mirm-10q_20190630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2019

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: 001-38981

 

Mirum Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

83-1281555

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

950 Tower Lane, Suite 1050, Foster City, California

94404

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 667-4085

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.0001 per share

 

MIRM

 

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

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

As of August 26, 2019, the registrant had 22,989,987 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Loss

3

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock, Redeemable Common Stock and Stockholders’ Deficit

4

 

Condensed Consolidated Statement of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

24

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 3.

Defaults Upon Senior Securities

67

Item 4.

Mine Safety Disclosures

67

Item 5.

Other Information

67

Item 6.

Exhibits

68

Signatures

69

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

(Note 2)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

41,817

 

 

$

51,963

 

Short-term investments

 

 

42,375

 

 

 

 

Prepaid expenses and other current assets

 

 

666

 

 

 

12

 

Total current assets

 

 

84,858

 

 

 

51,975

 

Long-term investments

 

 

16,108

 

 

 

 

Property and equipment, net

 

 

460

 

 

 

 

Operating lease right-of-use assets

 

 

969

 

 

 

 

Other assets

 

 

1,871

 

 

 

 

Total assets

 

$

104,266

 

 

$

51,975

 

Liabilities, Redeemable Convertible Preferred Stock, Redeemable Common Stock

   and Stockholders’ Deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,348

 

 

$

269

 

Accrued expenses

 

 

8,539

 

 

 

2,180

 

Operating lease liabilities

 

 

221

 

 

 

 

Total current liabilities

 

 

11,108

 

 

 

2,449

 

Operating lease liabilities

 

 

1,240

 

 

 

 

Other liabilities

 

 

42

 

 

 

 

Total liabilities

 

 

12,390

 

 

 

2,449

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Series A redeemable convertible preferred stock, $0.0001 par value; 120,000,000 shares

   authorized as of June 30, 2019 (unaudited) and December 31, 2018; 119,752,983 and

   59,908,284 shares issued and outstanding as of June 30, 2019 (unaudited) and

   December 31, 2018, respectively; and liquidation value of $120,064 and $60,064 as of

   June 30, 2019 (unaudited) and December 31, 2018, respectively.

 

 

119,826

 

 

 

59,849

 

Redeemable common stock, $0.0001 par value; 1,859,151 shares issued and

   outstanding as of June 30, 2019 (unaudited) and December 31, 2018

 

 

6,990

 

 

 

6,990

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 180,000,000 shares authorized as of

   June 30, 2019 (unaudited) and December 31, 2018; 1,161,718 shares issued and

   705,273 outstanding, excluding 456,445 shares subject to repurchase as of

   June 30, 2019 (unaudited); and 1,187,500 shares issued and 636,719 outstanding,

   excluding 550,781 shares subject to repurchase as of December 31, 2018

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

1,893

 

 

 

34

 

Accumulated deficit

 

 

(36,862

)

 

 

(17,348

)

Accumulated other comprehensive income

 

 

28

 

 

 

 

Total stockholders’ deficit

 

 

(34,940

)

 

 

(17,313

)

Total liabilities, redeemable convertible preferred stock, redeemable common

   stock and stockholders’ deficit

 

$

104,266

 

 

$

51,975

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

11,589

 

 

$

16,452

 

General and administrative

 

 

2,445

 

 

 

3,766

 

Total operating expenses

 

 

14,034

 

 

 

20,218

 

Loss from operations

 

 

(14,034

)

 

 

(20,218

)

Interest income

 

 

468

 

 

 

700

 

Other income, net

 

 

9

 

 

 

4

 

Net loss

 

$

(13,557

)

 

$

(19,514

)

Net loss per common share, basic and diluted

 

$

(5.31

)

 

$

(7.70

)

Weighted-average common shares outstanding, basic and diluted

 

 

2,551,822

 

 

 

2,534,877

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2019

 

Net loss

 

$

(13,557

)

 

$

(19,514

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale investments

 

 

46

 

 

 

46

 

Cumulative translation adjustments

 

 

(18

)

 

 

(18

)

Comprehensive loss

 

$

(13,529

)

 

$

(19,486

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock,

Redeemable Common Stock and Stockholders’ Deficit

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Series A Redeemable

Preferred Stock

 

 

Redeemable

Common Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Deficit

 

Balance as of December 31, 2018

 

 

59,908,284

 

 

$

59,849

 

 

 

1,859,151

 

 

$

6,990

 

 

 

 

636,719

 

 

$

1

 

 

$

34

 

 

$

(17,348

)

 

$

 

 

$

(17,313

)

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35,156

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

218

 

 

 

 

 

 

 

 

 

218

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,957

)

 

 

 

 

 

 

(5,957

)

Balance as of March 31, 2019

 

 

59,908,284

 

 

$

59,849

 

 

 

1,859,151

 

 

$

6,990

 

 

 

 

671,875

 

 

$

1

 

 

$

252

 

 

$

(23,305

)

 

$

 

 

$

(23,052

)

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series A redeemable convertible

   preferred stock at $1.00259507 per share,

   net of issuance costs of $23

 

 

59,844,699

 

 

 

59,977

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,641

 

 

 

 

 

 

 

 

 

1,641

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,557

)

 

 

 

 

 

(13,557

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

28

 

