UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 20202021

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: 001-37785

 

Reata Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

11-3651945

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

5320 Legacy Drive  
Plano, Texas

 

75024

(Address of principal executive offices)

 

(Zip Code)

(972) 865-2219

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, Par Value $0.001 Per Share

 

RETA

 

NASDAQ Global Market

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, an emerging growth company, or a smaller reporting 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 May 5, 2020,April 30, 2021, the registrant had 28,167,19331,368,320 shares of Class A common stock, $0.001 par value per share, and 5,070,1784,909,492 shares of Class B common stock, $0.001 par value per share, outstanding.

 

 

 


 


TABLE OF CONTENTS

 

 

 

 

 

 

Page

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

1

DEFINED TERMS

3

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

4

 

Consolidated Balance Sheets

4

 

Consolidated Statements of Operations

5

 

Consolidated Statements of Stockholders’ Equity (Deficit)

6

 

Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1416

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2834

Item 4.

Controls and Procedures

2835

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

2935

Item 1A.

Risk Factors

2935

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

2935

Item 3.

Defaults Upon Senior Securities

2936

Item 4.

Mine Safety Disclosures

3036

Item 5.

Other Information

3036

Item 6.

Exhibits

3137

Signatures

3238

 

 

 

 

i


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties.  We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.  In this Quarterly Report on Form 10-Q, all statements, other than statements of historical or present facts, including statements regarding our future financial condition, future revenues, projected costs, prospects, business strategy, and plans and objectives of management for future operations, are forward-looking statements.  In some cases, you can identify forward-looking statements by terminology such as “believe,” “will,” “may,” “might,” “estimate,” “continue,” “anticipate,” “intend,” “target,” “project,” “model,” “should,” “would,” “plan,” “expect,” “predict,” “could,” “seek,” “goals,” “potential,”  and similar terms or expressions that concern our expectations, strategy, plans, or intentions.  These forward-looking statements include, but are not limited to, statements about:

 

our expectations regarding the timing, costs, conduct, and outcome of our clinical trials, including statements regarding the timing of the initiation and availability of data from such trials;

 

the timing and likelihood of regulatory filings and approvals for our product candidates;

 

whether regulatory authorities determine that additional trials or data are necessary in order to accept a new drug application for review and/or approval;

 

our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;

 

our plans to research, develop, and commercialize our product candidates;

 

the commercialization of our product candidates, if approved;

 

the rate and degree of market acceptance of our product candidates;

 

our expectations regarding the potential market size and the size of the patient populations for our product candidates, if approved for commercial use, and the potential market opportunities for commercializing our product candidates;

 

the success of competing therapies that are or may become available;

 

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;

 

ourthe ability to license additional intellectual property relating to our product candidates and to comply with our existing license agreements;

 

our ability to maintain and establish relationships with third parties, such as contract research organizations (CROs), contract manufacturing organizations, suppliers, and distributors;

 

our ability to maintain and establish collaborators with development, regulatory, and commercialization expertise;

 

our ability to attract and retain key scientific or management personnel;

 

our ability to grow our organization and increase the size of our facilities to meet our anticipated growth;

 

the accuracy of our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing;

 

our expectations related to the use of our available cash;

 

our ability to develop, acquire, and advance product candidates into, and successfully complete, clinical trials;


 

the initiation, timing, progress, and results of future preclinical studies and clinical trials, and our research and development programs;

 

the impact of governmental laws and regulations and regulatory developments in the United States and foreign countries;

 

developments and projections relating to our competitors and our industry;

 

the impact of the coronavirus disease (COVID-19) on our clinical trials, our supply chain, and our operations; and

 

other risks and uncertainties, including those described under the heading “Risk Factors” included in our most recent Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the SECU.S. Securities and Exchange Commission (SEC) on February 19, 2020March 1, 2021 and in this Quarterly Report on Form 10-Q..

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.  Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.


DEFINED TERMS

Unless the context requires otherwise, references to “Reata,” “the Company,” “we,” “us,” or “our” in this Quarterly Report on Form 10-Q refer to Reata Pharmaceuticals, Inc. and its subsidiaries.  We also have used several other terms in this Quarterly Report on Form 10-Q, most of which are explained or defined below.

 

Abbreviated Term

 

Defined Term

AbbVie

 

AbbVie Inc.

ADPKD

 

Autosomal dominant polycystic kidney disease

AE

Adverse event

ASC

Accounting Standards Codification

ASU

 

Accounting Standards Update

ATP

Adenosine triphosphate production

Bardoxolone

 

Bardoxolone methyl

BXLS

Blackstone Life Sciences, LLC

CARES Act

 

Coronavirus Aid, Relief, and Economic Security Act

CKD

 

Chronic kidney disease

COVID-19

 

Coronavirus disease

CRO

 

Contract research organization

CTD-PAHDPNP

 

Pulmonary arterial hypertension associated with connective tissue disease

DSMB

Data safety monitoring boardDiabetic peripheral neuropathic pain

eGFR

 

Estimated glomerular filtration rate

EMA

European Medicines Agency

ESKD

 

End stage kidney disease

Exchange Act

 

Securities Exchange Act of 1934

FA

 

Friedreich’s ataxia

FASB

 

Financial Accounting Standards Board

FDA

 

United States Food and Drug Administration

FSGS

 

Focal segmental glomerulosclerosis

GFR

 

Glomerular filtration rate

IgAN

 

IgA nephropathy

ITT

Intent to treat

KKC

 

Kyowa Kirin Co., Ltd.

MAA

Marketing Authorization Application

mFARS

 

Modified Friedreich’s Ataxia Rating Scale

mITT

Modified ITT

NDA

 

New Drug Application

PAH

 

Pulmonary arterial hypertension

Registrational orPDUFA

 pivotal

Prescription Drug User Fee Act

PK

Pharmacokinetic

Registrational trial

 

An adequate and well-controlled trial designed to be sufficient to apply for regulatory

   approval of a drug candidate, although notwithstanding the Company’s design a

     a   regulatory agency may determine that further clinical studies or data are required

Retained eGFRRSU

 

eGFR change after a four-week withdrawal of drugRestricted Stock Unit

SAE

 

Serious adverse event

Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002

SEC

 

U.S. Securities and Exchange Commission

T1D CKD

 

Type 1 diabetic CKD

T2D CKD

 

Type 2 diabetic CKD

UACR

Urinary albumin-to-creatinine ratio

 


PART I - FINANCIAL INFORMATION

 

 

Item 1. Financial Statements.

Reata Pharmaceuticals, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

 

 

March 31, 2020

 

 

December 31, 2019

 

 

March 31, 2021

 

 

December 31, 2020

 

 

(unaudited)

 

 

 

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

624,488

 

 

$

664,324

 

 

$

777,624

 

 

$

818,150

 

Prepaid expenses and other current assets

 

 

5,150

 

 

 

4,952

 

 

 

5,646

 

 

 

6,960

 

Income tax receivable

 

 

22,218

 

 

 

 

 

 

22,250

 

 

 

22,228

 

Total current assets

 

 

651,856

 

 

 

669,276

 

 

 

805,520

 

 

 

847,338

 

Property and equipment, net

 

 

3,898

 

 

 

2,996

 

 

 

4,922

 

 

 

4,912

 

Other assets

 

 

8,443

 

 

 

10,148

 

 

 

4,642

 

 

 

5,348

 

Total assets

 

$

664,197

 

 

$

682,420

 

 

$

815,084

 

 

$

857,598

 

Liabilities and stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Accounts payable

 

 

12,627

 

 

 

1,908

 

 

 

8,255

 

 

 

4,790

 

Accrued direct research liabilities

 

 

19,906

 

 

 

23,774

 

 

 

12,618

 

 

 

14,023

 

Other current liabilities

 

 

13,606

 

 

 

11,631

 

 

 

14,443

 

 

 

22,264

 

Current portion of payable to collaborators

 

 

150,000

 

 

 

150,000

 

Current portion of deferred revenue

 

 

4,701

 

 

 

4,701

 

Payable to collaborators

 

 

75,150

 

 

 

73,437

 

Deferred revenue

 

 

3,893

 

 

 

4,688

 

Total current liabilities

 

 

200,840

 

 

 

192,014

 

 

 

114,359

 

 

 

119,202

 

Other long-term liabilities

 

 

7,245

 

 

 

6,982

 

 

 

5,013

 

 

 

5,511

 

Term loan, net of current portion and debt issuance costs

 

 

155,506

 

 

 

155,017

 

Payable to collaborators, net of current portion

 

 

68,440

 

 

 

66,862

 

Deferred revenue, net of current portion

 

 

3,519

 

 

 

4,688

 

Liability related to sale of future royalties, net

 

 

326,379

 

 

 

315,454

 

Total noncurrent liabilities

 

 

234,710

 

 

 

233,549

 

 

 

331,392

 

 

 

320,965

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ (deficit) equity:

 

 

 

 

 

 

 

 

Common stock A, $0.001 par value:

500,000,000 shares authorized; issued and outstanding – 28,166,652 and

27,878,550 at March 31, 2020 and December 31, 2019, respectively

 

 

28

 

 

 

28

 

Common stock B, $0.001 par value:

150,000,000 shares authorized; issued and outstanding – 5,070,271 and

5,318,157 shares at March 31, 2020 and December 31, 2019, respectively

 

 

5

 

 

 

5

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock A, $0.001 par value:

500,000,000 shares authorized; issued and outstanding – 31,360,256 and

31,109,154 at March 31, 2021 and December 31, 2020, respectively

 

 

31

 

 

 

31

 

Common stock B, $0.001 par value:

150,000,000 shares authorized; issued and outstanding – 4,909,554 and

5,044,931 at March 31, 2021 and December 31, 2020, respectively

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

988,046

 

 

 

967,317

 

 

 

1,394,997

 

 

 

1,375,640

 

Accumulated deficit

 

 

(759,432

)

 

 

(710,493

)

 

 

(1,025,700

)

 

 

(958,245

)

Total stockholders’ equity

 

 

228,647

 

 

 

256,857

 

 

 

369,333

 

 

 

417,431

 

Total liabilities and stockholders’ equity

 

$

664,197

 

 

$

682,420

 

 

$

815,084

 

 

$

857,598

 

 

 

See accompanying notes.


Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Operations

(in thousands, except share and per share data)

 

 

Three Months Ended

 

 

 

Three Months Ended

 

 

March 31

 

 

 

March 31

 

 

2020

 

 

2019

 

 

 

2021

 

 

2020

 

Collaboration revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License and milestone

 

$

1,169

 

 

$

7,726

 

 

 

$

795

 

 

$

1,169

 

Other revenue

 

 

184

 

 

 

44

 

 

 

 

149

 

 

 

184

 

Total collaboration revenue

 

 

1,353

 

 

 

7,770

 

 

 

 

944

 

 

 

1,353

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

47,653

 

 

 

26,114

 

 

 

 

34,880

 

 

 

47,653

 

General and administrative

 

 

20,787

 

 

 

10,038

 

 

 

 

20,704

 

 

 

20,787

 

Depreciation

 

 

278

 

 

 

170

 

 

 

 

274

 

 

 

278

 

Total expenses

 

 

68,718

 

 

 

36,322

 

 

 

 

55,858

 

 

 

68,718

 

Other income (expense), net

 

 

(3,814

)

 

 

(600

)

 

 

 

(12,556

)

 

 

(3,814

)

Loss before taxes on income

 

 

(71,179

)

 

 

(29,152

)

 

 

 

(67,470

)

 

 

(71,179

)

(Benefit from) provision for taxes on income

 

 

(22,240

)

 

 

2

 

 

Benefit from (provision for) taxes on income

 

 

15

 

 

 

22,240

 

Net loss

 

$

(48,939

)

 

$

(29,154

)

 

 

$

(67,455

)

 

$

(48,939

)

Net loss per share—basic and diluted

 

$

(1.47

)

 

$

(0.98

)

 

 

$

(1.86

)

 

$

(1.47

)

Weighted-average number of common shares used in

net loss per share basic and diluted

 

 

33,222,085

 

 

 

29,830,114

 

 

 

 

36,203,631

 

 

 

33,222,085

 

 

 

See accompanying notes.


Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Stockholders’ (Deficit) Equity

(in thousands, except share and per share data)

 

 

Three Months Ended March 31, 2020

 

 

Three Months Ended March 31, 2021

 

 

Common Stock A

 

 

Common Stock B

 

 

Additional

Paid-In

 

 

Total

Accumulated

 

 

Total

Stockholders’

 

 

Common Stock A

 

 

Common Stock B

 

 

Additional

Paid-In

 

 

Total

Accumulated

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit) Equity

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

27,878,550

 

 

$

28

 

 

 

5,318,157

 

 

$

5

 

 

$

967,317

 

 

$

(710,493

)

 

$

256,857

 

Balance at December 31, 2020

 

 

31,109,154

 

 

$

31

 

 

 

5,044,931

 

 

$

5

 

 

$

1,375,640

 

 

$

(958,245

)

 

$

417,431

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(48,939

)

 

 

(48,939

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(67,455

)

 

 

(67,455

)

Compensation expense

related to stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,307

 

 

 

 

 

 

19,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,679

 

 

 

 

 

 

14,679

 

Exercise of options

 

 

 

 

 

 

 

 

40,216

 

 

 

 

 

 

1,422

 

 

 

 

 

 

1,422

 

 

 

 

 

 

 

 

 

112,423

 

 

 

 

 

 

4,678

 

 

 

 

 

 

4,678

 

Issuance of common stock upon

vesting of restricted stock units

 

 

 

 

 

 

 

 

3,302

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of common stock

Class B to Class A

 

 

288,102

 

 

 

 

 

 

(288,102

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

251,102

 

 

 

 

 

 

(251,102

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

 

 

28,166,652

 

 

$

28

 

 

 

5,070,271

 

 

$

5

 

 

$

988,046

 

 

$

(759,432

)

 

$

228,647

 

Balance at March 31, 2021

 

 

31,360,256

 

 

$

31

 

 

 

4,909,554

 

 

$

5

 

 

$

1,394,997

 

 

$

(1,025,700

)

 

$

369,333

 

 

 

Three Months Ended March 31, 2020

 

 

 

Common Stock A

 

 

Common Stock B

 

 

Additional

Paid-In

 

 

Total

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

27,878,550

 

 

$

28

 

 

 

5,318,157

 

 

$

5

 

 

$

967,317

 

 

$

(710,493

)

 

$

256,857

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(48,939

)

 

 

(48,939

)

Compensation expense

   related to stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,307

 

 

 

 

 

 

19,307

 

Exercise of options

 

 

 

 

 

 

 

 

40,216

 

 

 

 

 

 

1,422

 

 

 

 

 

 

1,422

 

Conversion of common

   stock Class B to Class A

 

 

288,102

 

 

 

 

 

 

(288,102

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

 

 

28,166,652

 

 

$

28

 

 

 

5,070,271

 

 

$

5

 

 

$

988,046

 

 

$

(759,432

)

 

$

228,647

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

Common Stock A

 

 

Common Stock B

 

 

Additional

Paid-In

 

 

Total

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit) Equity

 

Balance at December 31, 2018

 

 

24,000,683

 

 

$

24

 

 

 

5,728,175

 

 

$

6

 

 

$

435,452

 

 

$

(420,323

)

 

$

15,159

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,154

)

 

 

(29,154

)

Compensation expense

   related to stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,227

 

 

 

 

 

 

4,227

 

Exercise of options

 

 

 

 

 

 

 

 

314,285

 

 

 

 

 

 

5,051

 

 

 

 

 

 

5,051

 

Conversion of common stock

   Class B to Class A

 

 

402,794

 

 

 

 

 

 

(402,794

)

 

 

 

 

 

 

 

 

 

 

 

 

Other shareholder transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

107

 

 

 

 

 

 

107

 

Balance at March 31, 2019

 

 

24,403,477

 

 

$

24

 

 

 

5,639,666

 

 

$

6

 

 

$

444,837

 

 

$

(449,477

)

 

$

(4,610

)

 

See accompanying notes.


Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

Three Months Ended

 

 

Three Months Ended

 

 

March 31

 

 

March 31

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(48,939

)

 

$

(29,154

)

 

$

(67,455

)

 

$

(48,939

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

278

 

 

 

170

 

 

 

274

 

 

 

278

 

Amortization of debt issuance costs and implied interest

 

 

489

 

 

 

339

 

Amortization of debt issuance costs and imputed interest

 

 

1,714

 

 

 

489

 

Non-cash interest expense on liability related to sale of future royalty

 

 

10,925

 

 

 

0

 

Stock-based compensation expense

 

 

19,307

 

 

 

4,227

 

 

 

14,679

 

 

 

19,307

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax receivable

 

 

(22,218

)

 

 

 

Prepaid expenses and other current assets

 

 

(198

)

 

 

67

 

Other assets

 

 

1,007

 

 

 

6

 

Income tax receivable and payable

 

 

(22

)

 

 

(22,218

)

Prepaid expenses and other current assets and other assets

 

 

1,330

 

 

 

809

 

Accounts payable

 

 

10,668

 

 

 

(522

)

 

 

3,629

 

 

 

10,668

 

Accrued direct research, other current, and long-term liabilities

 

 

(1,976

)

 

 

3,861

 

Accrued direct research, other current and long-term liabilities

 

 

(9,290

)

 

 

(1,976

)

Payable to collaborators

 

 

1,578

 

 

 

 

 

 

0

 

 

 

1,578

 

Deferred revenue

 

 

(1,169

)

 

 

(7,726

)

 

 

(795

)

 

 

(1,169

)

Net cash used in operating activities

 

 

(41,173

)

 

 

(28,732

)

 

 

(45,011

)

 

 

(41,173

)

Investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(85

)

 

 

(1,160

)

 

 

(193

)

 

 

(85

)

Net cash used in investing activities

 

 

(85

)

 

 

(1,160

)

 

 

(193

)

 

 

(85

)

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options

 

 

1,422

 

 

 

5,051

 

 

 

4,678

 

 

 

1,422

 

Other shareholder transactions

 

 

 

 

 

107

 

Net cash provided by financing activities

 

 

1,422

 

 

 

5,158

 

 

 

4,678

 

 

 

1,422

 

Net decrease in cash and cash equivalents

 

 

(39,836

)

 

 

(24,734

)

 

 

(40,526

)

 

 

(39,836

)

Cash and cash equivalents at beginning of year

 

 

664,324

 

 

 

337,790

 

 

 

818,150

 

 

 

664,324

 

Cash and cash equivalents at end of period

 

$

624,488

 

 

$

313,056

 

 

$

777,624

 

 

$

624,488

 

Supplemental disclosures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,174

 

 

$

2,052

 

 

$

0

 

 

$

3,174

 

Non-cash activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations

 

$

 

 

$

9,636

 

Purchases of equipment in accounts payable, accrued direct research, other current, and long-term liabilities

 

$

1,398

 

 

$

750

 

 

$

2,523

 

 

$

1,398

 

 

See accompanying notes.

 


Reata Pharmaceuticals, Inc.

Notes to Unaudited Consolidated Financial Statements

 

 

1. Description of Business

The Company’s mission is to identify, develop, and commercialize innovative therapies that change patients’ lives for the better.  The Company focuses on small-molecule therapeutics with novel mechanisms of action for the treatment of severe, life-threatening diseases with few or no approved therapies.  The Company’s lead programs are in rare forms of chronic kidney disease (CKD) and a rare neurological disease.  The Company announced positive topline data from registrational studiestrials for both of its lead product candidates, bardoxolone methyl (bardoxolone) in patients with CKD caused by Alport syndrome and omaveloxolone in patients with a neurological disorder called Friedreich’s ataxia (FA).  Both bardoxolone and omaveloxolone activate the transcription factor Nrf2 to normalize mitochondrial function, restore redox balance, and resolve inflammation.  Because mitochondrial dysfunction, oxidative stress, and inflammation are features of many diseases, the Company believes bardoxolone, omaveloxolone, and omaveloxoloneour next-generation Nrf2 activators have many potential clinical applications.  Reata possesses exclusive, worldwide rights to develop, manufacture, and commercialize bardoxolone, omaveloxolone, and our next-generation Nrf2 activators, excluding certain Asian markets for bardoxolone in certain indications, which are licensed to Kyowa Kirin Co., Ltd. (KKC).

The Company’s consolidated financial statements include the accounts of all majority-owned subsidiaries.  Accordingly, the Company’s share of net earnings and losses from these subsidiaries is included in the consolidated statements of operations.  Intercompany profits, transactions, and balances have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the three months ended March 31, 20202021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.2021.  The consolidated balance sheet at December 31, 2019,2020, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  For further information, refer to the annual consolidated financial statements and footnotes thereto of the Company.

Summary of Significant Accounting Policies

The significant accounting policies used in the preparation of these condensed consolidated financial statements for the three months ended March 31, 2021 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Topic 842, amended by ASU 2018-11, Leases (Topic 842): Targeted Improvements. The new guidance requires a lessee to recognize assets and liabilities for all leases with lease terms of more than 12 months and provide additional disclosures. Topic 842 requires adoption using a modified retrospective transition approach with either 1) transition provisions at the beginning of the earliest comparative period with its cumulative adjustment recognized to retained earnings at the beginning of the earliest period presented or 2) a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption.  We adopted this standard on January 1,December 2019, using the cumulative-effect adjustment approach. We elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019 whereby these contracts were not reassessed or reclassified from their previous assessment as of December 31, 2018.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements2019-12, Income Taxes (Topic 808) (ASU 2018-18).  This740), Simplifying the Accounting for Income Taxes.  The FASB issued this update provides clarification onas part of its Simplification Initiative to improve areas of U.S. GAAP and reduce cost and complexity while maintaining usefulness.  The main provision that impacts the interaction between RevenueCompany is the removal of the exception to the incremental approach of intra-period tax allocation when there is a loss from Contracts with Customers (Topic 606)continuing operations and Collaborative Arrangements (Topic 808) including the alignment of unit of account guidance between the two topics.  This updateincome or gain from other items.  ASU 2019-12 is effective in fiscal years, includingfor annual periods, and interim periods within those annual periods, beginning after December 15, 2019, and early adoption is permitted.2020.  The Company adopted this


standard on January 1, 20202021 and its adoption did not have a material impact onto the Company’s consolidated financial statements and related disclosure.


3. Collaboration Agreements

KKC

In December 2009, the Company entered into an exclusive license with KKC (the KKC Agreement) to develop and commercialize bardoxolone in the licensed territory.  The terms of the agreement include payment to the Company of a nonrefundable, up-front license fee of $35.0 million and additional development and commercial milestone payments.  As of March 31, 2021, the Company has received $45.0 million related to regulatory development milestone payments from KKC and has the potential in the future to achieve another $52.0 million from 6 regulatory milestones and $140.0 million from 4 commercial milestones. The Company also has the potential to achieve tiered royalties ranging from the low teens to the low 20 percent range, depending on the country of sale and the amount of annual net sales, on net sales by KKC in the licensed territory.  The Company is participating on a joint steering committee with KKC to oversee the development and commercialization activities related to bardoxolone.  Any future milestones and royalties received are subject to mid to lower single digit percent declining tiered commissions to certain consultants as compensation for negotiations of the KKC Agreement.  

The up-front payment and regulatory milestones are accounted for as a single unit of accounting. The Company regularly evaluates its remaining performance obligation under the KKC Agreement. Accordingly, revenue may fluctuate from period to period due to changes to its estimated performance obligation period and variable considerations.  The Company began recognizing revenue related to the up-front payment upon execution of the KKC Agreement.  

In March 2021, the Company's performance obligation period under the KKC Agreement was extended to June 2022, which decreased revenue by approximately $0.4 million for the three months ended March 31, 2021, compared to the three months ended March 31, 2020.  The Company recognized collaboration revenue totaling approximately $0.8 and $1.2 million during each of the three months ended March 31, 2021 and 2020, respectively.  As of March 31, 2021, the Company recorded deferred revenue totaling approximately $3.9 million, which is reflected as the current portion of deferred revenue.

AbbVie

In September 2010, the Company entered into a license agreement with AbbVie Inc. (AbbVie) (the AbbVie License Agreement) for an exclusive license to develop and commercialize bardoxolone in the Licensee Territory (as defined in the AbbVie License Agreement).

In December 2011, the Company entered into a collaboration agreement with AbbVie (the AbbVie Collaboration Agreement) to jointly research, develop, and commercialize the Company’s portfolio of second and later generation oral Nrf2 activators.

OnIn October 9, 2019, the Company and AbbVie entered into an Amended and Restated License Agreement (the Reacquisition Agreement) pursuant to which the Company reacquired the development, manufacturing, and commercialization rights concerning its proprietary Nrf2 activator product platform originally licensed to AbbVie in the AbbVie License Agreement and the AbbVie Collaboration Agreement.  In exchange for such rights, the Company agreed to pay AbbVie $330.0 million, of which $100.0total payments of $250.0 million was paidhave been made as of DecemberMarch 31, 2019, $150.0 million will be payable on June 30, 2020, and2021, with the remaining $80.0 million will be payable on November 30, 2021.  Additionally, the Company will pay AbbVie an escalating, low single-digit royalty on worldwide net sales, on a product-by-product basis, of omaveloxolone and certain next-generation Nrf2 activators. The Company recognized interest expense related to the Reacquisition Agreement of approximately $1.6 million and $0 million, during the three months ended March 31, 2020 and 2019, respectively, and has a current portion of payable to collaborators of $150.0 million and payable to collaborators, net of current portion, of $80.0 million, at its present value of $68.4 million as of March 31, 2020.

The execution of the Reacquisition Agreement ended our performance obligations under the AbbVie Collaboration Agreement and included the write off of the remaining related deferred revenue balance.balance, after which no further revenue was recognized.  Accordingly, thethere was 0 revenue recognized in 2020.  


The Company recognized revenueinterest expense related to the AbbVie CollaborationReacquisition Agreement totalingof approximately $0$1.7 million and $6.6$1.6 million, during the three months ended March 31, 2021 and 2020, and 2019, respectively, and had a deferred revenue balance of $0 million asrespectively.  As of March 31, 2020.2021, the Company’s payable to collaborators was $80.0 million, with a present value of $75.2 million.  

KKC4. Term Loan

In December 2009,On October 9, 2019, the Company entered into the First Amendment to the Amended and Restated Loan and Security Agreement (the Amended Restated Loan Agreement), under which it borrowed $155.0 million as of December 20, 2019.  On June 24, 2020, the Company paid off the total outstanding balance of the term loans under the Amended Restated Loan Agreement (Term Loans) prior to the maturity date.  The payoff consisted of (i) the outstanding principal balance of $155.0 million, (ii) exit fees of $6.7 million, which has been partially accrued up to the date of repayment, (iii) prepayment fees of $5.4 million, and (iv) accrued and unpaid interest of $1.0 million.  At the time of payoff, all liabilities and obligations under the Amended Restated Loan Agreement were terminated. The Company recognized approximately $0 and $5.9 million in interest expense for three months ended March 31, 2021 and 2020, respectively.

5. Liability Related to Sale of Future Royalties

On June 24, 2020, the Company closed on the Development and Commercialization Funding Agreement with an exclusive license with KKCaffiliate of Blackstone Life Sciences, LLC (BXLS), which provides funding for the development and commercialization of bardoxolone for the treatment of CKD caused by Alport syndrome, autosomal dominant polycystic kidney disease, and certain other rare CKD indications in return for future royalties (the KKCDevelopment Agreement) to develop and commercialize.  The Development Agreement includes a $300.0 million payment by an affiliate of BXLS in return for various percentage royalty payments on worldwide net sales of bardoxolone, once approved in the licensed territory.  United States or certain specified European countries, by Reata and its licensees, other than KKC.  The royalty percentage will initially be in the mid-single digits and, in future years, can vary between higher-mid single digit percentages to low-single digit percentages depending on various milestones, including indication approval dates, cumulative royalty payments, and cumulative net sales.  Pursuant to the Development Agreement, we have granted BXLS a security interest in substantially all of our assets.

In addition, concurrent with the Development Agreement, the Company entered into a common stock purchase agreement (the Purchase Agreement) with affiliates of BXLS to sell an aggregate of 340,793 shares of the Company’s Class A common stock at $146.72 per share for a total of $50.0 million.

The Company concluded that there were 2 units of accounting for the consideration received, a nonrefundable, up-front license fee of $35.0 million in 2009 and regulatory milestones totaling $45.0 million in 2010, 2012, and 2018 and could receive additional regulatory milestones of $52.0 million and commercial milestones of $140.0 million, as well as tiered royalties ranging from the low teens to the low 20 percent range, depending on the country of sale and the amount of annual net sales, on net sales by KKC in the licensed territory.  

The up-front payment and regulatory milestones are accounted for as a single unit of accounting.  Revenue is being recognized ratably through December 2021, which is the estimated minimum period that is needed to complete the deliverables under the termscomprised of the KKC Agreement.  The Company began recognizing revenueliability related to the up-front payment upon executionsale of future royalties and the common shares.  The Company allocated the $300.0 million from the Development Agreement and $50.0 million from the Purchase Agreement between the two units of accounting on a relative fair value basis at the time of the KKCtransaction. The Company allocated $294.5 million, which includes $0.8 million in transaction costs incurred, in transaction consideration to the liability, and $55.5 million to the common shares.  The Company determined the fair value of the common shares based on the closing stock price on the June 24, 2020, the closing date of the Development Agreement. During eachThe effective interest rate under the Development Agreement, including transaction costs, is approximately 13.8%.

The following table shows the activity within the liability related to sale of future royalties for the three months ended March 31, 2020 and 2019, the Company recognized approximately $1.2 million as collaboration revenue.  As of March 31, 2020, the Company recorded deferred revenue totaling approximately $8.2 million of which approximately $4.7 million is reflected as the current portion of deferred revenue.2021:

 

Liability Related to Sale of Future Royalties

 

 

(in thousands)

 

Balance at December 31, 2020

$

316,305

 

Non-cash interest expense recognized, net of transaction cost amortization

 

10,909

 

Balance at March 31, 2021

 

327,214

 

Less: Unamortized transaction cost

 

(835

)

Carrying value at March 31, 2021

$

326,379

 


4.

6. Other Income (Expense), Net

 

Three Months Ended

 

Three Months Ended

 

 

March 31

 

March 31

 

 

2020

 

 

2019

 

 

 

2021

 

 

2020

 

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment income

 

$

2,055

 

 

$

1,797

 

 

 

$

80

 

 

$

2,055

 

Interest expense

 

 

(5,869

)

 

 

(2,397

)

 

 

 

(1,714

)

 

 

(5,869

)

Non-cash interest expense on liability

related to sale of future royalty

 

 

(10,925

)

 

 

0

 

Other income (expense)

 

 

3

 

 

 

0

 

Total other income (expense), net

 

$

(3,814

)

 

$

(600

)

 

 

$

(12,556

)

 

$

(3,814

)

Investment Income

Interest income consists primarily of interest generated from our cash and cash equivalents.

Interest Expense

Interest expense consists primarily of interest on our borrowing activities under our loan agreements and the imputed interest from amount due to AbbVie under the Reacquisition Agreement.

