the 2017 period of $14.2 million in net loss due to a higher level of clinical trial activityassets and higher personnel expenses and a one-time payment from EA Pharma of $8.0 million received in April 2016 in connection with a renegotiated payment stream, partially offset by a decrease of $4.9 million in the 2017 period in accrued expenses due mainly to severance paid to former Biodel personnel.
26
Net cash used in investing activities was $187,000 forliabilities during the nine months ended September 30, 2017 compared to $3,000 for the corresponding 2016 period, an increase of $184,000. The2021 was primarily driven by increases in accrued expenses, accounts payables, accounts receivable, other assets and inventory, offset by decreases in other current and long-term liabilities and prepaid expenses and other current assets. This increase was dueoffset by non-cash items, including $13.3 million of stock-based compensation expense, $9.4 million of accretion of liability related to greater propertysale of future royalties, and equipment purchases$7.8 million of foreign currency adjustments. Cash used in connection with our move to different offices in Boston.
Financingoperating activities
Net cash provided by financing activities for of $72.8 million during the nine months ended September 30, 20172020 was $46.6primarily a result of our $82.8 million comparednet loss from operations and a net decrease in assets and liabilities of $4.0 million. The net decrease in operating assets and liabilities during the nine months ended September 30, 2020 was primarily driven by decreases in accrued expenses, other current and long-term liabilities, prepaid expenses and other current assets, and accounts payable. This decrease was offset by non-cash items, including $10.1 million of stock-based compensation expense, $7.7 million of accretion of liability related to sale of future royalties, and $4.0 million of foreign currency adjustments.
36
Investing activities
Cash provided by investing activities of $102.9 million during the nine months ended September 30, 2021 was primarily related to net cashproceeds from the sale of the PRV offset by purchases of property and equipment. Cash used in investing activities of $0.1 million during the nine months ended September 30, 2020 was primarily related to the purchase of property and equipment.
Financing activities
Cash provided by financing activities of $1.3$2.4 million forduring the corresponding 2016 period, a difference of $47.9 million. The differencenine months ended September 30, 2021 was principally dueprimarily related to our receipt of $48.5 million in net proceeds from a public offering in May 2017 and the exercise of compensatoryoptions. Cash provided by financing activities of $219.8 million during the nine months ended September 30, 2020 was primarily related to proceeds from the issuance of common 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.net of issuance costs of $193.4 million, proceeds from royalty agreement of $14.8 million, and proceeds from issuance of debt, net of issuance costs of $9.5 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 existingThe 2021 operating cash burn guidance has been $130-$135 million and is expected to be closer to $130 million. During the third quarter of 2021 an additional $103.4 million of net proceeds were received after deducting fees from the recently completed sale of the PRV. An additional $15 million cash upfront fee from the recently announced Japan licensing agreement due to be received in the fourth quarter of 2021. As a result, cash and cash equivalents willare anticipated to be sufficient to meet our projected operating requirements through at least 2019, assuming receiptfully fund the launches of a contingent milestone paymentBylvay and the next stages of the early asset portfolio. 2021 revenue from EA Pharma in 2018. However, our operating plans may change as a result of many factors, including those described below and we may need additional funds sooner than plannedBylvay is anticipated 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.be $3-4 million.
Our future funding requirements will depend on many factors, including the following:
| ● | Future revenue from commercial sales of Bylvay for patients with PFIC; |
| ● | 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; |
| ● | 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; |
the costs, design, timing of initiation, duration and any potential delays of, and the results of, our planned Phase 3 clinical trial of A4250;37
the scope, number, progress, duration, cost, results and timing of clinical trials and nonclinical studies of our current or potential future product candidates;
whetherTable of Contents
| ● | our ability to build and maintain 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 and maintain 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 be certain that we will be able to what extent milestone events are achieved under our license agreement with EA Pharmasuccessfully commercialize Bylvay 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;
our abilitythat we will be able to establish and maintain additional licensing, collaborationdistribution arrangements. Our failure 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 scopefailure of our intellectual property portfolio;
distributors to successfully commercialize Bylvay could have a material adverse effect on our ability to manufacture any approved products on commercially reasonable terms;
our ability to establish a sales and marketing organizationfinancial position or suitable third-party alternatives for any approved product;
the number and characteristicsresults of product candidates and programs thatoperations. In addition, 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 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 products and 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 September 30, 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 sales agreement with respect to an at-the-market offering program. As of September 30, 2021, there remained $99.7 million of our common stock available for sale pursuant to the sales agreement. 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. 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
38
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 September 30, 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, 20172021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting other than the implementation of controls designed to address risks related to product revenue recognition and inventory.