Balance as of June 30, 2019

 

 

119,752,983

 

 

$

119,826

 

 

 

1,859,151

 

 

$

6,990

 

 

 

 

705,273

 

 

$

1

 

 

$

1,893

 

 

$

(36,862

)

 

$

28

 

 

$

(34,940

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

Operating activities

 

 

 

 

Net loss

 

$

(19,514

)

Reconciliation of net loss to net cash used in operating activities:

 

 

 

 

Stock-based compensation

 

 

1,859

 

Depreciation and amortization

 

 

43

 

Amortization of operating lease right-of-use assets

 

 

72

 

Amortization of premium on investments

 

 

(35

)

Change in operating assets and liabilities:

 

 

 

 

Prepaid and other current assets

 

 

(654

)

Operating lease right-of-use assets

 

 

(33

)

Other assets

 

 

(89

)

Accounts payable, accrued expenses and other liabilities

 

 

7,865

 

Operating lease liabilities

 

 

43

 

Net cash used in operating activities

 

 

(10,443

)

Investing activities

 

 

 

 

Purchase of investments

 

 

(58,401

)

Purchase of property and equipment

 

 

(44

)

Net cash used in investing activities

 

 

(58,445

)

Financing activities

 

 

 

 

Proceeds from the issuance of preferred stock, net

 

 

59,977

 

Payment of deferred offering costs

 

 

(1,217

)

Net cash provided by financing activities

 

 

58,760

 

Effect of exchange rate on cash and cash equivalents

 

 

(18

)

Net decrease in cash and cash equivalents

 

 

(10,146

)

Cash and cash equivalents at beginning of period

 

 

51,963

 

Cash and cash equivalents at end of period

 

$

41,817

 

Supplemental disclosure of cash flow information:

 

 

 

 

Operating lease right-of-use asset obtained in exchange for operating lease liability

 

$

1,418

 

Landlord paid tenant improvements

 

$

461

 

Deferred initial public offering costs in accounts payable and accrued expenses

 

$

565

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

Mirum Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of Business

Mirum Pharmaceuticals, Inc. (the “Company”) was incorporated in the State of Delaware on May 2, 2018, and is headquartered in Foster City, California. The Company is a biopharmaceutical company focused on the development and commercialization of a late-stage pipeline of novel therapies for debilitating liver diseases. The Company’s pipeline consists of two clinical-stage product candidates, maralixibat and volixibat, with mechanisms of action that have potential utility across a wide range of orphan liver diseases. The Company commenced significant operations in November 2018.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Mirum Pharmaceuticals AG. All intercompany balances and transactions among the consolidated entities have been eliminated in consolidation.

Reverse Stock Split

On July 3, 2019, the Company effected a 1-for-8 reverse stock split of its common stock. The par value and the authorized number of shares of the common stock were not adjusted as a result of the reverse stock split. The reverse stock split resulted in an adjustment to the conversion price of the Company’s Series A redeemable convertible preferred stock (the “Series A Preferred Stock”) to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. The accompanying condensed consolidated financial statements and notes to the condensed consolidated financial statements give retroactive effect to the reverse stock split for all periods presented.

Initial Public Offering

On July 22, 2019, the Company completed its initial public offering (“IPO”) of its common stock. In connection with its IPO, the Company issued and sold 5,000,000 shares of its common stock at a price of $15.00 per share. As a result of the IPO, the Company received approximately $67.3 million in net proceeds, after deducting underwriting discounts, commissions and offering expenses. At the closing of the IPO, 119,752,983 shares of outstanding Series A Preferred Stock were automatically converted into 14,969,118 shares of common stock, and 1,859,151 shares of redeemable common stock were reclassified into permanent equity due to the expiration of the deemed redemption feature (see Note 7). Following the IPO, there were no shares of Series A Preferred Stock or shares of redeemable common stock outstanding.

The condensed consolidated financial statements as of June 30, 2019, including share and per share amounts, do not give effect to the IPO, the conversion of the Series A Preferred Stock into common stock, or the expiration of the deemed redemption feature on the redeemable common stock and related reclassification into permanent equity, as the IPO and such conversions and reclassification into permanent equity were completed subsequent to June 30, 2019.

Liquidity

The Company has a limited operating history, has incurred significant operating losses since its inception, and the revenue and income potential of the Company’s business and market are unproven. As of June 30, 2019, the Company had an accumulated deficit of $36.9 million and cash, cash equivalents and investments of $100.3 million, which is available to fund future operations. The Company believes that the net proceeds from the IPO, along with the Company’s cash, cash equivalents and investments as of June 30, 2019, provide sufficient capital resources to continue its operations for at least twelve months from the issuance date of the accompanying condensed consolidated financial statements. As such, the condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities.

6


 

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements.

The condensed consolidated balance sheet as of June 30, 2019, the condensed consolidated statements of operations for the three and six months ended June 30, 2019, the condensed consolidated statements of comprehensive loss for the three and six months ended June 30, 2019, the condensed consolidated statements of redeemable convertible preferred stock, redeemable common stock and stockholders’ deficit for the three and six months ended June 30, 2019 and the condensed consolidated statement of cash flows for the six months ended June 30, 2019 are unaudited. The financial data and the other financial information contained in these notes to the condensed consolidated financial statements related to the three month and six month periods are also unaudited.