Non-Cash Interest Expense on Liability Related to Sale of Future Royalties

Non-cash interest expense consists of recognition of interest expense based on the Company’s current estimate of future royalties expensed to be paid over the estimated term of the Development Agreement.

Other income (expense)Income (Expense)

Other income (expense) consists primarily of gains and losses on foreign currency exchange and sales of assets.exchange.

5. Term Loan

On October 9, 2019, the Company entered into the First Amendment to Amended and Restated Loan and Security Agreement (the Amended Restated Loan Agreement).  Under the Amended Restated Loan Agreement, the Term B Loan availability was increased from $45.0 million to $75.0 million (collectively with the Term A Loan, the Term Loans).  On December 20, 2019, the Company borrowed $75.0 million under the Term B Loan.

All outstanding Term Loans will mature on June 1, 2023.  The Company will make interest-only payments for 36 months through June 1, 2021.  The interest-only payment period will be followed by 24 equal monthly payments of principal and interest payments. The Term Loans will bear interest at a floating per annum rate calculated as 7.79% plus the greater of the 30-day U.S. Dollar LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or 1.91%, with a minimum rate of 9.7% and maximum rate of 12.29%.

Under the Term A Loan, the Company has the option to prepay all, but not less than all, of the borrowed amounts, provided that the Company will be obligated to pay a prepayment fee equal to (a) the aggregate amount of interest that the Company would have paid through the maturity date if prepayment is made on or before the first anniversary of the funding date of the Term A Loan, (b) 4.0% of the outstanding principal balance of the Term A Loan if prepayment is made after the first anniversary date and on or before the second anniversary of the funding date of the Term A Loan, (c) 3.0% of the outstanding principal balance of the Term A Loan if prepayment is made after second anniversary date and on or before the third anniversary of the funding date of the Term A Loan, or (d) 1.5% of the outstanding principal balance of the Term A Loan if prepayment is made after the third anniversary date and on or before the fourth anniversary of the funding date of the Term A Loan.

Under the Term B Loan, the Company will be obligated to pay a prepayment fee equal to (a) 4.0% of the outstanding principal balance of the Term B Loan if prepayment is made on or before the first anniversary of the funding date of the Term B Loan, (b) 3.0% of the outstanding principal balance of the Term B Loan if prepayment is made after the first anniversary date and on or before the second anniversary of the funding date of the Term B Loan, (c) 1.5% of the outstanding principal balance of the Term B Loan if prepayment is made after second anniversary date and on or before the third anniversary of the funding date of the Term B Loan, and (d) 0.0% of the outstanding principal balance of the Term B Loan if prepayment is made after the third anniversary date of the funding date of the Term B Loan and prior to the maturity date of the Term B Loan.

  The Company will also be required to make a final exit fee payment of 6.5% of the principal balance of the Term A Loan and 2.0% of the Term B Loan, payable on the earliest of the prepayment of the Term Loans, acceleration of any Term Loan, or at maturity of the Term Loans.  As of March 31, 2020, the Term Loans have current effective interest rates of 10.29% excluding debt issuance costs and final exit fee and 12.17% including debt issuance costs and final exit fee.  The Company is in compliance with all covenants under the Amended Restated Loan Agreement as of March 31, 2020.

The Company may use the proceeds from the Term Loans for working capital and to fund its general business requirements.  The Company’s obligations under the Restated Loan Agreement are secured by substantially all of its current and future assets, including its owned intellectual property.


The Term Loans and unamortized issuance cost balance are as follows:

 

 

As of March 31, 2020

 

As of December 31, 2019

 

 

 

(in thousands)

 

Principal Amount

 

 

155,000

 

 

155,000

 

Exit Fee

 

 

6,700

 

 

6,700

 

Less unamortized issuance cost

 

 

6,194

 

 

6,683

 

Total long-term debt, net of debt issuance cost

 

$

155,506

 

$

155,017

 

The future principal payments by fiscal year for the Company’s Term Loans:

 

 

As of March 31, 2020

 

 

 

(in thousands)

 

2020 (remaining nine months)

 

$

 

2021

 

 

45,208

 

2022

 

 

77,500

 

2023

 

 

32,292

 

 

 

$

155,000

 

6.7. Leases

 

The Company’s headquarters are located in Plano, Texas, where it leases approximately 122,000 square feet of office space.  On September 2, 2020, the Company’s sublease agreement for its offices in Plano, Texas, was terminated due to the bankruptcy filing of its lessor. On October 1, 2020, the Company entered into a lease agreement with the owner of its offices in Plano, Texas, with lease terms extending through June 30, 2022 and an option to renew up to three months.

The Company leases additional office and laboratory space of approximately 34,890 square feet located in Irving, Texas. TheTexas, with lease terms for the Irving and Plano offices extendextending through October 31,April 30, 2022 with an option to renew up to six months and through April 30, 2022 with four successive three-month-period renewal options, respectively. periods.  

The Company has elected to net the amortization of the right-of-use assets and the reduction of the lease liabilities principal in accrued direct research and other current and long-term liabilities in the consolidated statements of cash flows. During the three months ended March 31, 2021, cash paid for amounts included for the measurement of lease liabilities was $0.8 million. During the three months ended March 31, 2021, the Company recorded operating lease expense of $0.8 million.  

Supplemental balance sheet information related to the Company’s operating leases is as follows:


 

 

 

 

As of March 31,

 

 

 

Balance Sheet Classification

 

2021

 

 

2020

 

 

 

 

 

(in thousands, except for years and %)

 

Non-current right-of-use assets

 

Other assets

 

$

4,509

 

 

$

8,369

 

Current lease liabilities

 

Other current liabilities

 

$

2,905

 

 

$

3,367

 

Non-current lease liabilities

 

Other long-term liabilities

 

$

1,730

 

 

$

6,107

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term (in years)

 

 

 

 

1.5

 

 

 

2.6

 

Weighted-average discount rate

 

 

 

 

8.1

%

 

 

9.6

%

Maturities of lease liabilities by fiscal year for the Company’s operating leases:

 

 

As of March 31, 2021

 

 

 

(in thousands)

 

2021 (remaining nine months)

 

$

2,376

 

2022

 

 

2,570

 

Total lease payments

 

 

4,946

 

Less: Imputed interest

 

 

(311

)

Present value of lease liabilities

 

$

4,635

 

 

The Company has an additional lease of a single-tenant, and build-to-suit building of approximately 327,400 square feet of office and laboratory space located in Plano, Texas with an initial lease term of 16 years.  The Company entered into the lease agreement on October 15, 2019 (the 2019 Lease Agreement), and at the Company’s option, it may renew the lease for two consecutive five-year renewal periods or one ten-year renewal period.  The Company does not have control of the space or the construction prior to completion of construction.  Therefore, 0 right-of-use or lease liabilities were recorded in connection with the 2019 Lease Agreement as of March 31, 2020.  Per2021.  Under the First Amendment to the Lease Agreement executed in May 2020, the landlord will fund the Company'sCompany’s leasehold improvements up to $25.6$31.3 million, of which the Company has recorded a leasehold incentive obligation of approximately $1.1$2.7 million as other long-term liabilities as of March 31, 2020.

At March 31, 2020,2021.  The initial annual base rent will be determined based on the weighted average incremental borrowing rate andproject cost, subject to an initial annual cap of approximately $13.3 million, which may increase in certain circumstances.  Beginning in the weighted average remainingthird lease term foryear, the operating leases held bybase rent will increase 1.95% per annum each year.  In addition to the annual base rent, the Company were 9.6%will pay for taxes, insurance, utilities, operating expenses, assessments under private covenants, maintenance and 2.6 years, respectively.  During the three months ended March 31, 2020, cash paid for amounts included for the measurement of lease liabilities was $0.9 million. During the three months ended March 31, 2020 the Company recorded operating lease expense of $0.9 million.  The Company has elected to net the amortization of the right-of-use assetsrepairs, certain capital repairs and the reduction of the lease liabilities principal in accrued direct researchreplacements, and other current and long-term liabilities in the consolidated statements of cash flows.building management fees.  

Supplemental balance sheet information related to the Company’s operating leases is as follows:

 

 

Balance Sheet Classification

 

As of March 31, 2020

 

 

 

 

 

(in thousands)

 

Non-current right-of-use assets

 

Other assets

 

$

8,369

 

Current lease liabilities

 

Other current liabilities

 

 

3,367

 

Non-current lease liabilities

 

Other long-term liabilities

 

 

6,107

 


Maturities of lease liabilities by fiscal year for the Company’s operating leases:

 

 

As of March 31, 2020

 

 

 

(in thousands)

 

2020 (remaining nine months)

 

$

3,093

 

2021

 

 

4,142

 

2022

 

 

3,500

 

Total lease payments

 

 

10,735

 

Less: Imputed interest

 

 

(1,261

)

Present value of lease liabilities

 

$

9,474

 

7.8. Income Taxes

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).Act.  The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United StatesU.S. economy and to provide assistance to individuals, families, and businesses affected by COVID-19.  Accordingly, under its provisions, for the three months endedin March 31, 2020, the Company recognized a tax benefitbenefits and receivable of $22.1receivables totaling $22.2 million associated with the ability to carryback an applicable prior year’s net operating losses to a preceding year, to generate a refund.which had previously been fully reserved by its valuation allowance.  In April 2021, the Company received $2.9 million out of the $22.2 million of the income tax receivable as of March 31, 2021.

For the three months ended March 31, 2020,2021, the Company’s effective tax rate was 0% compared to a benefit of 31.3% compared to 0.0% for the three months ended March 31, 2019.2020.  The Company’s effective tax rate for the three months ended March 31, 20202021 varies with the statutory rate primarily due to the favorable impact associated with the CARES Act and the changes in the valuation allowance related to certain deferred tax assets generated or utilized in the applicable period.  Deferred tax assets are regularly reviewed for recoverability by jurisdiction and valuation allowances are established based on historical and projected future taxable losses and the expected timing of the reversals of existing temporary differences.  The Company’s


Company has recorded valuation allowances against the majority of its deferred tax assets have been fully offset by a valuation allowance atas of March 31, 2020,2021, and the Company expects to maintain thisthese valuation allowanceallowances until there is sufficient evidence that future earnings can be achieved, which is uncertain at this time.

8.9. Stock-Based Compensation

The following table summarizes stock-basedtime-based and performance-based stock compensation expense reflected in the consolidated statements of operations:operations (in thousands):

 

Three Months Ended

March 31

 

 

Three Months Ended

 

 

2020

 

 

2019

 

 

March 31

 

 

(in thousands)

 

 

2021

 

 

2020

 

Research and development

 

$

11,516

 

 

$

1,691

 

 

$

6,808

 

 

$

11,516

 

General and administrative

 

 

7,791

 

 

 

2,536

 

 

 

7,871

 

 

 

7,791

 

 

$

19,307

 

 

$

4,227

 

Total stock compensation expense

 

$

14,679

 

 

$

19,307

 

Restricted Stock Units (RSUs)

The following table summarizes RSUsRSU activity as of March 31, 2020,2021, under the Second Amended and Restated Long Term Incentive Plan (LTIP Plan) agreement and standalone option agreements:

agreement:

 

Number of RSUs

 

 

Weighted-Average

Grant Date Fair Value

 

 

Number of

RSUs

 

 

Weighted-Average

Grant Date Fair

Value

 

Outstanding at January 1, 2020

 

 

50,000

 

 

 

72.70

 

Outstanding at January 1, 2021

 

 

108,551

 

 

$

115.54

 

Granted

 

 

14,651

 

 

 

208.94

 

 

 

260,408

 

 

 

121.46

 

Vested

 

 

 

 

 

 

 

 

(3,302

)

 

 

212.12

 

Forfeited

 

 

 

 

 

 

 

 

(12,199

)

 

 

128.19

 

Outstanding at March 31, 2020

 

 

64,651

 

 

 

103.57

 

Outstanding at March 31, 2021

 

 

353,458

 

 

$

118.56

 

 


As of March 31, 2020, the performance targets for the performance-based RSUs have not been met. Accordingly, the fair value related to these performance-based RSUs of approximately $3.6 million has not been recognized. During the quarter ended March 31, 2020, the Company recognized $0.1 million in2021, total unrecognized compensation expense related to time-based RSUs.RSU awards was approximately $8.1 million, which excludes 291,072 shares of unvested performance-based RSUs that were deemed not probable of vesting totaling unrecognized stock-based compensation expense of $33.1 million.

Stock Options  

The following table summarizes stock option activity as of March 31, 2020,2021, under the LTIP Plan and changes duringstandalone option agreements:

 

 

Number of

Options

 

 

Weighted-

Average

Price

 

Outstanding at January 1, 2021

 

 

4,306,269

 

 

$

79.47

 

Granted

 

 

697,538

 

 

 

123.39

 

Exercised

 

 

(112,423

)

 

 

41.59

 

Forfeited

 

 

(94,271

)

 

 

138.30

 

Expired

 

 

(30,727

)

 

 

205.84

 

Outstanding at March 31, 2021

 

 

4,766,386

 

 

$

84.81

 

Exercisable at March 31, 2021

 

 

2,282,312

 

 

$

46.62

 

Stock-based compensation expense for the three months ended March 31, 2020, under the LTIP and standalone option agreements:

 

 

Number of Options

 

 

Weighted-Average

Exercise Price

 

Outstanding at January 1, 2020

 

 

4,038,949

 

 

 

41.24

 

Granted

 

 

913,516

 

 

 

207.52

 

Exercised

 

 

(40,216

)

 

 

35.09

 

Forfeited

 

 

(50,824

)

 

 

115.72

 

Outstanding at March 31, 2020

 

 

4,861,425

 

 

 

71.76

 

Exercisable at March 31, 2020

 

 

1,975,609

 

 

 

29.73

 

At March 31, 2020, the performance targets for the performance-based stock options have not been met.  Accordingly, the fair value related2021, included accelerated recognition of expense of $1.4 million due to these performance-based stock optionsmodifications of approximately $36.1 million has not been recognized. The Company recorded an additional $5.1 million in research and development compensation expense related to accelerated vesting ofoutstanding stock options as a result of employees


who entered into consulting agreements at the deathtermination of an executive in February 2020.employment, which were considered to be non-substantive services.

As of March 31, 2021, total unrecognized compensation expense related to stock options was approximately $125.5 million, which excludes 482,800 shares of unvested performance-based stock options that were deemed not probable of vesting totaling unrecognized stock-based compensation expense of $48.8 million.

The total intrinsic value of all outstanding options and exercisable options at March 31, 20202021 was $412.8$183.7 million and $228.3$139.6 million, respectively.

10. Employee Benefit Plans

9.In 2010, we adopted an Employee Investment Plan, qualified under Section 401(k) of the Internal Revenue Code, which is a retirement savings plan covering substantially all of our U.S. employees (the Plan).  The Plan is administered under the “safe harbor” provision of ERISA.  Under the Plan, an eligible employee may elect to contribute a percentage of their salary on a pre-tax basis, subject to federal statutory limitations.  Beginning in January 2019, the Company implemented a discretionary employer matching contribution of $1.00 for every $1.00 contributed by a participating employee up to $5,000 annually, which such matching contributions become fully vested after four years of service.  The Company recorded expense of $0.8 million and $0.6 million for the three months ended March 31, 2021 and 2020, respectively, which includes the Company’s contributions and administrative costs.

11. Commitments and Contingencies

Litigation

From time to time, the Company is a party to legal proceedings in the course of its business, including the matters described below.  The outcome of any such legal proceedings, regardless of the merits, is inherently uncertain.  In addition, litigation and related matters are costly and may divert the attention of our management and other resources that would otherwise be engaged in other activities.  If the Company were unable to prevail in any such legal proceedings, its business, results of operations, liquidity and financial condition could be adversely affected.  The Company recognizes accruals for litigations to the extent that it can conclude that a loss is both probable and reasonably estimable and recognizes legal expenses as incurred.