We engaged in the process of design and implementation of internal control over financial reporting.reporting in a manner commensurate with the scale of our commercial operations, including the review of inventory held by third party providers.
29
39
PART II — OTHE
Item 1. Legal Proceedings
We are not currently a party to any material legal proceedings.
In addition to the other informationExcept as set forth in this report andbelow, there have been no material changes to 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,February 25, 2021.
We depend heavily on the commercial success of Bylvay, which was only recently approved for commercial sale. There is no assurance that our commercialization efforts in the U.S. and Europe with respect to Bylvay will be successful or that we will be able to generate revenues at the levels or within the timing we expect, or at the levels or within the timing necessary to support our goals.
Bylvay was approved by the FDA and authorized by the EMA in July 2021. Bylvay was also granted marketing authorization by the MHRA in September 2021. We may still encounter delays or hurdles related to our product launch that affect timing of commercial availability.
Our business currently depends heavily on our ability to successfully commercialize Bylvay in the U.S. and Europe in its approved indications. We may never be able to successfully commercialize Bylvay or meet our expectations with respect to revenues. There is no guarantee that the infrastructure, systems, processes, policies, personnel, relationships and materials we have built in preparation for the launch and commercialization of Bylvay in the U.S. and Europe will be sufficient for us to achieve success at the levels we expect. Additionally, healthcare providers may not accept a new treatment paradigm for patients with PFIC. We may also encounter challenges related to reimbursement of Bylvay, even if we have positive early indications from payors, including potential limitations in the scope, breadth, availability, or amount of reimbursement covering Bylvay. Similarly, healthcare settings or patients may determine that the financial burdens of treatment are not acceptable. Our results may also be negatively impacted if we have not adequately sized our field teams or our physician segmentation and targeting strategy is inadequate or if we encounter deficiencies or inefficiencies in our infrastructure or processes. Any of these issues could impair our ability to successfully commercialize Bylvay or to generate substantial revenues or profits or to meet our expectations with respect to the amount or timing of revenue or profits. Any issues or hurdles related to our commercialization efforts may materially adversely affect our business, results of operations, financial condition and prospects. There is no guarantee that we will be successful in our launch or resultscommercialization efforts with respect to Bylvay.
Item 5. Other Information
On November 3, 2021 our Board of operations.Directors (the “Board”) adopted the Incentive Compensation Recoupment Policy (the “Clawback Policy”). The Clawback Policy, which is administered by the Compensation Committee of the Board (the “Committee”), permits the Committee to seek to recoup incentive compensation granted or awarded to or earned by our employees who are “officers” under the reporting requirements of Section 16 of the Exchange Act (the “Executives”), in the event the Committee determines that an Executive engaged in serious misconduct, or failed to supervise a subordinate employee who engaged in serious misconduct which the Executive knew, or was reckless in not knowing, was occurring, and such misconduct resulted in a material violation of law or a written Company policy that caused significant financial or reputational harm to the Company. For purposes of the Clawback Policy, incentive compensation means (i) any equity or equity-based award granted on or after January 1, 2022, and (ii) any cash-based performance or incentive award (i.e., bonus or cash incentive plan payment, including any amounts deferred with respect thereto) approved, awarded or granted to an Executive on or after January 1, 2022. The Clawback Policy provides that the Committee may not seek recoupment of incentive compensation following a change of control or that was awarded
40
more than three years prior to the first event giving rise to the recoupment. Notwithstanding the Policy, we may recoup compensation to the extent required by law or the requirements of the exchange on which the Company’s stock is listed for trading.
The foregoing is only a brief description of the terms of the Clawback Policy, does not purport to be complete and is qualified in its entirety by reference to the Clawback Policy that has been filed as an exhibit to this Quarterly Report on Form 10-Q.
41
| | | | | ||||||
Exhibit No. | Description | Filed | Incorporated | Filing | SEC File/ | |||||
| | | | | | | | | | |
| | | | X | |
| |
| |
|
| | | | | | | | | | |
| | | X | |
| |
| |
| |
| | | | | | | | | | |
| | | | | | | | | | |
| |
|
|
| ||||||
|
| |||||||||
| | X | | | | | | | ||
| | | | | | | | | | |
31.2 | | | X | | | | | | | |
| | | | | | | | | | |
32.1 | | | X | | | | | | | |
| | | | | | | | | | |
101 | | The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, | | X | | | | | | |
| | | | | | | | | | |
104 | | Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101). | | X | | | | | | |
* Management contract or compensatory plan or arrangement.
30+ Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.
@ Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.
42
SIGNATURES
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 | By: | /s/ Ronald H.W. Cooper | ||
| | Ronald H.W. Cooper | ||
| | President and Chief Executive Officer | ||
31
43