The unaudited condensed consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. The condensed consolidated balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by GAAP for complete financial statements. The operating results presented in these unaudited condensed financial statements are not necessarily indicative of the results that may be expected for any future periods. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the prospectus dated July 17, 2019 that forms a part of the Company’s registration statement on Form S-1 (File No. 333-232251) as filed with the SEC pursuant to Rule 424(b)(4) promulgated under the Securities Act of 1933, as amended, on July 18, 2019.

As stated in Note 1, the Company did not commence significant operations until November 2018. From May 2, 2018 to June 30, 2018, the Company incurred $10,000 in general and administrative expenses.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the financial statements and accompanying notes. The most significant estimates in the Company’s condensed consolidated financial statements relate to accrued research and development expenses, the valuation of common stock, equity awards and the valuation allowance of deferred tax assets resulting from net operating losses. These estimates and assumptions are based upon historical experience, knowledge of current events and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. The carrying amounts reported in the condensed consolidated balance sheet for cash and cash equivalents are valued at cost, which approximate their fair value. Cash equivalents consists of money market accounts, money market funds, U.S. treasury bills and repurchase agreements.

The Company invests in certain reverse repurchase agreements, which are collateralized by deposits in the form of U.S. Treasury Securities for an amount no less than 102% of their value. The Company does not record an asset or liability for the collateral as the Company does not intend to sell or re-pledge the collateral. The collateral has the prevailing credit rating of at least the U.S. Government Treasuries and Agencies. The Company utilizes a third-party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the reverse repurchase agreements on a daily basis.

Investments

The Company classifies all investments as available-for-sale, as the sale of such securities may be required prior to maturity. Management determines the appropriate classification of its investments in debt securities at the time of purchase. Investments with original maturities beyond three months at the date of purchase and which mature at, or less than twelve months from the balance sheet date, are classified as a current asset.

7


 

Investments are carried at fair value, with unrealized gains and losses reported as accumulated other comprehensive income (loss) until realized. The Company periodically evaluates whether declines in fair values of its available-for-sale securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the available-for-sale security until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any available-for-sale securities before recovery of its amortized cost basis. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion, as well as interest and dividends, are included in interest income. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis and are also included in interest income.

Fair Value of Financial Instruments

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying amounts of all cash equivalents, investments, accounts payable and accrued liabilities are reasonable estimates of their fair value.

There were no transfers between Levels 1, 2 or 3 for the periods presented.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation, ranging from three to five years. Leasehold improvements are amortized over the shorter of their useful lives or the related lease term. As of June 30, 2019 and December 31, 2018, property and equipment consisted primarily of leasehold improvements of $0.5 million and zero, respectively. Accumulated depreciation as of June 30, 2019 and December 31, 2018 was $43,000 and zero, respectively.

Deferred Offering Costs

Offering costs, including legal, accounting, and filing fees related to the IPO, were deferred and were offset against the offering proceeds upon the completion of the IPO. As of June 30, 2019, $1.8 million of deferred offering costs have been capitalized and included in other assets in the accompanying condensed consolidated balance sheet. There were no deferred offering costs recorded as of December 31, 2018.

Accrued Research and Development Expenses

The Company accrues and expenses clinical trial activities performed by third parties based upon estimates of the proportion of work completed over the life of the individual study and patient enrollment rates in accordance with agreements established with clinical research organizations and clinical trial sites. The Company determines the estimates by reviewing contracts, vendor agreements and purchase orders and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.

The Company makes estimates of accrued expenses as of each balance sheet date based on facts and circumstances known to the Company at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. The Company has not experienced any material differences between accrued costs and actual costs incurred since its inception. Nonrefundable advance payments for goods and services are deferred and recognized as expense in the period that the related goods are consumed or services are performed.

8


 

Research and Development Expenses

Research and development expenses consist primarily of fees paid to contract research organizations and other vendors for clinical, non-clinical and manufacturing services, salaries and benefits, including stock-based compensation expense, consultant expenses, costs related to acquiring manufacturing materials, costs related to compliance with regulatory requirements and license payments related to acquiring intellectual property rights for the Company’s product candidates. Research and development expenses are expensed as incurred.

Leases

In accordance with ASU No. 2016-02, as adopted on January 1, 2019, the Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities, and long-term operating lease liabilities on our condensed consolidated balance sheet.

Operating lease ROU assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at commencement date calculated using the Company’s incremental borrowing rate applicable to the lease asset, unless the implicit rate is readily determinable. Operating lease ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives received. The Company determines the lease term as the noncancelable period of the lease and may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recognized on the condensed consolidated balance sheet. The Company’s leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Net Loss Per Share

Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, shares of Series A Preferred Stock are considered to be potentially dilutive securities and are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive to the Company’s net loss. Therefore, basic and diluted net loss per share were the same for the periods presented due to the Company’s net loss position.

Potentially dilutive securities as of June 30, 2019 and December 31, 2018 that have been excluded in the calculation of diluted net loss per share because to do so would be anti-dilutive are 14,969,118 and 7,488,530 shares of Series A Preferred Stock (in common stock equivalent shares), respectively.