Patel Litigation

On October 15, 2020, Toshif Patel filed a complaint for alleged violation of federal securities laws against the Company, its Chief Executive Officer and its Chief Financial Officer in the United States District Court for the Eastern District of Texas.  The complaint purports to bring a federal securities class action on behalf of a class of persons who acquired the Company’s common stock between October 15, 2019 and August 7, 2020.  The complaint alleges, among other things, that the defendants made false and misleading statements regarding the sufficiency of its MOXIe Part 2 study results to support a single study marketing approval of omaveloxolone for the treatment of FA in the United States.  The plaintiff seeks, among other things, the designation of this action as a class action, an award of unspecified compensatory damages and interest, costs, and expenses, including counsel fees and expert fees.

The Company believes that the allegations contained in the complaint are without merit and intends to defend the case vigorously.  The Company cannot predict at this point the length of time that this action will be ongoing or the liability, if any, which may arise therefrom.

Indemnifications

ASC 460, Guarantees, requires that, upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligations it assumes under that guarantee.


As permitted under Delaware law and in accordance with the Company’s bylaws, officers and directors are indemnified for certain events or occurrences, subject to certain limits, while the officer or director is or was serving in such capacity.  The maximum amount of potential future indemnification is unlimited; however, the Company has obtained director and officer insurance that limits its exposure and may enable recoverability of a portion of any future amounts paid.  The Company believes the fair value for these indemnification obligations is minimal.  Accordingly, the Company has not recognized any liabilities relating to these obligations as of March 31, 2021.  

The Company has certain agreements with licensors, licensees, and collaborators that contain indemnification provisions.  In such provisions, the Company typically agrees to indemnify the licensor, licensee, or collaborator against certain types of third-party claims.  The Company accrues for known indemnification issues when a loss is probable and can be reasonably estimated.  There were 0 accruals for expenses related to indemnification issues for any period presented.

12. Net Loss per Share

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders:

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2021

 

 

2020

 

Numerator

 

 

 

 

 

 

 

 

Net loss

 

$

(67,455

)

 

$

(48,939

)

Denominator

 

 

 

 

 

 

 

 

Weighted-average number of common shares

   used in net loss per share—basic

 

 

36,203,631

 

 

 

33,222,085

 

Dilutive potential common shares

 

 

0

 

 

 

0

 

Weighted-average number of common shares

   used in net loss per share—diluted

 

 

36,203,631

 

 

 

33,222,085

 

Net loss per share – basic

 

$

(1.86

)

 

$

(1.47

)

Net loss per share – diluted

 

$

(1.86

)

 

$

(1.47

)

 

 

 

Three Months Ended

March 31

 

 

 

 

2020

 

 

2019

 

 

 

 

(in thousands, except share and per share data)

 

 

Numerator

 

 

 

 

 

 

 

 

 

Net loss

 

$

(48,939

)

 

$

(29,154

)

 

Denominator

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares

   used in net loss per share – basic

 

 

33,222,085

 

 

 

29,830,114

 

 

Dilutive potential common shares

 

 

 

 

 

 

 

Weighted-average number of common shares

   used in net loss per share – diluted

 

 

33,222,085

 

 

 

29,830,114

 

 

Net loss per share – basic

 

$

(1.47

)

 

$

(0.98

)

 

Net loss per share – diluted

 

$

(1.47

)

 

$

(0.98

)

 

 

The number of weighted average options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive represented 4,766,386 and 4,861,425 and 3,780,764 shares for the three months endedas of March 31, 2021 and 2020, and 2019, respectively.


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

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information appearing in this Quarterly Report on Form 10-Q.  Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, operations, and product candidates, includes forward-looking statements that involve risks and uncertainties.  Factors that may cause actual results to differ materially from current expectations include, among other things, those described under the headingheadings “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” and discussed elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a clinical-stage biopharmaceutical company focused on identifying, developing, and commercializing innovative therapies that change patients’ lives for the better.  We concentrate on small-molecule therapeutics with novel mechanisms of action for the treatment of severe, life-threatening diseases with few or no approved therapies.  Our lead programs are in rare forms of chronic kidney disease (CKD)CKD and a rare neurological disease.  We have announced positive topline data from registrational studiestrials for both of our lead product candidates, bardoxolone methyl (bardoxolone) in patients with CKD caused by Alport syndrome and omaveloxolone in patients with a neurological disorder called Friedreich’s ataxia (FA).  Both bardoxolone and omaveloxolone activate the transcription factor Nrf2 to normalize mitochondrial function, restore redox balance, and resolve inflammation.  Because mitochondrial dysfunction, oxidative stress, and inflammation are features of many diseases, we believe bardoxolone and omaveloxolone have many potential clinical applications.  We possess exclusive, worldwide rights to develop, manufacture, and commercialize bardoxolone, omaveloxolone, and our next-generation Nrf2 activators, excluding certain Asian markets for bardoxolone in certain indications, which are licensed to KKC.

First Quarter 2020Recent Key Developments

COVID-19 Risk MitigationBardoxolone in Patients with CKD Caused by Alport Syndrome

In the first quarter of 2020, coronavirus disease (COVID-19) emerged as a pandemic with serious public health implications and the potential to disrupt business operations worldwide. As this risk became evident on a global scale, we undertook a series of measures to protect the health and safety of patients and health care workers involved in ongoing clinical studies of our investigational medicines, as well as our employees and collaborators.

We conduct clinical studies in many countries around the world that are being impacted by the COVID-19 pandemic.  Regulatory agencies, governments, and health care providers have implemented restrictive measures designed to reduce potential exposure to the virus, particularly for patients at increased risk of severe illness.  For each clinical development program, we are working with health care providers to implement changes that mitigate risk to patients; comply with regulatory, institutional, and government guidance; and maintain the integrity of our ongoing clinical studies.  

CATALYST and RANGER Trials Closed

In addition to our lead programs in rare forms of CKD and a rare neurological disease, we are exploring additional clinical and preclinical programs.  In pulmonary disease, we have been conducting the Phase 3 CATALYST study of bardoxolone in pulmonary arterial hypertension (PAH) caused by connective tissue disease (CTD-PAH).  In March 2020,On April 26, 2021, we announced that the CATALYST study was stopped in considerationU.S. Food and Drug Administration (FDA) accepted for filing the New Drug Application (NDA) for bardoxolone for the treatment of the risk of severe, adverse outcomes associated with COVID-19 among patients with respiratory and autoimmune diseases, and after consultation withCKD caused by Alport syndrome.  The FDA will review the study’s Data Safety Monitoring Board (DSMB).  CTD-PAHapplication under a Standard Review timeline.  The Prescription Drug User Fee Act (PDUFA) date, the FDA action date for the application, is a rare, serious, and progressive diseasescheduled for February 25, 2022.  The FDA also advised us that leadsit is currently planning to heart failure and death.  We concluded that continued exposurehold an Advisory Committee meeting to discuss the application.

Our NDA submission was based on the results of these high-risk patients to clinic or in-person visits at this time presented an unacceptable risk to their health.  

An initial reviewYear 2 of CATALYST safety data conducted by the DSMB and provided to us suggests that bardoxolone was well-tolerated, with fewer patients discontinuing in the bardoxolone arm compared to the placebo arm.  There were no deaths in the bardoxolone arm, and fewer patients reported serious adverse events (SAEs) in the bardoxolone arm compared to the placebo arm.  While no futility analyses have been performed, an initial review of


available efficacy data provided by the DSMB suggests that the study is unlikely to meet the primary endpoint of improvement in six-minute walk distance compared to placebo at Week 24.  After the data are formally analyzed, we will provide safety and efficacy data for CATALYST at a future medical meeting. Concomitant with the close of CATALYST, we also closed RANGER, the open-label extension study of bardoxolone in patients with PAH.  

CARDINAL and EAGLE Trials Adapted for Continuity

The Phase 3 CARDINAL trialstudy of bardoxolone in patients with CKD caused by Alport syndrome is fully enrolledannounced in November 2020. The study met its primary and ongoing.  We have implementedkey secondary endpoints following two years of treatment (referred to as Year 2). Moreover, we also announced that patients who completed one year in the useEAGLE long-term extension study and were treated with bardoxolone for a total of at-home visits as an alternative to in-clinic visits when necessary to collect blood drawsthree years (n=14) showed a sustained and to assess patient safety.  significant increase from baseline in estimated glomerular filtration rate (eGFR).  Together, these data suggest that bardoxolone treatment has beneficial long-term effects on kidney function in patients with Alport syndrome.

We also arranged for home deliveryplan to pursue marketing approval outside of the study drugUnited States. We plan to patients.  At this time, we do not believe thatsubmit a Marketing Authorization Application (MAA) with the COVID-19 pandemic will have a significant impact on our ability to complete the study or execute on the planned New Drug Application (NDA) submission for CARDINAL.  Patients who participatedEuropean Medicines Agency (EMA) in the CARDINAL study are eligible to enrollfourth quarter of 2021 for marketing approval of bardoxolone for the treatment of CKD caused by Alport syndrome in an open-label extension study known as EAGLE.  the European Union.

Bardoxolone in Patients with Autosomal Dominant Polycystic Kidney Disease (ADPKD)

We are implementing procedures for the conduct of EAGLE that are similar to those being used in CARDINAL to ensure continued access to bardoxolone and appropriate safety monitoring.

FALCON Trial Enrollment Temporarily Paused

We have temporarily paused enrollment of newcurrently enrolling patients in FALCON, an international, multi-center, randomized, double-blind, placebo-controlled trial studying the Phase 3 FALCON trialsafety and efficacy of bardoxolone in patients with autosomal dominant polycysticADPKD randomized one-to-one to active drug or placebo. FALCON will enroll approximately 550 patients in a broad range of ages, 18 to 70 years old, with an eGFR between 30 to 90 mL/min/1.73 m2. The primary endpoint is the off-treatment eGFR change from baseline versus placebo at Week 52, which represents 48 weeks of treatment followed by a four-


week withdrawal period. At 52 weeks, patients resume treatment for a second 48-week period to Week 100 followed by a second four-week withdrawal period to Week 104. The key secondary endpoint is the off-treatment eGFR change from baseline versus placebo at Week 104.

The FDA has provided us with guidance that, in patients with ADPKD, an analysis of eGFR during the off-treatment period demonstrating an improvement versus placebo after one year of bardoxolone treatment may support an NDA submission for accelerated approval of bardoxolone for the treatment of ADPKD, and data demonstrating an improvement versus placebo after two years of treatment may support full approval.

In March 2020, we announced a temporary pause in enrollment in FALCON due to the COVID-19 pandemic; we resumed enrollment during the third quarter of 2020. Despite the pandemic, most sites are currently able to screen and randomize patients. More than 290 patients are currently enrolled in the study, and we expect to complete enrollment in FALCON by the end of 2021.

Bardoxolone in Patients with CKD at Risk of Rapid Progression

MERLIN is a multi-center, double-blind, placebo-controlled, Phase 2 trial to evaluate the safety and efficacy of bardoxolone in patients at risk of rapidly progressing CKD due to multiple etiologies including IgA Nephropathy (IgAN), focal segmental glomerulosclerosis (FSGS), type 1 diabetic CKD (T1D CKD), type 2 diabetic CKD (T2D CKD), hypertensive CKD, and others. The primary endpoint of the trial is change in eGFR from baseline to Week 12.  We expect to complete enrollment in the MERLIN trial by the end of the second quarter of 2021, and data are expected in the second half of 2021. If the results of this study are positive, we would potentially proceed to a larger Phase 3 trial with similar eligibility criteria. Patients at risk for rapid progression experience a significant risk of progressing to end-stage kidney disease (ADPKD).(ESKD) and are a population with high unmet need across multiple forms of CKD.

Omaveloxolone in Patients already enrolled in FALCON will continue inwith Friedreich’s Ataxia (FA)

Data from the study.  We are implementing procedures forregistrational Part 2 portion of the conduct of FALCON that are similar to those being used in CARDINAL to ensure continued access to study drug and appropriate safety monitoring.  Patient screening and enrollment will resume as soon as the situation permits.

MOXIe Extension Study Advanced with Modifications

The MOXIe PartPhase 2 trial of omaveloxolone in patients with FA was(MOXIe Part 2) and the open-label extension study (the MOXIe Extension) were analyzed in additional exploratory analyses (the Delayed-Start Analyses), whereby parallel trajectories between the patients randomized to placebo (placebo-to-omaveloxolone group) and those randomized to omaveloxolone (omaveloxolone-to-omaveloxolone group) in the double-blind period from MOXIe Part 2, through 48 weeks in the MOXIe Extension could provide evidence of disease-modifying activity.  A total of 73 out of 75 (97%) patients without pes cavus who completed priorMOXIe Part 2 enrolled in the MOXIe Extension. A longitudinal analysis used to calculate annualized slopes incorporating all available data from the MOXIe Extension showed similar slopes in Modified Friedreich’s Ataxia Rating Scale (mFARS) for the placebo-to-omaveloxolone group (0.59 points per year) when compared to the onsetomaveloxolone-to-omaveloxolone group (0.41 points per year) with no significant difference between slopes (p=0.75). The resulting parallel trajectories between both treatment groups are consistent with disease-modifying activity.

We believe that the results of the COVID-19 pandemic.  At this time, we do not believe that COVID-19 will have a significant impact on our ability to execute onDelayed-Start Analyses suggest disease-modifying activity with omaveloxolone, provide evidence supporting the planned NDA submission for omaveloxolone in FA.  Patients who participatedpositive primary endpoint findings in MOXIe Part 1 or 2, were eligible to enroll in an open-label extension portionand provide additional evidence of the study.effectiveness of omaveloxolone in patients with FA. We are implementing procedures forrequested and the conductFDA has granted us a Type C meeting, which is scheduled to occur in the second quarter of 2021, to discuss the MOXIe extensionDelayed-Start Analyses and the FA development program.  We plan to initiate a second pivotal study that are similar to those being usedof omaveloxolone in our other ongoing studies to ensure continued access to omaveloxoloneFA patients in the fourth quarter of 2021, incorporating input from both the FDA and appropriate safety monitoring.the EMA into the protocol before we initiate enrollment.

Update on Adjustments to Business Operations Due to COVID-19

In accordance with recommendations from local, state, and national health authorities, we have implemented work-from-home measures andour offices were opened, with additional safety protocols in place, to protectselect groups of certain employees andduring the broader community andfirst quarter of 2021.  We are currently developing plans for a phased approach to ensure business continuity.  We have restricted on-site staffreopening our offices to only those required to execute their job responsibilities and limited the number of staff working in our research and development laboratory.  We have suspended all in-person meetings and international travel, and sharply limited travel within the United States.  We have also suspended attendance at medical congresses, conferences, and other large events.  We will continue to monitor this dynamic situation closely and will take additional measures as required to preserve the safety of our employees and broader community.employees.


Background: Our Programs

The following chart outlines each of our programs by indication and phase:phase of development:

 

In addition, KKC, our strategic collaborator in CKD, is currently conducting its registrational trial of bardoxolone in diabetic (type 1 and 2) CKD in Japan.  KKC completed patient enrollment in this trial in June 2019 and expects to have topline data in the first half of 2022.

*NDA accepted for filing on April 26, 2021.