Recently Adopted Accounting Pronouncements

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), which amends existing guidance to require substantially all leases to be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases, including qualitative and quantitative disclosures. There was no impact on the accompanying condensed consolidated financial statements as of the adoption date, January 1, 2019.

Other recent accounting pronouncements issued by the Financial Accounting Standards Board (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial position, results of operations or cash flows.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825,

9


 

Financial Instruments, which clarifies and corrects certain unintended applications of the guidance contained in each of the amended Topics. Additionally, in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326), which provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. The standard is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted for all periods beginning after December 15, 2018. The Company is currently in the process of evaluating the impact the standard will have on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). The standard eliminates, modifies and adds disclosure requirements for fair value measurements. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently in the process of evaluating the impact the standard will have on its condensed consolidated financial statements.

3. Fair Value Measurements

Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as Level 1. Investments are measured at fair value based on inputs other than quoted prices that are derived from observable market data and are classified as Level 2 inputs.

Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type are presented in the following table (in thousands):  

 

 

 

June 30, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

12,158

 

 

$

 

 

$

 

 

$

12,158

 

U.S. treasury bills

 

 

18,388

 

 

 

 

 

 

 

 

 

18,388

 

Repurchase agreement

 

 

 

 

 

15,000

 

 

 

 

 

 

15,000

 

Corporate debt securities

 

 

 

 

 

18,131

 

 

 

 

 

 

18,131

 

Commercial paper

 

 

 

 

 

9,917

 

 

 

 

 

 

9,917

 

U.S. government bonds

 

 

 

 

 

4,495

 

 

 

 

 

 

4,495

 

Asset backed securities

 

 

 

 

 

12,045

 

 

 

 

 

 

12,045

 

Total

 

$

30,546

 

 

$

59,588

 

 

$

 

 

$

90,134

 

 

4. Financial Instruments

The fair value and amortized cost of cash equivalents and available-for-sale investments by major security type are presented in the following table (in thousands):

 

 

 

June 30, 2019

 

 

 

Amortized

cost

 

 

Unrealized

gain

 

 

Unrealized

loss

 

 

Estimated

Fair

Value

 

Cash equivalents and investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

12,158

 

 

$

 

 

$

 

 

$

12,158

 

U.S. treasury bills

 

 

18,376

 

 

 

12

 

 

 

 

 

 

18,388

 

Repurchase agreement

 

 

15,000

 

 

 

 

 

 

 

 

 

15,000

 

Corporate debt securities

 

 

18,107

 

 

 

26

 

 

 

(2

)

 

 

18,131

 

Commercial paper

 

 

9,917

 

 

 

 

 

 

 

 

 

9,917

 

U.S. government bonds

 

 

4,494

 

 

 

1

 

 

 

 

 

 

4,495

 

Asset back securities

 

 

12,036

 

 

 

10

 

 

 

(1

)

 

 

12,045

 

Total cash equivalents and investments

 

$

90,088

 

 

$

49

 

 

$

(3

)

 

$

90,134

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

31,651

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42,375

 

Long-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,108

 

Total cash equivalents and investments

 

 

 

 

 

 

 

 

 

 

 

 

 

$

90,134

 

 

10


 

As of June 30, 2019, the remaining contractual maturities of available-for-sale investments were less than two years. There have been no significant realized losses on available-for-sale investments for the period presented. During the six months ended June 30, 2019, the Company did not recognize any other-than-temporary impairment losses.

5. Accrued Expenses

Accrued expenses consists of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accrued milestones for Shire and Satiogen (see Note 6)

 

$

3,000

 

 

$

 

Accrued costs for Shire

 

 

1,542

 

 

 

1,310

 

Accrued clinical trials

 

 

1,513

 

 

 

785

 

Accrued professional service fees

 

922

 

 

70

 

Accrued contract manufacturing and non-clinical costs

 

 

803

 

 

 

 

Accrued compensation and related benefits

 

759

 

 

15

 

Total accrued expenses

 

$

8,539

 

 

$

2,180

 

 

6. Asset Acquisitions

Assignment and License Agreement with Shire International GmbH

On November 5, 2018, the Company entered into an Assignment and License Agreement (the “Shire Agreement”) with Shire International GmbH (“Shire”). Under the terms of the Shire Agreement, Shire granted the Company an exclusive, royalty bearing worldwide license to develop and commercialize its two product candidates, maralixibat and volixibat. As part of the Shire Agreement, the Company was assigned license agreements held by Shire with Satiogen Pharmaceuticals, Inc. (“Satiogen”), Pfizer Inc. (“Pfizer”) and Sanofi-Aventis Deutschland GmbH (“Sanofi”). The Company has the right to sublicense under the Shire Agreement and additionally has the right to sublicense under the Satiogen, Pfizer and Sanofi licenses subject to the terms of those license agreements.

In consideration for the rights granted to the Company under the Shire Agreement, the Company made an upfront payment to Shire on November 5, 2018 of $7.5 million and issued Shire 1,859,151 shares of its redeemable common stock with an estimated fair value of $7.0 million, or $3.76 per share. The fair value of the shares was determined using an option pricing model with key assumptions as of the date of issuance including the probabilities of liquidity scenarios, enterprise value, time to liquidity, risk-free interest rates, volatility and discount for lack of marketability.

The Company accounted for the transaction as an asset acquisition as substantially all of the fair value of the gross assets acquired were concentrated in a group of similar identifiable assets thus satisfying the requirements of the screen test in ASU 2017-01. The assets acquired in the transaction were measured based on the upfront payment to Shire and the fair value of the common stock shares issued to Shire, as the fair value of the consideration given was more readily determinable than the fair value of the assets received. Because the assets had not yet received regulatory approval and have no alternative future use, the fair value attributable to these assets were initially recorded as in process research and development expenses.

The Company is also obligated to pay Shire up to an aggregate of $109.5 million upon the achievement of certain clinical development and regulatory milestones for maralixibat in certain indications and an additional $25.0 million upon regulatory approval of maralixibat for each and every other indication. In addition, the Company is required to pay up to an aggregate of $30.0 million upon the achievement of certain clinical development and regulatory milestones for volixibat solely for the first indication sought. Upon commercialization, the Company is obligated to pay Shire product sales milestones on total licensed products up to an aggregate of $30.0 million. The Company is also obligated to pay tiered royalties with rates ranging from low double-digits to mid-teens based upon annual worldwide net sales for all licensed products; however, these royalties are reduced in part by royalties due under the Satiogen and Sanofi licenses, as discussed below, related to maralixibat and volixibat, as applicable. The Company’s royalty obligations will continue on a licensed product-by-licensed product and country-by-country basis until the later to occur of the expiration of the last valid claim in a licensed patent covering the applicable licensed product in such country, expiration of any regulatory exclusivity for the licensed product in a country and ten years after the first commercial sale of a licensed product in such country. In July 2019, the Company achieved a development milestone related to the initiation of the Phase 3 MARCH-PFIC clinical trial, which obligates the Company to make a $2.5 million payment to Shire. The Company considered the achievement probable as of June 30, 2019 and recorded an accrual of $2.5 million, which is included in accrued expenses on the accompanying condensed consolidated balance sheet as of June 30, 2019, and in research and development expense in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2019.

11


 

Concurrent with the Shire Agreement, the Company also entered into a Transition Services Agreement (“TSA”) with Shire, which covers services provided by Shire to transfer the research and development activities and the related know-how from Shire to the Company, including continuation of work on any existing clinical trials and manufacturing activities until fully transferred. The Company recorded $14,000 and $0.4 million for services provided by Shire under the TSA for the three and six months ended June 30, 2019, respectively. Additionally, the Company recorded a reduction of estimated expenses of $0.3 million and $0.1 million for pass through costs related to continuation of work on existing clinical trials and manufacturing activities for the three and six months ended June 30, 2019, respectively. The reduction of estimated expenses for the three and six months ended June 30, 2019 was related to a final reconciliation of expenses and agreement on final amounts due to Shire.

 

As of June 30, 2019 and December 31, 2018, $1.5 million and $2.1 million, respectively, was recorded in accrued expenses on the consolidated balance sheets for these services.

Satiogen License

Through the Shire Agreement, the Company was assigned a license agreement with Satiogen pursuant to which the Company obtained an exclusive, worldwide license to certain patents and know-how, with the right to sublicense to a third party subject to certain financial considerations. The Company is obligated to pay to Satiogen up to an aggregate of $10.5 million upon the achievement of certain milestones, of which $0.5 million was for initiation of certain development activities, $5.0 million for the completion of regulatory approvals and $5.0 million for commercialization activities. Additionally, the Company will be required to pay a low single-digit royalty on net sales. The Company’s royalty obligations continue on a licensed product-by-licensed product and country-by-country basis until the expiration of the last valid claim in a licensed patent covering the applicable licensed product in such country. Royalty obligations under the Satiogen license are creditable against the royalty obligations to Shire under the Shire Agreement.  In July 2019, the Company achieved a development milestone related to the initiation of the Phase 3 MARCH-PFIC clinical trial, which obligates the Company to make a $0.5 million payment to Satiogen. The Company considered the achievement probable as of June 30, 2019 and recorded an accrual of $0.5 million, which is included in accrued expenses on the accompanying condensed consolidated balance sheet as of June 30, 2019, and in research and development expense in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2019.

Pfizer License

Through the Shire Agreement, the Company was assigned a license agreement with Pfizer pursuant to which the Company obtained an exclusive, worldwide license to certain Pfizer know-how with a right to sublicense. Upon commercialization of any product utilizing the licensed product, the Company will be required to pay to Pfizer a low single-digit royalty on net sales of product sold by the Company, its affiliates or sublicensees. The Company’s royalty obligations continue on a licensed product-by-licensed product basis until the eighth anniversary of the first commercial sale of such licensed product anywhere in the world.

Sanofi License

Through the Shire Agreement, the Company was assigned a license agreement with Sanofi pursuant to which the Company obtained an exclusive, worldwide license to certain patents and know-how with the right to sublicense to a third party subject to certain financial considerations. The Company is obligated to pay up to an aggregate of $36.0 million upon the achievement of certain regulatory, commercialization and product sales milestones. Additionally, upon commercialization, the Company is required to pay tiered royalties in the mid to high single-digit range based upon net sales of licensed products sold by the Company and sublicensees in a calendar year, subject to adjustments in certain circumstances. The Company’s royalty obligations continue on a licensed product-by-licensed product and country-by-country basis until the later to occur of the expiration of the last valid claim in a licensed patent covering the applicable licensed product in such country and ten years after the first commercial sale of a licensed product in such country. Royalty obligations under the Sanofi license are creditable against the royalty obligations to Shire under the Shire Agreement. As of June 30, 2019, no milestones had been accrued as there were no potential milestones yet considered probable.