**See discussion below under “Omaveloxolone  in Patients with FA”.

Programs in CKDChronic Kidney Disease

We are developing bardoxolone for the treatment of patients with CKD caused by Alport syndrome, ADPKD, and certain rareother forms of CKD.CKD that, in the aggregate, affect more than 700,000 patients in the United States.  CKD is characterized by a progressive worsening in glomerular filtration rate (GFR), which is the rate at which the kidney filters waste products from the blood, called the glomerular filtration rate (GFR).blood.  When GFR gets too low,drops below approximately 15 mL/min/1.73 m2, patients develop end-stage kidney disease (ESKD)ESKD and require dialysis or a kidney transplant to survive.  Dialysis leads to a reduced quality of life and increases the likelihood of serious and life-threatening complications.  The five-year survival rate for hemodialysis patients is only approximately 42%.

Estimated glomerular filtration rate (eGFR)eGFR is an estimate of GFR that nephrologists use to track the decline in kidney function and progression of CKD.  In 11 separate CKD clinical trials, bardoxolone has been shown to improve eGFR in patients with diverse etiologies of CKD.  We believe that bardoxolone treatment has the potential to delay or prevent GFR declines that cause the need for dialysis or a transplant in patients with Alport syndrome, ADPKD, and other rare forms of CKD.

Bardoxolone in Patients with CKD Caused by Alport Syndrome

We are developing bardoxolone for the treatment of patients with CKD caused by Alport syndrome, ADPKD, and other rare forms of CKD that, in the aggregate, affect more than 700,000 patients in the United States.  

Alport syndrome is a rare, genetic form of CKD caused by mutations in the genes encoding type IV collagen, which is a major structural component of the glomerular basement membrane in the kidney.  The kidneys of patients with Alport syndrome progressively lose the capacity to filter waste products out of the blood, which can lead to ESKD and the need for chronic dialysis treatment or a kidney transplant.  Alport syndrome affects both children and adults.  In patients with the most severe forms of the disease, approximately 50% progress to dialysis by age 25, 90% by age 40, and nearly 100% by age 60.  According to the

The Alport Syndrome Foundation estimates that Alport syndrome


affects approximately 30,000 to 60,000 people in the United States. ThereAccording to data provided by IQVIA in April 2020, there are currently no approved therapies to treatapproximately 14,000 projected patients diagnosed with Alport syndrome in all stages of CKD caused byin the United States. However, recent literature suggests that a large number of patients with Alport syndrome.syndrome are either undiagnosed or misdiagnosed


with other forms of CKD. To help nephrologists identify the genetic basis of various forms of CKD, including Alport syndrome, Reata and Invitae Corporation are sponsoring the KIDNEYCODE® genetic testing program.

InOn November 2019,9, 2020, we announced that the Phase 3 CARDINAL study met its primary and key secondary endpoints at the end of Year 2. The Phase 3 portion of the CARDINAL study of bardoxolone inwas an international, multi-center, double-blind, placebo-controlled, randomized registrational trial that enrolled 157 patients with CKD caused by Alport syndrome met its primaryat approximately 50 study sites in the United States, Europe, Japan, and key secondary Year 1 endpoints.  After 48 weeksAustralia. Patients were randomized one-to-one to bardoxolone or placebo.

At Week 100, in the intent to treat (ITT) population, which included eGFR values for patients who either remained on or discontinued study drug, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean change from baseline in eGFR of 7.7 mL/min/1.73 m2 (p=0.0005). Patients treated with bardoxolone experienced a mean change from baseline in eGFR of -0.8 mL/min/1.73 m2, while patients treated with placebo experienced a mean change from baseline in eGFR of -8.5 mL/min/1.73 m2.

In the modified ITT (mITT) analysis, which assessed the effect of receiving treatment by excluding values after patients discontinued treatment, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean change from baseline in eGFR at Week 100 of 9.5011.3 mL/min/1.73 m2 (p<0.0001). In the mITT analysis, patients treated with bardoxolone experienced a mean increase from baseline in eGFR of 1.7 mL/min/1.73 m2, while patients treated with placebo experienced a mean decline from baseline in eGFR of -9.6 mL/min/1.73 m2.

At Week 52,104 (four weeks after last dose in second year of treatment), patients in the ITT population treated with bardoxolone had a statistically significant improvement compared to placebo in mean retainedchange from baseline in eGFR which is the eGFR change after a four-week withdrawal of drug, of 5.144.3 mL/min/1.73 m2 (p=0.0012)0.023). After 52 weeks, patientsPatients treated with bardoxolone experienced a mean change from baseline in the placebo armeGFR of CARDINAL lost an average of 6.1-4.5 mL/min/1.73 m2, while patients treated with placebo experienced a mean change from baseline in eGFR of -8.8 mL/min/1.73 m2.

Bardoxolone was generally reported to be well tolerated in this study, and the safety profile was similar to that observed in prior trials. Eight patients (10%) receiving bardoxolone and 15 patients (19%) receiving placebo experienced a treatment-emergent serious adverse event (SAE). BasedNo SAEs were reported in pediatric patients treated with bardoxolone. No fluid overload SAEs or major adverse cardiac events were reported in patients treated with bardoxolone. Blood pressure, a sensitive measure of fluid status, was not significantly different between the two groups. Weight loss was more pronounced in patients with a higher body mass index, and mean decreases in weight were not observed in pediatric patients. The urinary albumin-to-creatinine ratio (UACR) was not significantly different between treatment groups at Week 100 or Week 104.

The reported adverse events (AEs) were generally mild to moderate in intensity, and the most common AEs observed more frequently in patients treated with bardoxolone compared to patients treated with placebo were muscle spasms and increases in aminotransferases which are thought to be associated with the pharmacology of the drug. Muscle spasms were generally transient and were associated with reductions of creatine kinase, which is evidence of improved energy metabolism and inconsistent with muscle injury.

Additionally, on these positiveNovember 9, 2020, we reported results from the long-term extension EAGLE study, in which the change from baseline in eGFR was assessed for the 14 patients with Alport syndrome who were treated with bardoxolone for three years (two years in CARDINAL and subjectone year in EAGLE), with four-week off-treatment periods occurring at Weeks 48 and 100. Bardoxolone treatment resulted in a mean increase from baseline in eGFR of 11.5 mL/min/1.73 m2 at Year 1, 13.3 mL/min/1.73 m2 at Year 2, and 11.0 mL/min/1.73 m2 at Year 3.

On April 26, 2021, we announced that the FDA accepted for filing the NDA for bardoxolone for the treatment of patients with CKD caused by Alport syndrome.  The FDA will review the application under a Standard Review timeline.  The PDUFA date, the FDA action date for the application, is scheduled for February 25, 2022.  The FDA also advised us that it is currently planning to discussions with regulatory authorities, wehold an Advisory Committee meeting to discuss the application.  We also plan to proceedpursue marketing approval outside of the United States. We plan to submit a MAA with the submissionEMA in the fourth quarter of regulatory filings this year2021 for marketing approval of bardoxolone for the treatment of CKD caused by Alport syndrome in the United States.European Union.


Bardoxolone in Patients with ADPKD

ADPKD is a rare and serious hereditary form of CKD caused by a genetic defect in PKD1 or PKD2 genes leading to the formation of fluid-filled cysts in the kidneys and other organs.  Cyst growth can cause the kidneys to expand up to five to seven times their normal volume, leading to pain and progressive loss of kidney function.  ADPKD affects both men and women of all racial and ethnic groups and is the leading inheritable cause of kidney failure with an estimated diagnosed population of 140,000 patients in the United States.  Despite current standard of care treatment, an estimated 50% of ADPKD patients progress to ESKD and require dialysis or a kidney transplant by 60 years of age.

In a Phase 2 study called PHOENIX, bardoxolone demonstrated a statistically significant increase from baseline in mean eGFR of 9.3 mL/min/1.73 m2 after 12 weeks of treatment in 31We are currently enrolling patients with ADPKD.  Available historical data for 29 of these patients showed an average annual decline in eGFR of 4.8 mL/min/1.73 m2 in the three-year period prior to study entry.  The United States Food and Drug Administration (FDA) has provided us with written guidance that, in patients with ADPKD, an analysis of retained eGFR demonstrating an improvement versus placebo after one year of bardoxolone treatment may support accelerated approval, and an improvement versus placebo after two years of treatment may support full approval.  In May 2019, we began enrollment in FALCON, an international, multi-center, randomized, double-blind, placebo-controlled Phase 3 trial studying the safety and efficacy of bardoxolone in approximately 300 patients with ADPKD.  In March of 2020, we announced that enrollment of newADPKD randomized one-to-one to bardoxolone or placebo. FALCON will enroll patients was temporarily paused due to safety concerns related to the COVID-19 global pandemic.  The trial will enrollin a broad range of patients fromages, 18 to 70 years old, with an eGFR between 30 to 90 mL/min/1.73 m2. The primary endpoint is the off-treatment eGFR change from baseline versus placebo at Week 52, which represents 48 weeks of treatment followed by a four-week withdrawal period. At Week 52, patients resume treatment for a second 48-week period to Week 100 followed by a second four-week withdrawal period to Week 104. The key secondary endpoint is the off-treatment eGFR change from baseline versus placebo at Week 104.

In the first quarter of 2021, we amended the FALCON protocol to increase the target enrollment from 300 patients to a total of approximately 550 patients. We observed an increase in variability in eGFR values in Year 2 of the CARDINAL study versus Year 1. The increase in enrollment is intended to preserve the statistical power of the study in the event that we observe similar eGFR variability to what we observed in Year 2 of the CARDINAL study. The FDA has provided us with guidance that, in patients with ADPKD, an analysis of eGFR during the off-treatment period demonstrating an improvement versus placebo after one year of bardoxolone treatment may support an NDA submission for accelerated approval of bardoxolone for the treatment of ADPKD, and data demonstrating an improvement versus placebo after two years of treatment may support full approval.

In March 2020, we announced a temporary pause in enrollment in FALCON due to the COVID-19 pandemic; we resumed enrollment during the third quarter of 2020. The measures we implemented to the conduct of FALCON in response to COVID-19 have been effective, and we anticipate no meaningful impact on data integrity due to COVID-19. Most sites are currently able to screen and randomize patients, and more than 290 patients are currently enrolled in the study. We expect to complete enrollment in the FALCON study by the end of 2021.

Bardoxolone in Other Rare FormsPatients with CKD at Risk of CKDRapid Progression

Three additional rare formsMERLIN is a proof of concept, multi-center, double-blind, placebo-controlled, Phase 2 trial to evaluate the safety and efficacy of bardoxolone in patient populations with CKD at meaningful risk of progression to ESKD. Multiple etiologies of CKD werewill be studied, in PHOENIX, including IgA nephropathy (IgAN), type 1 diabeticpatient populations we have studied before (Alport syndrome, IgAN, FSGS, T1D CKD, (T1Dand T2D CKD) and those we have not studied, such as hypertensive CKD and others.

MERLIN is anticipated to enroll approximately 70 patients with eGFR between 20 and 60 mL/min/1.73 m2, and focal segmental glomerulosclerosis (FSGS).  patients must meet at least one of the following criteria: UACR ≥ 300 mg/g; eGFR decline at a rate of ≥ 4 mL/min/1.73 m2 in prior year; or hematuria defined as > 5-10 red blood cells per high power field (manual method), documented history of positive urinary dipstick for blood in prior year, or macroscopic hematuria in prior 3 years. We expect to complete enrollment in the MERLIN trial by the end of the second quarter of 2021, and we expect data in the second half of 2021.

The primary objective is to assess change in eGFR from baseline at week 12, and the secondary objective is to characterize change in eGFR from baseline by CKD etiology at Week 12. The exploratory efficacy objective is to characterize change in eGFR from baseline during a 5-week drug treatment withdrawal period. The results from MERLIN would provide us proof of concept to potentially proceed to a larger Phase 3 study with similar eligibility criteria and a longer treatment duration. Moreover, together with the results of KKC’s ongoing AYAME study, which are expected in the first half of 2022, MERLIN will inform us of the potential to commercially pursue bardoxolone in broad set of CKD patients at risk for rapid progression.


Both the FALCON and MERLIN trials draw from the results of our Phase 2 study called PHOENIX, an open-label, multi-center Phase 2 trial evaluating the safety and efficacy of bardoxolone in patients with ADPKD, IgAN, T1D CKD, or FSGS completed in 2019. In each of these Phase 2 cohorts, patients treated with bardoxolone demonstratedexperienced a statistically significant increase from baseline in mean eGFR after 12 weeks of treatment. The most commonly reported AE across all cohorts was muscle spasms, which were not associated with clinical signs or symptoms of muscle injury. The overall rate of SAEs was low, with three patients reporting treatment-emergent SAEs, none of which were reported as related to bardoxolone.  We plan to pursue development opportunities in each of these rare and serious forms of CKD, asmaintaining our intent to expand the commercial indications.

The FDA has granted orphan drug designation to bardoxoloneindications for the treatment of Alport syndrome and ADPKD, and the European Commission has granted orphan drug designation to bardoxolone for the treatment of Alport syndrome.bardoxolone.

Historical Development of Bardoxolone

Prior to our CARDINAL Phase 3 trial, clinical trials enrolling over 2,000 patients exposed to bardoxolone have demonstrated consistent, clinically meaningful improvement in kidney function across several disease states as measured by eGFR and other markers of kidney function. Specifically, we have observed statistically significant increases in eGFR in all Phase 2 and Phase 3 clinical trials in seven distinct patient populations treated with bardoxolone, including patients with PAHpulmonary hypertension and CKD caused by type 2 diabetes (T2D CKD),T2D CKD, Alport syndrome, ADPKD, IgAN, T1D CKD, and FSGS.

We believe these data, in addition to the CARDINAL Phase 3 data, support the potential for bardoxolone to delay or prevent GFR declines that cause the need for dialysis or kidney transplant, and eventually death in patients with Alport syndrome and other forms of CKD.


Additional observations from the prior clinical trials of bardoxolone include the following:

 

Statistically significant increases in directly-measured GFR using the “gold standard” inulin clearance method, improvements in creatinine clearance, and reduction in the levels of blood waste products filtered by the kidney.

 

Statistically significant improvements in eGFR versus baseline or placebo in six different types of CKD, including Alport syndrome, ADPKD, IgAN, T1D CKD, T2D CKD, and FSGS.

 

Sustained improvement in kidney function in long-term trials:

 

o

In the Phase 2 portion of CARDINAL, bardoxolone treatment produced a statistically significant increase from baseline in mean eGFR of 10.4 mL/min/1.73 m2 (p<0.0001) after 48 weeks of treatment, which, based on historical data available for 22 of the patients prior to enrolling in the trial, represents a recovery of over two years of average decline in kidney function.

 

o

In two large, placebo-controlled clinical studies (BEAM and BEACON) in patients with T2D CKD, statistically significant increases in mean eGFR of 14.9 mL/min/1.73 m2 (p<0.001) and 5.6 mL/min/1.73 m2 (p<0.001), respectively, were sustained for at least one year.

 

Reduction in risk of adverse kidney outcomes, suggesting that bardoxolone treatment preserves kidney function and may delay the onset of kidney failure in patients with T2D and stage 4 CKD:

 

o

In BEACON, patients randomized to bardoxolone were significantly less likely to experience adverse kidney outcomes as defined by a composite endpoint consisting of ≥30% decline from baseline in eGFR, eGFR <15 mL/min/1.73 m2, or ESKD events (HR=0.48, p<0.0001).  

 

o

In BEACON, bardoxolone treatment resulted in a decreased number of kidney-related SAEs and ESKD events.  

 

Statistically significant improvement in retained eGFR above baseline or versus placebo during the off-treatment period in BEAM, BEACON, the Phase 2 portion of CARDINAL at one year, and the Phase 3 portion of CARDINAL at one year.  and two years.

 

o

The FDA has provided guidance to us and other sponsors that clinical trials with a retainedan eGFR benefit versus placebo during the off-treatment period may support approval in certain rare forms of CKD.  The FDA has provided guidance to us that, in patients with CKD caused by Alport syndrome or ADPKD, a retained eGFR benefit versus placebo after one year of bardoxolone treatment may support accelerated approval and after two years of bardoxolone treatment may support full approval.

 

o

We believe that the retainedincrease in off-treatment eGFR relative to placebo shows that increases in eGFR due to bardoxolone over longer durations do not have detrimental effects on kidney function. Most importantly, the observed eGFR benefit observedversus placebo during the off-treatment periods in these clinical trials demonstrates that bardoxolone treatment improved the structure of the kidney, modifiedmay have resulted in


structural improvement, modifying the course of the disease, and may prevent or delay kidney failure anddelaying the need for dialysis or a kidney transplant.

Programs in Neurological Diseases

Omaveloxolone in Patients with FA

We are developing omaveloxolone for the treatment of patients with FA, an inherited, debilitating, and degenerative neuromuscular disorder that is typicallynormally diagnosed during adolescence and typically leadscan lead to premature death.  Patients with FA experience progressive loss of coordination, muscle weakness, and fatigue, which commonly progresses to motor incapacitation and wheelchair reliance.  Symptoms generally occur in children, with patients requiring a wheelchair by their teens or early 20s.twenties.  FA affects approximately 5,000 children and adults in the United States and 22,000 individuals globally.  There are currently no approved therapies to treat FA.

Our Phase 2 trial, called MOXIe, was a two-part, international, multi-center, randomized, double-blind, placebo-controlled registrational trial that studied the safety and efficacy of omaveloxolone in patients with FA.  Additionally, patients who completed the study and met eligibility requirements could participate in the MOXIe Extension during which investigators and patients remained blinded to prior treatment assignments.  In October 2019, we announced that the registrational partPart 2 portion of the MOXIe Phase 2 trial of omaveloxolone in patients with FA met its primary endpoint of change in the modified Friedreich’s Ataxia Rating Scale (mFARS)mFARS relative to placebo after 48 weeks of treatment.  Patients treated with omaveloxolone (150 mg/day) demonstrated a statistically significant, placebo-corrected 2.40 point mean improvement (decrease) in mFARS after 48 weeks of treatment (p=0.014).  Patients treated with omaveloxolone demonstrated improvement relative to placebo in every subcategory measured under mFARS.  Omaveloxolone treatment was generally reported to be well-tolerated.  Based on these positive results, and subject to discussions with regulatory authorities, we plan to proceed

At a Type C meeting in August 2020, the FDA provided us guidance that, although it does not have concerns with the submissionreliability of regulatory filings this year for marketing approvalthe mFARS primary endpoint results from MOXIe Part 2, it was not convinced that the results from MOXIe Part 2, as a single study, were sufficient to support approval. The FDA stated that we will need to conduct a second pivotal trial that confirms the mFARS results of MOXIe Part 2 with a similar magnitude of effect. As an alternative, we proposed the Baseline-Controlled Study.

The Baseline-Controlled Study evaluated the efficacy of omaveloxolone treatment using a baseline-controlled analysis design in which patients serve as their own controls, and the annualized rate of change in mFARS during the pre-treatment period in either MOXIe Part 1 or Part 2 was compared to annualized rate of change in mFARS during the treatment period in the MOXIe Extension for patients who received approximately 48 weeks of omaveloxolone in the MOXIe Extension (the paired difference).  The Baseline-Controlled Study demonstrated a statistically significant -3.76 point improvement (p=0.0022) for the primary endpoint of the paired difference in annualized mFARS slopes between the treatment of FAand pre-treatment periods in the primary analysis population.

These results were provided to the FDA, and after an internal review, the FDA concluded that it does not believe the results strengthen the results of MOXIe Part 2.  The FDA suggested additional exploratory analyses to evaluate whether the treatment effects show an effect on disease course using patients randomized to placebo during MOXIe Part 2 who then went on study drug in the MOXIe Extension. The FDA noted the small number of patients and stated that the potential for these exploratory analyses to strengthen the study results was questionable.  The FDA indicated that it remains interested in reviewing the results of the additional exploratory analyses, called the Delayed-Start Analyses, as those may inform the future development program.  

The Delayed-Start Analyses included the change from baseline in mFARS during the MOXIe Extension, comparing patients randomized to placebo (the placebo-to-omaveloxolone group) with those randomized to omaveloxolone (the omaveloxolone-to-omaveloxolone group) in the double-blind period from MOXIe Part 2. Such analyses would include a graphical representation of the time course for the change from baseline mFARS in both omaveloxolone and placebo groups from the placebo-controlled MOXIe Part 2 and the change from baseline in the two treatments groups (the omaveloxolone-to-omaveloxolone group and the placebo-to-omaveloxolone group) through 48 weeks in the MOXIe Extension.


United States.A total of 73 out of 75 (97%) patients without pes cavus who completed MOXIe Part 2 enrolled in the MOXIe Extension, including 39 patients previously randomized to placebo (the placebo-to-omaveloxolone group) and 34 patients previously randomized to omaveloxolone (the omaveloxolone-to-omaveloxolone group). A longitudinal analysis used to calculate annualized slopes incorporating all available data from the MOXIe Extension showed similar slopes in mFARS for the placebo-to-omaveloxolone group (0.59 points per year) when compared to the omaveloxolone-to-omaveloxolone group (0.41 points per year) with no significant difference between slopes (p=0.75). The resulting parallel trajectories between both treatment groups is consistent with disease-modifying activity.

We believe that the results of the Delayed-Start Analyses suggest disease-modifying activity with omaveloxolone, provide evidence supporting the positive primary endpoint findings in MOXIe Part 2, and provide additional evidence of the effectiveness of omaveloxolone in FA. We requested and the FDA has granted us a Type C meeting, which is scheduled to occur in the second quarter of 2021, to discuss the Delayed-Start Analyses and the FA development program. We plan to initiate a second pivotal study in the fourth quarter of 2021, incorporating input from both the FDA and the European Commission have granted orphan drug designation to omaveloxolone forEMA into the treatment of FA.protocol before we initiate enrollment.

Omaveloxolone in Other Potential Indications

In addition,Omaveloxolone is a promising platform molecule. Because mitochondrial dysfunction is a key feature of many neurological and neuromuscular diseases, we believe omaveloxolone may be broadly applicable to treat such diseases by activating Nrf2 to normalize and improve mitochondrial function and ATP production.

Based on our understanding of the pathophysiology of neurological diseases, characterized by mitochondrial dysfunction, inflammation, and oxidative stress, we believe omaveloxolone may be applicable to diseases such as progressive supranuclear palsy, Parkinson’s disease, frontotemporal dementia, Huntington’s disease, ALS, Alzheimer’s disease, and epilepsy. Consistent with this, we have observed compelling activity of omaveloxolone and our other Nrf2 activators in preclinical models of many of these diseases.

Our Nrf2 activators reduced seizure frequency in refractory, progressive epilepsy models and restored mitochondrial function in patient biopsy samples and preclinical models of FA, ALS, familial and sporadic Parkinson’s disease, dementia, epilepsy, Huntington’s disease, and amyotrophic lateral sclerosis (ALS),frontotemporal dementia. In clinical trials, improvements in neuromuscular function have been observed in FA patients treated with omaveloxolone as assessed by mFARS rating scale, and improvements in mitochondrial function, as measured by reductions in blood lactate and heart rate, have been observed in patients with primary mitochondrial disease. Accordingly, we believe that omaveloxolone has the potential to treat a number of neurological and neuromuscular diseases that currently have few or no effective therapies, and we plan to pursue the development of omaveloxolone and our other Nrf2 activators for one or more of these diseases.

RTA 901 in Neurodegeneration and Neuroprotection Diseases

We are also developing RTA 901 in neurological indications.  RTA 901 is the lead product candidate from our Hsp90 modulator program.program, which includes highly potent and selective C-terminal modulators of Hsp90. We have observed favorable activity of RTA 901 in a range of preclinical models of neurological disease, including models of diabetic neuropathy, neuroinflammation, and neuropathic pain.

Historically, other companies have explored N-terminal Hsp90 inhibitors for cancer therapeutics; however, this approach has been associated with multiple adverse effects including peripheral neuropathy and ocular toxicity. Binding at the C-terminus of Hsp90 leads to increased transcription of Hsp70, a cytoprotective and molecular chaperone gene, which facilitates cell survival in response to stress without the deleterious activities of N-terminal inhibition.

In preclinical rodent disease models, we observed that RTA 901 administered orally once-daily rescued existing nerve function, restored thermal and mechanical sensitivity within four weeks, and improved nerve conductance velocity and mitochondrial function. These effects are dose-dependent, reversible, and HSP70-dependent.


We have completed a Phase 1 single and multiple ascending dose trial of oral, once-daily RTA 901 in healthy adult volunteers to evaluate the safety, tolerability, and pharmacokinetic profile(PK) profile. The PK was linear up to the highest doses evaluated with a half-life ranging from two to nine hours, and exposures were easily achievable in 10-fold excess of RTA 901 administered orally, once-dailythose necessary for efficacy in healthy adult volunteers, and nomultiple animal models. No safety or tolerability concerns were reported. We plan to continue development forinitiate additional Phase 1 studies to evaluate the PK and drug-drug interaction potential of RTA 901 in neurological diseases, such asthe second quarter of 2021, and we expect to launch a randomized, placebo-controlled Phase 2 study in diabetic neuropathy.peripheral neuropathic pain (DPNP) in the fourth quarter of 2021.

There are about four million patients with moderate to severe DPNP in the United States, and about two million adult patients diagnosed with DPNP seek treatment annually. We are the exclusive licensee of RTA 901 and havemaintain worldwide commercial rights.

Other Clinical Programs

In addition to our lead programs, we are developing RTA 1701, the lead product candidate from our proprietary series of RORγt inhibitors, for the potential treatment of a broad range of autoimmune, inflammatory, and fibrotic diseases.   RTA 1701 is an orally-bioavailable, RORγt-selective allosteric inhibitor that suppresses Th17 differentiation in vitro and demonstrates strong efficacy in rodent disease models of autoimmune disease. RTA 1701 also potently suppresses the production of IL-17A, a clinically important cytokine, in human immune cells and when dosed orally to non-human primates. We have completedconducted a Phase 1 trial to evaluate the safety, tolerability, and pharmacokineticPK profile of RTA 1701 in healthy adult volunteers. No safety or tolerability concerns were reported, and we observed an acceptable pharmacokineticPK profile. We plan to continue development forof RTA 1701 in autoimmune, inflammatory, or fibrotic diseases. We retain all rights to our RORγt inhibitors, which are not subject to any existing commercial collaborations.


 

Corporate Overview

To date, we have focused most of our efforts and resources on developing our product candidates and conducting preclinical studies and clinical trials.  We have historically financed our operations primarily through revenue generated from our collaborations with AbbVie and KKC, from sales of our securities, secured loans, and with secured loans.a strategic financing from BXLS.  We have not received any payments or revenue from collaborations other than nonrefundable upfront, milestone, and cost sharing payments from our collaborations with AbbVie and KKC, from the Development Agreement with BXLS, and from reimbursements of expenses under the terms of our agreement with KKC.  We have incurred losses in each year since our inception, other than in 2014. As of March 31, 2020,2021, we had $624.5$777.6 million of cash and cash equivalents and an accumulated deficit of $759.4$1,025.7 million. We continue to incur significant research and development and other expenses related to our ongoing operations.  Despite contractual product development commitments and the potential to receive future payments from KKC, we anticipate that we will continue to incur losses for the foreseeable future, and we anticipate that our losses will increase as we continue our development of, seek regulatory approval for, and potential commercialization of our product candidates.  If we do not successfully develop and obtain regulatory approval of our existing product candidates or any future product candidates and effectively manufacture, market, and sell any products that are approved, we may never generate revenue from product sales.  Furthermore, even if we do generate revenue from product sales, we may never again achieve or sustain profitability on a quarterly or annual basis.  Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.  Our failure to become and remain profitable could depress the market price of our Class A common stock and could impair our ability to raise capital, expand our business, diversify our product offerings, or continue our operations.

Financial Operations Overview

Revenue

Our revenue to date has been generated primarily from licensing fees received under our collaborative license agreements and reimbursements for expenses.  We currently have no approved products and have not generated any


revenue from the sale of products to date.  In the future, we may generate revenue from product sales, royalties on product sales, reimbursements for collaboration services under our current collaboration agreements, or license fees, milestones, or other upfront payments if we enter into any new collaborations or license agreements.  We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such payments and sales.

Our license and milestone revenue has been generated primarily from the KKC Agreement, the AbbVie License Agreement, and the AbbVie Collaboration Agreement and consists of upfront payments and milestone payments.  License revenue recorded with respect to the KKC Agreement, the AbbVie License Agreement, and the AbbVie Collaboration Agreement consists solely of the recognition of deferred revenue.  Under our revenue recognition policy, collaboration revenue associated with upfront, non-refundable license payments received under our license and collaboration agreements are deferred and recognized ratably over the expected term of the performance obligations under each agreement.  Under the Reacquisition Agreement, we no longer have performance obligations under the AbbVie License Agreement and the AbbVie Collaboration Agreement.  We only expect to recognize the deferred revenue under the KKC Agreement which extends through 2021.mid-2022.

Research and Development Expenses

The largest component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our product candidates.  From our inception through March 31, 2020,2021, we have incurred a total of $822.6$968.8 million in research and development expense, a majority of which relates to the development of bardoxolone and omaveloxolone. We expect our research and development expense to continue to increase in the future as we advance our product candidates through clinical trials and expand our product candidate portfolio.  The process of conducting the necessary clinical research to obtain


regulatory approval is costly and time-consuming, and we consider the active management and development of our clinical pipeline to be crucial to our long-term success.  The actual probability of success for each product candidate and preclinical program may be affected by a variety of factors, including the safety and efficacy data for product candidates, investment in the program, competition, manufacturing capability, and commercial viability.

Research and development expenses include:

 

expenses incurred under agreements with clinical trial sites that conduct research and development activities on our behalf;

 

expenses incurred under contract research agreements and other agreements with third parties;

 

employee and consultant-related expenses, which include salaries, benefits, travel, and stock-based compensation;

 

laboratory and vendor expenses related to the execution of preclinical and non-clinical studies and clinical trials;

 

the cost of acquiring, developing, manufacturing, and distributing clinical trial materials;

 

the cost of development, scale up, and process validation activities to support product registration; and

 

facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supply costs.

Research and development costs are expensed as incurred.  Costs for certain development activities such as clinical trials are highly judgmental and are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.

We base our expense accruals related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations (CROs)CROs that conduct and manage clinical trials on our behalf.  The financial terms of these agreements vary from contract to contract and may result in uneven payment flows.  Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.  In accruing costs, we estimate the time period over which services will be performed and the level of effort to be expended in each period.  If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.


To date, we have not experienced material changes in our estimates of accrued research and development expenses after a reporting period.  However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities.

Currently, KKC has allowed us to conduct clinical studies of bardoxolone in CTD-PAH and certain rare forms of kidney diseases in Japan and has reimbursed us the majority of the costs for our CARDINAL study in Japan and is paying for the costs of a certain number of patients as the in-country caretaker in our FALCON study in Japan.  We reduced our expenses by $0.0 million and $0.3 million for KKC’s share of the study costs for the three months ended March 31, 2020 and 2019, respectively.