7. Series A Preferred Stock and Stockholders’ Deficit

Series A Preferred Stock

On November 5, 2018, the Company entered into a Series A Preferred Stock Purchase Agreement with various investors for issuance of up to 119,752,983 shares of Series A Preferred Stock at a purchase price of $1.00259507 per share. In an initial closing, the Company issued 59,908,284 shares of Series A Preferred Stock at $1.00259507 per share, for approximately $59.8 million in cash and the conversion of approximately $51,014 in principal and accrued interest under convertible promissory note.

12


 

On April 12, 2019, the Second Closing of Series A Preferred Stock was completed for issuance of 59,844,699 shares and cash proceeds of $60.0 million.

The Series A Preferred Stock has been classified outside of stockholders’ deficit as temporary equity on the accompanying condensed consolidated balance sheet because the shares contain certain redemption features that are not solely within the control of the Company. The Series A Preferred Stock is not generally redeemable; however, upon certain change in control events that are outside of the Company’s control, including liquidation, sale or transfer of control of the Company, holders of the Series A Preferred Stock may have the right to receive its liquidation preference under the terms of the Company’s certificate of incorporation. The Company is not adjusting the carrying value of the Series A Preferred Stock as it is uncertain whether or when a redemption event will occur.

Upon the completion of the IPO (see Note 1), all outstanding shares of Series A Preferred Stock were automatically converted into 14,969,118 shares of common stock.

Redeemable Common Stock

In connection with the Shire License Agreement, the Company entered into a common stock issuance agreement (the “Common Stock Agreement”) with Shire and issued 1,859,151 shares of the Company’s common stock (the “Shire Stock”), or 9% of the Company’s outstanding fully diluted shares issued as of June 30, 2019. Pursuant to the terms of the Common Stock Agreement, (1) in the event of an initial public offering prior to the occurrence of certain liquidation events, if Shire’s ownership of the Company’s common stock is less than 5% of the outstanding fully diluted shares of common stock immediately prior to the closing of the IPO, the Company will issue additional shares of common stock to increase Shire’s ownership to 5% of the then-outstanding fully diluted shares, and (2) in the event that certain liquidation events occur prior to an initial public offering and Shire’s ownership is less than 5% of the then outstanding fully diluted shares of common stock, Shire is entitled to receive additional proceeds, if needed, to equal 5% of proceeds available for distribution to the Company’s security holders.

The Shire Stock has been classified outside of stockholders’ deficit as temporary equity on the accompanying condensed consolidated balance sheet because these features are deemed for accounting purposes to contain certain redemption features that may be triggered in the event of certain liquidation events that are not solely in the control of the Company. The Company is not adjusting the carrying value of the Shire Stock as it is uncertain whether or when a redemption event will occur.

Upon the completion of the IPO (see Note 1), the Shire Stock was reclassified to permanent equity due to the expiration of the deemed redemption feature.

Common Stock

In August and October 2018, the Company issued 1,187,500 shares of common stock as founder shares for services rendered to the Company, valued at $0.0001 per share for consideration of approximately $950. On November 5, 2018, in connection with the issuance of the Series A Preferred Stock, vesting conditions were placed on 562,500 previously issued founder shares. These shares vest over 4 years and are subject to repurchase by the Company in the event of termination of services. Shares subject to repurchase are not deemed, for accounting purposes, to be outstanding until those shares vest. In April 2019, the Company repurchased 25,782 shares of the common stock from a former employee in connection with termination of employment.

As of June 30, 2019 and December 31, 2018, 456,445 and 550,781 shares of common stock, respectively, were subject to repurchase by the Company. The unvested stock liability related to these shares is immaterial to all periods presented.

Each share of common stock is entitled to one voting right. Common stockholders are entitled to dividends when funds are legally available and declared by the Board.

13


 

Common Stock Reserved for Issuance

Common stock reserved for issuance is as follows:

 

 

 

As of June 30,

 

 

As of December 31,

 

 

 

2019

 

 

2018

 

Conversion of preferred stock

 

 

14,969,118

 

 

 

7,488,530

 

Stock options issued and outstanding

 

 

3,077,812

 

 

 

 

Reserved for future stock awards or option grants

 

 

101,443

 

 

 

1,859,151

 

 

 

 

18,148,373

 

 

 

9,347,681

 

 

8. Stock-Based Compensation

Equity Incentive Plans

On November 5, 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) which permits the granting of stock awards and incentive and nonstatutory stock options to employees, directors and consultants of the Company. As of June 30, 2019, 3,179,255 shares of common stock were authorized for issuance under the 2018 Plan.

Stock Options

The fair value of each employee and non-employee stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Prior to its IPO (see Note 1) the Company was a private company and lacked company-specific historical and implied volatility information. Therefore, it estimated its expected volatility based on the historical volatility of a publicly traded set of peer companies. Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

No stock options were granted for the period from May 2, 2018 to June 30, 2018. The following assumptions were used to estimate the fair value of stock option awards granted during the following periods:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2019

 

2019

Exercise price

 

$2.94-$6.27

 

$2.94-$6.27

Expected term (in years)

 

6.0-6.3

 

6.0-6.3

Expected volatility

 

73.88%-75.12%

 

73.88%-75.12%

Risk-free interest rate

 

1.98%-2.25%

 

1.98%-2.46%

Expected dividend yield

 

 

Grant date fair value of options granted

 

$8.37-$10.46

 

$7.47-$10.46

 

The following table summarizes stock option activity during the six months ended June 30, 2019 (in thousands, except share and per share data):

 

 

 

Number of

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Life

(in Years)

 

 

Total

Intrinsic

Value

 

Outstanding as of December 31, 2018

 

 

 

 

$

 

 

 

 

 

$

 

Additional options authorized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

3,077,812

 

 

$

4.73

 

 

 

9.8

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

 

Canceled and forfeited

 

 

 

 

$

 

 

 

 

 

 

 

 

Outstanding as of June 30, 2019

 

 

3,077,812

 

 

$

4.73

 

 

 

9.8

 

 

$

29,007

 

Vested and exercisable as of June 30, 2019

 

 

1,002

 

 

$

2.94

 

 

 

9.7

 

 

$

11

 

 

14


 

As of June 30, 2019, the total unrecognized stock-based compensation related to unvested stock option awards granted was $24.4 million, which the Company expects to recognize over a weighted-average period of approximately 3.6 years.

Restricted Stock

On November 5, 2018, in connection with the issuance of the Series A Preferred Stock, the Company’s founders agreed to modify their outstanding shares of common stock to include vesting provisions that require continued service to the Company in order to vest in those shares. As such, the 562,500 modified shares of common stock became compensatory upon such modification. The total compensation cost resulting from the modification was $1.7 million. The modified shares have a four year vesting period and a measurement date fair value of $2.936 per share. For the three and six months ended June 30, 2019, 33,398 and 68,555 shares vested, respectively. As of June 30, 2019, the total unrecognized compensation expense related to unvested restricted stock was $1.3 million expected to be recognized over a weighted-average period of approximately 3.4 years.

Stock-based compensation expense is reflected in the condensed consolidated statements of operations (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2019

 

General and administrative

 

$

1,003

 

 

$

1,150

 

Research and development

 

 

638

 

 

 

709

 

Total

 

$

1,641

 

 

$

1,859

 

 

9. Leases

On January 22, 2019, the Company entered into an agreement for the Company’s corporate headquarters for approximately 5,600 square feet of office space. The lease term is for approximately four years with the option to extend the term for one five-year term. The Company has not included the renewal period in its lease term as exercise of the renewal option term was not determined to be reasonably certain to be executed. The lease additionally contains a tenant improvement allowance of $0.4 million, which has been recorded in the accompanying condensed consolidated balance sheet as of June 30, 2019 as leasehold improvements with corresponding reduction of the right-of use asset at inception of the lease. Costs determined to be variable and not based upon an index or rate were not included in the measurement of the operating lease liability.

Monthly rent expense is recognized on a straight-line basis over the term of the lease. The operating lease is included in the balance sheet at the present value of the lease payments at an 8% discount rate using the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment as the lease does not provide an implicit rate. The weighted average remaining lease term was 4.0 years.

Gross future minimum annual rental commitments as of June 30, 2019 were as follows (in thousands):

 

Year ending December 31,

 

Undiscounted

Rent Payments

 

2019 (remaining six months)

 

$

116

 

2020

 

 

436

 

2021

 

 

448

 

2022

 

 

460

 

2023

 

 

252

 

2024

 

 

15

 

Total undiscounted rent payments

 

 

1,727

 

Less: imputed interest

 

 

(266

)

Total lease liability

 

$

1,461

 

 

There was no cash paid for amounts included in the measurement of lease liabilities for the three and six months ended June 30, 2019.

The Company recorded $0.1 million in rent expense for the three and six months ended June 30, 2019. There was no rent expense recorded for the period from May 2, 2018 to June 30, 2018.

15


 

10. Income Taxes

The Company did not record tax expense for the three and six months ended June 30, 2019 and 2018 due to the Company’s loss position and full valuation allowance.

11. Subsequent Events

2019 Equity Incentive Plan

In July 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan became effective on July 17, 2019. Under the 2019 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other stock or cash-based awards to individuals who are then employees, officers, directors or consultants of the Company. A total of 1,401,443 shares of common stock were approved to be initially reserved for issuance under the 2019 Plan including 101,443 shares that remained available for issuance under the 2018 Plan as of July 17, 2019. Shares subject to outstanding awards under the 2018 Plan as of the effective date of the 2019 Plan that are subsequently canceled, forfeited or repurchased by the Company will be added to the shares reserved under the 2019 Plan. In addition, the number of shares of common stock available for issuance under the 2019 Plan will be automatically increased on the first day of each calendar year during the ten-year term of the 2019 Plan, beginning with January 1, 2020 and ending with January 1, 2029, by an amount equal to 5% of the outstanding number of shares of the Company’s common stock on December 31st of the preceding calendar year or such lesser amount as determined by the Company’s board of directors.