The following table summarizes our research and development expenses incurred:

 

Three Months Ended

March 31,

 

 

 

Three Months Ended

 

 

2020

 

 

2019

 

 

 

March 31

 

 

(unaudited; in thousands)

 

2021

 

 

2020

 

Bardoxolone methyl

 

$

13,962

 

 

$

8,679

 

 

 

(in thousands)

 

Bardoxolone

 

$

11,386

 

 

$

13,962

 

Omaveloxolone

 

 

6,674

 

 

 

5,803

 

 

 

 

2,473

 

 

 

6,674

 

RTA 901

 

 

1,211

 

 

 

337

 

 

 

 

706

 

 

 

1,211

 

RTA 1701

 

 

1,395

 

 

 

328

 

 

 

 

177

 

 

 

1,395

 

Other research and development expenses

 

 

24,411

 

 

 

10,967

 

 

 

 

20,138

 

 

 

24,411

 

Total research and development expenses

 

$

47,653

 

 

$

26,114

 

 

 

$

34,880

 

 

$

47,653

 


 

The program-specific expenses summarized in the table above include costs that we directly allocate to our product candidates.  Our other research and development expenses include research and development salaries, benefits, stock-based compensation and preclinical, research, and discovery costs, which we do not allocate on a program-specific basis.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses for executive, operational, finance, legal, compliance, and human resource functions.  Other general and administrative expenses include personnel expense, facility-related costs, professional fees, accounting and legal services, depreciation expense, other external services, and expenses associated with obtaining and maintaining our intellectual property rights.

We anticipate that our general and administrative expenses will increase in the future as we increaseprepare for our headcount to support our continued research and development and potential commercialization of our product candidates.  We have also incurred, and anticipate incurring in the future, increased expenses associated with being a public company, including exchange listing and SEC requirements, director and officer insurance premium,premiums, legal, audit and tax fees, compliance with the Sarbanes-Oxley Act of 2002, regulatory compliance programs, and investor relations costs.  Additionally, if and when we believe the first regulatory approval of one of our product candidates appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially for the sales and marketing of our product candidates.

Other Income (Expense), Net

Other income (expense) includes interest and gains earned on our cash and cash equivalents, interest expense on term loans,our Term Loans, amortization of debt issuance costs, imputed interest on long term payables, loss on extinguishment of debt, gain on termination of lease, foreign currency exchange gains and losses, and gains and losses on sales of assets.assets, and non-cash interest expense on liability related to the sale of future royalties.

Provision forBenefit from (Provision for) Taxes on Income

Provision for taxes on income consists of net loss, taxed at federal tax rates and adjusted for certain permanent differences. We maintain a full valuation allowance against our netRealization of deferred tax assets.assets is generally dependent upon future earnings by jurisdiction, of which the timing and amount are uncertain for the majority of our deferred tax assets, and valuation allowances are maintained against them.  Changes in this valuation allowanceallowances also affect the tax provision.


Results of Operations

Comparison of the Three Months Ended March 31, 20202021, and 20192020 (unaudited)

The following table sets forth our results of operations for the three months ended March 31:

 

2020

 

 

2019

 

 

Change $

 

 

Change %

 

 

(in thousands)

 

 

2021

 

 

2020

 

 

Change $

 

 

Change %

 

Collaboration revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License and milestone

 

$

1,169

 

 

$

7,726

 

 

$

(6,557

)

 

 

(85

)

 

$

795

 

 

$

1,169

 

 

$

(374

)

 

 

(32

)

Other revenue

 

 

184

 

 

 

44

 

 

 

140

 

 

 

318

 

 

 

149

 

 

 

184

 

 

 

(35

)

 

 

(19

)

Total collaboration revenue

 

 

1,353

 

 

 

7,770

 

 

 

(6,417

)

 

 

(83

)

 

 

944

 

 

 

1,353.0

 

 

 

(409

)

 

 

(30

)

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

47,653

 

 

 

26,114

 

 

 

21,539

 

 

 

82

 

 

 

34,880

 

 

 

47,653

 

 

 

(12,773

)

 

 

(27

)

General and administrative

 

 

20,787

 

 

 

10,038

 

 

 

10,749

 

 

 

107

 

 

 

20,704

 

 

 

20,787

 

 

 

(83

)

 

 

(0

)

Depreciation

 

 

278

 

 

 

170

 

 

 

108

 

 

 

64

 

 

 

274

 

 

 

278

 

 

 

(4

)

 

 

(1

)

Total expenses

 

 

68,718

 

 

 

36,322

 

 

 

32,396

 

 

 

89

 

 

 

55,858

 

 

 

68,718

 

 

 

(12,860

)

 

 

(19

)

Other income (expense), net

 

 

(3,814

)

 

 

(600

)

 

 

(3,214

)

 

 

(536

)

 

 

(12,556

)

 

 

(3,814

)

 

 

(8,742

)

 

**

 

Loss before taxes on income

 

 

(71,179

)

 

 

(29,152

)

 

 

(42,027

)

 

 

(144

)

 

 

(67,470

)

 

 

(71,179

)

 

 

3,709

 

 

 

5

 

(Benefit from) provision for taxes on income

 

 

(22,240

)

 

 

2

 

 

 

(22,242

)

 

**

 

Benefit from (provision for) taxes on income

 

 

15

 

 

 

22,240

 

 

 

(22,225

)

 

 

(100

)

Net loss

 

$

(48,939

)

 

$

(29,154

)

 

$

(19,785

)

 

 

(68

)

 

$

(67,455

)

 

$

(48,939

)

 

$

(18,516

)

 

 

(38

)

** Percentage not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

** Percentage not meaningful

Revenue

License and milestone revenue represented approximately 86%84% and 99%86% of total revenue for the three months ended March 31, 20202021 and 2019,2020, respectively, and consisted primarily of the recognition of KKC deferred revenue.  License and milestone revenue decreased by $6.6$0.4 million or 85%32% during the three months ended March 31, 2020,2021, compared to the three months ended March 31, 2019, primarily2020, due to the Reacquisition Agreement in October 2019, which endedextension of our performance obligationsobligation period under the AbbVie CollaborationKKC Agreement and resulted in the writing off of the related remaining deferred revenue balance, after which no further revenue was recognized.  Total revenue of $1.2 million was recognizedfrom December 2021 to June 2022 during the three months ended March 31, 2020 from2021. Accordingly, the quarterly recognition of the deferred revenue related tounder the KKC Agreement. was reduced from $1.2 million to $0.8 million.

Other revenue was immaterial for the three months ended March 31, 20202021 and 2019.2020.

The following table summarizes the sources of our revenue for the three months ended March 31:

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

License and milestone

 

 

 

 

 

 

 

 

AbbVie Collaboration Agreement

 

$

 

 

$

6,570

 

KKC Agreement

 

 

1,169

 

 

 

1,156

 

Total license and milestone

 

 

1,169

 

 

 

7,726

 

Other revenue

 

 

184

 

 

 

44

 

Total collaboration revenue

 

$

1,353

 

 

$

7,770

 

Expenses

The following table summarizes our expenses, in thousands and as a percentage of total expenses, for the three months ended March 31:

 

2021

 

 

% of Total

Expenses

 

 

2020

 

 

% of Total

Expenses

 

 

2020

 

 

% of Total

Expenses

 

 

2019

 

 

% of Total

Expenses

 

 

 

(in thousands)

 

Research and development

 

$

47,653

 

 

 

70

%

 

$

26,114

 

 

 

72

%

 

 

$

34,880

 

 

 

62

%

 

$

47,653

 

 

 

69

%

General and administrative

 

 

20,787

 

 

 

30

%

 

 

10,038

 

 

 

28

%

 

 

 

20,704

 

 

 

37

%

 

 

20,787

 

 

 

30

%

Depreciation

 

 

278

 

 

 

0

%

 

 

170

 

 

 

0

%

 

 

 

274

 

 

 

1

%

 

 

278

 

 

 

1

%

Total expenses

 

$

68,718

 

 

 

 

 

 

$

36,322

 

 

 

 

 

 

 

$

55,858

 

 

 

 

 

 

$

68,718

 

 

 

 

 


Research and Development Expenses

Research and development expenses increaseddecreased by $21.5$12.8 million, or 82%27%, for the three months ended March 31, 2020,2021, compared to the three months ended March 31, 2019.2020.  The increasedecrease was primarily due to $13.2 milliondecreased spend related to clinical study expenses related to our studies related to bardoxolone in increasedpulmonary arterial hypertension (PAH) that were terminated in the first quarter of 2020, manufacturing expenses related to omaveloxolone, and completion of RTA 1701 toxicology studies offset by the increase in regulatory costs to support the submission of our NDA. The remaining changes included decreased equity compensation expense due to accelerated expense recognized during the first quarter of 2020, offset by an increase in personnel and equity compensation expenses relatedpersonnel-related costs to support the growth of our development activities and to additional equity compensation expense related to the accelerated vesting of stock options as a result of the death of an executive; and $8.1 million in increased manufacturing costs to support product registration and increased clinical, clinical pharmacology, and toxicity study expenses to support our registrational programs, as well as RTA 901 and RTA 1701.

activities.  Research and development expenses, as a percentage of total expenses, was 70%62% and 72%69% for the three months ended March 31, 2021 and 2020, and 2019, respectively.  The decrease of 2% was primarily due to a proportionately larger increase in general and administrative expenses, which includes personnel and equity compensation expenses and rent and office expenses to support growth in our development and commercial readiness activities.

General and Administrative Expenses

General and administrative expenses increaseddecreased by $10.7$0.1 million or 107%, for the three months ended March 31, 2020,2021, compared to the three months ended March 31, 2019.  The increase was primarily due to $8.1 million in increased personnel and equity compensation expenses, $1.1 million in increased rent and office expenses to support growth in our development activities, and $0.9 million in increased marketing and commercialization expenses.

2020.  General and administrative expenses, as a percentage of total expenses, was 30%37% and 28%30%, for the three months ended March 31, 20202021 and 2019,2020, respectively. The increase of 2% was primarily due to a proportionately larger increasethe relative decrease in general and administrative expenses, compared to research and development expenses.

Other Income (Expense), Net

Other income (expense), net increased by $3.2$8.7 million or 536%, for the three months ended March 31, 20202021, compared to the three months ended March 31, 2019.2020.  The increase was primarily due to $3.5 million in additionalnon-cash interest expense that was attributable to additional borrowings under the Term B Loan in December 2019 and to interest incurred under the payable due to collaboratoron liability related to the Reacquisition Agreementsale of future royalties and decreased interest income earned due to lower market rates, offset by decreased interest expense on our Term Loans that were paid off in October 2019.mid-2020.

(Benefit from) Provision forfrom (Provision for) Taxes on Income

Benefit from taxes on income increaseddecreased by $22.2 million for the three months ended March 31, 2020,2021, compared to the three months ended March 31, 2019. The increase was2020, primarily due to a tax refundbenefit recognized during the Company has applied for under the provisions of the CARES Act. See Note 7, Income Taxes of Notes to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.three months ended March 31, 2020.


Liquidity and Capital Resources

Since our inception, we have funded our operations primarily through collaboration and license agreements, the sale of preferred and common stock, secured loans, and secured loans.the sale of future royalties.  Through March 31, 2020,2021, we have raised gross cash proceeds of $476.6 million through the sale of convertible preferred stock and $780.0 million from payments under license and collaboration agreements. We also obtained $894.7$1,222.1 million in net proceeds from our initial public offering, and follow-on offerings, and the sale of our Class A common stock under the Purchase Agreement, and $151.6$299.0 million in net proceeds from our Amended Restated Loanthe sale of future royalties under the Development Agreement.  We have not generated any revenue from the sale of any products.  As of March 31, 2020,2021, we had available cash and cash equivalents of approximately $624.5$777.6 million.  Our cash and cash equivalents are invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

Cash Flows

The following table sets forth the primary sources and uses of cash for each of the three months ended March 31 (unaudited):

31:

 

2021

 

 

2020

 

 

2020

 

 

2019

 

 

(in thousands)

 

 

(in thousands)

 

 

 

 

Net cash (used in) provided by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

(41,173

)

 

$

(28,732

)

 

$

(45,011

)

 

$

(41,173

)

Investing activities

 

 

(85

)

 

 

(1,160

)

 

 

(193

)

 

 

(85

)

Financing activities

 

 

1,422

 

 

 

5,158

 

 

 

4,678

 

 

 

1,422

 

Net change in cash and cash equivalents

 

$

(39,836

)

 

$

(24,734

)

 

$

(40,526

)

 

$

(39,836

)

 

 

Operating Activities

Net cash used in operating activities was $45.0 million for the three months ended March 31, 2021, consisting primarily of a net loss of $67.5 million adjusted for non-cash items including stock-based compensation expense of $14.7 million, non-cash interest expense on liability related to sale of future royalty of $10.9 million, depreciation, amortization of issuance costs, and imputed interest expense of $2.0 million, and a net increase in operating assets and liabilities of $5.1 million.  The significant items in the change in operating assets that impacted our use of cash in operations include a decrease of $9.3 million in accrued direct research and other current and long-term liabilities primarily due to the change in timing of bonus payments from December to March of the following year, which began with the December 2020 payments being delayed to March 2021, and to the termination of PAH-related studies and the completion of CARDINAL and MOXIe clinical trials, offset by an increase in accounts payable of $3.6 million due to timing of payments.

Net cash used in operating activities was $41.2 million for the three months ended March 31, 2020, consisting primarily of a net loss of $48.9 million adjusted for non-cash items including stock-based compensation expense of $19.3 million, depreciation, amortization, and amortizationimputed interest expense of $0.8$2.3 million, and a net increase in operating assets and liabilities of $12.4$13.9 million.  The significant items in the change in operating assets that impacted our use of cash in operations include increases in income tax receivable of $22.2 million and accounts payable of $10.7 million due to timing of payments, offset by a decrease in deferred revenue of $1.2 million.  The decrease in deferred revenue ismillion due to the ratable recognition of revenue over the expected term of the performance obligationsobligation under our collaboration agreement withthe KKC Agreement, which resulted in recognition of $1.2 million of license and milestone revenuerevenue..

Investing Activities

Net cash used in operatinginvesting activities was $28.7$0.2 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively, consisting of purchases of property and equipment.


Financing Activities

Net cash provided by financing activities was $4.7 million and $1.4 million for the three months ended March 31, 2019, consisting primarily of a net loss of $29.2 million adjusted for non-cash items including stock-based compensation expense of $4.2 million, depreciation2021 and amortization expense of $0.5 million, and a net increase in operating assets and liabilities of $4.2 million.  The significant items in the change in operating assets that impacted our use of cash in operations include increases in accrued direct research and other current and long-term liabilities of $3.9 million due to manufacturing activities related to clinical trials and personnel-related activities and a decrease in deferred revenue of $7.7 million.  The decrease in deferred revenue is due to the ratable recognition of revenue over the expected term of the performance obligations under our collaboration agreements with AbbVie and KKC, which resulted in recognition of $7.7 million of license and milestone revenue.

Investing Activities

Net cash used in investing activities consisted of purchases and sales of property and equipment. Net cash used in investing activities for the three months ended March 31, 2020, and 2019 were not material.

Financing Activities

Net cash provided by financing activities were $1.4 million and $5.2 million for the three months ended March 31, 2020 and 2019, respectively, and primarily consistedconsisting of options exercised.


Operating Capital Requirements

To date, we have not generated any revenue from product sales.  We do not know when or whether we will generate any revenue from product sales.  We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one or more of our current or future product candidates.  We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products.  We are subject to all the risks related to the development and commercialization of novel therapeutics, including those described under the heading “Risk Factors” included in our most recent Annual Report on Form 10-K, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.  We continue to incur additional costs associated with operating as a public company.  We anticipate that we will need substantial additional funding in connection with our continuing operations.

OnIn December 2020, we closed a follow-on underwritten public offering of 2,000,000 shares of our Class A common stock for gross proceeds of $281.7 million.  Net proceeds to us from the offering were approximately $277.5 million, after deducting underwriting discounts and commissions and offering expenses.

In October 2020, we entered into a lease agreement with the owner of our headquarters and offices located in Plano, Texas, with lease terms extending through June 30, 2022 and an option to renew up to three months.  We recorded approximately $4.8 million as a right-of-use asset and lease liability in October 2020.

In June 2020, we closed on the Development Agreement and Purchase Agreement, each dated June 10, 2020, under which certain BXLS entities paid us an aggregate of $350.0 million in exchange for future royalties on bardoxolone and an aggregate of 340,793 shares of our Class A common stock at $146.72 per share.

In June 2020, we paid off our Term Loans, which included payments for principal of $155.0 million, prepayment fees of $5.4 million, exit fees of $6.7 million, and accrued and unpaid interest of $1.0 million.

In March 27, 2020, the United States enacted the CARES Act.  Under its provisions, for the three months ended March 31, 2020, we recognized a tax benefit and receivable of $22.1$22.2 million associated with the ability to carryback an applicable prior year’s net operating losses to a preceding year to generate a refund.  

On December 20, 2019, under the Amended Restated Loan Agreement, we borrowed $75.0 million under the Term B Loan.  We may use the proceeds from the Term Loans for working capital and to fund general business requirements.  Our obligations under the Amended Restated Loan Agreement are secured by substantially all of our assets, including our owned intellectual property.  All outstanding Term Loans will mature on June 1, 2023.

On November 18, 2019, we closed a follow-on underwritten public offering of 2,760,000 shares of our Class A common stock for gross proceeds of $505.1 million.  Net proceeds to us from the offering were approximately $491.9 million, after deducting underwriting discounts and commissions and offering expenses.

OnIn October 15, 2019, we entered into the 2019 Lease Agreement, relating to the lease of approximately 327,400 square feet of office and laboratory space located in Plano, Texas.  The term of the Leaselease is estimated to commence mid-2022, when construction is completed, and continue for 16 years, with up to 10 years of extension at our option.  The initial annual base rent will be determined based on the project cost, subject to an initial annual cap of approximately $13.3 million, which may increase in certain circumstances.  Beginning in the third lease year, the base rent will increase 1.95% per annum each year.  In addition to the annual base rent, we will pay for taxes, insurance, utilities, operating expenses, assessments under private covenants, maintenance and repairs, certain capital repairs and replacements, and building management fees.

OnIn October 9, 2019, we and AbbVie entered into the Reacquisition Agreement pursuant to which we reacquired the development, manufacturing, and commercialization rights concerning our proprietary Nrf2 activator product platform originally licensed to AbbVie in the AbbVie License Agreement and the AbbVie Collaboration Agreement.  In exchange for such rights, we will pay AbbVie $330.0 million, of which $100.0total payments of $250.0 million was paidhave been made as of DecemberMarch 31, 2019, $150.0 million is payable on June 30, 2020, and2021, with the remaining $80.0 million is payable on November 30, 2021.  We will also pay AbbVie an escalating, low single-digit royalty on worldwide net sales, on a product-by-product basis, of omaveloxolone and an identified list of certain next-generation Nrf2 activators.  The termination of our deferred revenue balance will not have an impact on our cash flow.


In November 2017, we entered into an at-the-market equity offering sales agreement with Stifel, Nicolaus & Company, Incorporated, that established a program pursuant to which it may offer and sell up to $50.0 million of its Class A common stock from time to time in at-the-market transactions.  In November 2019, we suspended the program in connection with the November 2019 equity offering, which remains suspended until we notify Stifel otherwise.  To date, no sales have been made under our at-the-market offering program.

Our longer term liquidity requirements will require us to raise additional capital, such as through additional equity, debt, or royalty financings or collaboration arrangements.  Our future capital requirements will depend on many factors, including the receipt of milestones under our KKC Agreement and the timing of our expenditures related to clinical trials.  We believe our existing cash and cash equivalents will be sufficient to enable us to fund our operations through the end of 2021.mid-2024.  However, we anticipate opportunistically raising additional capital before that time through equity offerings, collaboration or license agreements, additional debt financings, or royalty financings in order to maintain adequate capital reserves.  In addition, we may choose to raise additional capital at any time for the further development of our existing product candidates and may also need to raise additional funds sooner to pursue other development activities related to additional product candidates.  Decisions about the timing or nature of any


financing will be based on, among other things, our perception of our liquidity and of the market opportunity to raise equity, debt, or royalty financing.  Additional securities may include common stock, preferred stock, or debt securities.  We may explore strategic collaborations or license arrangements for any of our product candidates.  If we do explore any arrangements, there can be no assurance that any agreement will be reached, and we may determine to cease exploring a potential transaction for any or all of the assets at any time.  If an agreement is reached, there can be no assurance that any such transaction would provide us with a material amount of additional capital resources.

Until we can generate a sufficient amount of revenue from our product candidates, if ever, we expect to finance future cash needs through public or private equity or debt offerings, commercial loans, royalty financings, and collaboration or license transactions.  The outbreak of COVID-19 has caused significant disruption of global financial markets, which may reduce our ability to access capital, which wouldcould negatively affect our liquidity.  Additional capital may not be available on reasonable terms, if at all.  If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back, or discontinue the development or commercialization of one or more of our product candidates.  If we raise additional funds through the issuance of additional equity or debt securities, it could result in dilution to our existing stockholders or increased fixed payment obligations, and any such securities may have rights senior to those of our common stock.  If we incur indebtedness or obtain royalty financing, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell, or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business, and any such debt or royalty financing could be secured by some or all of our assets.  Any of these events could significantly harm our business, financial condition, and prospects.  For a description of the numerous risks and uncertainties associated with product development and raising additional capital, see “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019and in this Quarterly Report on Form 10-Q under “Part II, Item 1A. Risk Factors.”2020.

Our forecast of the period through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors.  We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.  Our future funding requirements, both near- and long-term, will depend on many factors, including, but not limited to:

 

the scope, rate of progress, results, and cost of our clinical trials, preclinical testing, and other activities related to the development of our product candidates;

 

the number and characteristics of product candidates that we pursue;

 

the costs of development efforts for our product candidates that are not subject to reimbursement from our collaborator;collaborators;

 

the costs necessary to obtain regulatory approvals, if any, for our product candidates in the United States and other jurisdictions, and the costs of post-marketing studies that could be required by regulatory authorities in jurisdictions where approval is obtained;

 

the continuation of our existing collaboration with KKC and entry into new collaborations and the receipt of any collaboration payments;


 

the time and unreimbursed costs necessary to commercialize products in territories in which our product candidates are approved for sale;

 

the revenue from any future sales of our products for which we are entitled to a profit share, royalties, and milestones;

 

the level of reimbursement or third-party payor pricing available to our products;

 

the costs of obtaining third-party commercial supplies of our products, if any, manufactured in accordance with regulatory requirements;

 

the costs associated with any potential loss or corruption of our information or data in a cyberattack on our computer system;systems or those of our suppliers, vendors, or collaborators who store or transmit our data;

 

the costs associated with being a public company;


 

any additional costs we incur, or delays in clinical trials we experience, associated with the COVID-19 pandemic; and

 

the costs we incur in the filing, prosecution, maintenance, and defense of our patent portfolio and other intellectual property rights.

If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition, and results of operations could be materially adversely affected.

Contractual Obligations and Commitments

As of March 31, 2020, thereWe have been no material changes, outside of the ordinary course of business, in our outstandingvarious contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as contained in our Annual Report on Form 10-K for year ended December 31, 2019.

Below areother commitments that require payments at certain specified periods.  The following table summarizes our contractual obligations and commitments as of March 31, 20202021 (unaudited):

 

Payments due by period

 

 

Payments due by period

 

 

Less than

1 year

 

 

1 to 3

years

 

 

4 to 5

years

 

 

Total

 

 

Less than

1 year

 

 

1 to 3

years

 

 

4 to 5

years

 

 

6 years and beyond

 

 

Total

 

 

(in thousands)

 

 

(unaudited)

 

Operating lease obligations (1)

 

$

3,783

 

 

$

6,952

 

 

$

 

 

$

10,735

 

Outstanding secured term loan (2)

 

 

 

 

 

142,083

 

 

 

12,917

 

 

 

155,000

 

 

(in thousands)

 

Operating lease obligations(1)

 

$

2,907

 

 

$

14,271

 

 

$

26,927

 

 

$

169,478

 

 

$

213,583

 

Payable to collaborators

 

 

150,000

 

 

 

80,000

 

 

 

 

 

 

230,000

 

 

 

80,000

 

 

 

 

 

 

 

 

 

 

 

 

80,000

 

Total contractual obligations

 

$

153,783

 

 

$

229,035

 

 

$

12,917

 

 

$

395,735

 

 

$

82,907

 

 

$

14,271

 

 

$

26,927

 

 

$

169,478

 

 

$

293,583

 

(1)

Total minimum futureOperating lease obligations include current estimated payments for the Plano build-to-suit leaseleases that have not yet commenced, asnet of March 31, 2020. Therefore, such payments are not included in the consolidated financial statement, as we do not yet control the underlying assets.  The lease is expected to commence mid-2022 with lease initial lease term of 16 years.incentives.

The terms of the Development Agreement require us to pay potential future royalty payments based on product development success. The above table excludes such obligations as the amount and timing of such obligations are unknown or uncertain, which are further described in Note 5, Liability Related to Sale of Future Royalties, to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

(2)

Total minimum future loan payments include principal payments and do not include the final exit fee or interest payments. See Note 5, Term Loans of Notes to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.


 

Clinical Trials

As of March 31, 2020,2021, we have several on-going clinical trials in various stages.  Under agreements with various CROs and clinical trial sites, we incur expenses related to clinical trials of our product candidates and potential other clinical candidates.  The timing and amounts of these disbursements are contingent upon the achievement of certain milestones, patient enrollment, and services rendered or as expenses are incurred by the CROs or clinical trial sites.  Therefore, we cannot estimate the potential timing and amount of these payments, and they have been excluded from the table above.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles.U.S. GAAP.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements.  On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued research and development expenses, income taxes, and stock-based compensation.  We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part I, Item 7, “Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2019.10-K. There have been no other changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2019.2020.


Off-Balance Sheet Arrangements

Since our inception, we have not had any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements, and we have not engaged in any other off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, please see Note 2, Summary of Significant Accounting Policies, of Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business.  These market risks are principally limited to interest rate fluctuations.  We had cash and cash equivalents of $624.5$777.6 million at March 31, 2020,2021, consisting primarily of funds in operating cash accounts.  The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk.  We do not enter into investments for trading or speculative purposes.  Due to the short-term nature of our investment portfolio, we do not believe an immediate increase of 100 basis points in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect a sudden change in market interest rates to affect materially our operating results or cash flows.

We also have interest rate exposure as a result of our Term Loans.  As of March 31, 2020, the outstanding principal amount of our Term Loans was $155.0 million.  Our Term Loans bear interest at a floating per annum rate calculated as 7.79% plus the greater of the 30-day U.S. Dollar LIBOR rate reported in The Wall Street Journal or 1.91%, with a minimum rate of 9.7% and a maximum rate of 12.29%.  Changes in the U.S. Dollar LIBOR rate may therefore affect our interest expense associated with the Term Loans.  An increase of 100 basis points in interest rates would increase expense by approximately $1.6 million annually based on the amounts currently outstanding and would not materially affect our results of operations.

We contract with research, development, and manufacturing organizations and investigational sites globally.  Generally, these contracts are denominated in United States dollars.  However, we may be subject to fluctuations


in foreign currency rates in connection with agreements not denominated in United States dollars.  We do not hedge our foreign currency exchange rate risk.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2020.2021.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on the evaluation of our disclosure controls and procedures as of March 31, 2020,2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.  


Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, during the three months ended March 31, 2020,2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

We are not currently subjectFor a discussion of material pending legal proceedings, please read Note 11, Commitments and Contingencies – Litigation, to any material legal proceedings.our condensed consolidated financial statements included in Part I, Item I, “Financial Statements (Unaudited),” of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

Item 1A. Risk Factors.

In addition to other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, which could materially affect our businesses, financial condition, or future results.  Additional risks and uncertainties currently unknown to us, or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition, or future results.  

The coronavirus disease (COVID-19) outbreak has caused and could continue to cause disruptionsThere have been no material changes in our business and operating results, including our clinical development activities.

The pandemic resultingrisk factors from the recent global outbreak of COVID-19 has had and could continue to have a negative impact on our business and operating results. We conduct clinical studies in many countries around the world that are being impacted by the COVID-19 pandemic. Regulatory agencies, governments, and health care providers have implemented restrictive measures, including but not limited to “shelter-in-place” orders, travel restrictions, and business closures, designed to reduce potential exposure to the virus, particularly for patients at increased risk of severe illness.  For each clinical development program, we are working with health care providers to implement changes that mitigate risk to patients; comply with regulatory, institutional, and government guidance; and maintain the integrity of our ongoing clinical studies.  These concerns have led us to pause enrollment in our FALCON trial, to stop our CATALYST and RANGER trials, and to adapt procedures for our remaining ongoing trials to address restrictions on travel and concerns for patient safety.  

As the global outbreak of COVID-19 continues to rapidly evolve, the duration and ultimate impact of COVID-19 on our business is highly uncertain and subject to change.  Should the COVID-19 outbreak cause extended disruptions at our clinical trial sites or safety concerns regarding our patients, our clinical development activities could be more significantly affected. In addition, our ability to obtain raw materials, supplies and component parts necessary to manufacture clinical supplies, our ability to deliver clinical drug to our patients in our clinical trials, and our ability to establish commercial supply capacity may be negatively impacted. The outbreak could cause health concerns with our personnel, including our executives, which could lead to reductionsthose described in the efficiency of our operations. The outbreak has caused and could continue to cause significant disruption of global financial markets, which may reduce our ability to access capital, which would negatively affect our liquidity.  While we will continue to develop plans to help mitigateAnnual Report on Form 10-K for the potential negative impact of a continued or expanded COVID-19 outbreak, and any future pandemic, on our business and operating results, our efforts may not prevent our business from being adversely affected.  year ended December 31, 2020.

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

None.


Item 3. Defaults Upon Senior Securities.

None.


Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.


Item 6. Exhibits.

 

Exhibit

Number

 

Description

 

 

 

  3.1

 

Thirteenth Amended and Restated Certificate of Incorporation, dated May 11, 2016 (incorporated by reference to Exhibit 3.7 to the Company’s Form S-1 (File No. 333-208843), filed with the SEC on May 16, 2016).

 

 

 

  3.2

 

Second Amended and Restated Bylaws, dated as of December 7, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on December 7, 2016).

 

 

  10.1+

Indemnification Agreement by and between the Company and Christy J. Oliger, dated as of April 15, 2021. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on April 15, 2021).

  10.2+

Indemnification Agreement by and between the Company and Shamim Ruff, dated as of April 15, 2021. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on April 15, 2021).

  10.3+

Notice of Grant of Restricted Stock Units for employees, dated as of December 2, 2020.

 

 

 

 

  31.1*

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2*

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1**

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.2**

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

Inline XBRL Instance Document

 

 

 

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

*

Filed herewith.

**

Furnished herewith.

+

Indicates management contract or compensatory plan.


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.

 

Date: May 11, 20206, 2021

REATA PHARMACEUTICALS, INC.

 

 

 

 

 

By:

 

/s/ J. Warren Huff

 

Name:

 

J. Warren Huff

 

Title:

 

Chief Executive Officer and President

 

 

 

By:

 

/s/ Manmeet S. Soni

 

Name:

 

Manmeet S. Soni

 

Title:

 

Chief Operating Officer, Chief Financial Officer, and Executive Vice President

 

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