2019 Employee Stock Purchase Plan

In July 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective on July 17, 2019. A total of 500,000 shares of common stock were approved to be initially reserved for issuance under the ESPP. In addition, the number of shares of common stock available for issuance under the ESPP will be automatically increased on the first day of each calendar year during the first ten-years of the term of the ESPP, beginning with January 1, 2020 and ending with January 1, 2029, by an amount equal to the lessor of (i) 1% of the outstanding number of shares of common stock on December 31st of the preceding calendar year, (ii) 1,500,000 shares of common stock or (iii) such lesser amount as determined by the Company’s board of directors.

Stock Option Grant

In July 2019, the Company’s board of directors approved the grant of an option to purchase 17,000 shares of common stock to a director nominee upon the completion of the IPO.

Initial Public Offering

In July 2019, in connection with the completion of its IPO, the Company’s amended and restated certificate of incorporation was further amended and restated to provide for 200,000,000 authorized shares of common stock with a par value of $0.0001 per share and 10,000,000 authorized shares of preferred stock with a par value of $0.0001 per share.

16


 

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 in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our prospectus dated July 17, 2019 that forms a part of our Registration Statement on Form S-1 (File No. 333-232251), as filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), on July 18, 2019 (“Prospectus”). Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company”, “Mirum,” “we,” “us” and “our” refer to Mirum Pharmaceuticals, Inc. and its consolidated subsidiary.

Forward-Looking Statements

In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” or the negative of these terms or other similar expressions.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Overview

We are a biopharmaceutical company focused on the development and commercialization of a late-stage pipeline of novel therapies for debilitating liver diseases. We focus on diseases for which the unmet medical need is high and the biology for treatment is clear. Our pipeline consists of two clinical-stage product candidates with mechanisms of action that have potential utility across a wide range of orphan liver diseases. We are initially developing maralixibat for the treatment of progressive familial intrahepatic cholestasis (“PFIC”) and Alagille syndrome (“ALGS”) in pediatric patients. Based on improvements in pruritus and other disease markers observed in Phase 2 clinical trials, we commenced enrollment in the Phase 3 MARCH clinical trial in PFIC in the second quarter of 2019 and are planning to initiate a Phase 3 clinical trial in ALGS in the first half of 2020. We are developing volixibat for the treatment of adult patients with cholestatic liver diseases and expect to initiate Phase 2 clinical trials in 2020. In addition to data from ongoing clinical trials of maralixibat, we expect to complete enrollment in the Phase 3 MARCH-PFIC clinical trial in the second quarter of 2020 and announce topline Phase 3 data in late-2020 and clinical data for volixibat in 2022.

We were incorporated in May 2018 and commenced operations in November 2018. To date, we have focused primarily on acquiring and in-licensing our product candidates, maralixibat and volixibat, organizing and staffing our company, business planning, raising capital, and preparing for advancement of our product candidates into clinical development.

We have incurred significant operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable future. We have no products approved for commercial sale and have never generated any revenues from product sales. Through June 30, 2019, we have raised net cash proceeds of approximately $119.8 million to fund operations through equity financings. Our net loss was $13.6 million and $19.5 million for the three and six months ended June 30, 2019, respectively. As of June 30, 2019, we had an accumulated deficit of $36.9 million and cash, cash equivalents and investments of $100.3 million. We expect our expenses and operating losses will increase substantially as we conduct our planned clinical trials, continue our research and development activities and conduct preclinical studies, and seek regulatory approvals for our product candidates, as well as hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company. In addition, as our product candidates progress through development and toward commercialization, we will need to make milestone payments to the licensors and other third parties from whom we have in-licensed or acquired our product candidates. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending in particular on the timing of our clinical trials and preclinical studies and our expenditures on other research and development activities.

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We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.

Accordingly, until such time as we can generate substantial product revenues to support our cost structure, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate our product candidate development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

On July 22, 2019, we completed our initial public offering (“IPO”) whereby we sold an aggregate of 5,000,000 shares of our common stock at a price of $15.00 per share, resulting in net proceeds of approximately $67.3 million after deducting underwriting discounts, commissions and offering expenses payable by us.

Assignment and License Agreement with Shire

In November 2018, we entered into an assignment and license agreement (“Shire License Agreement”) with Shire International GmbH (“Shire”), in which we were granted an exclusive, royalty bearing worldwide license to develop and commercialize our two product candidates, maralixibat and volixibat. As part of the Shire License Agreement, we were assigned license agreements held by Shire with Satiogen Pharmaceuticals, Inc. (“Satiogen” and altogether, the “Satiogen License”), Pfizer Inc. (“Pfizer”), and Sanofi-Aventis Deutschland GmbH (“Sanofi”). In partial consideration for the rights granted to us under the Shire License Agreement, we made an upfront payment to Shire of $7.5 million and issued Shire 1,859,151 shares of our common stock with an estimated fair value of $7.0 million.

In January 2019, we entered into a Transition Services Agreement with Shire (“TSA”), which covered services to be provided by Shire to transfer certain research and development activities and the related know-how from Shire to us, including continuation of work on any existing trials and manufacturing activities until fully transferred to us. As of June 30, 2019, we have completed the activities under the TSA and finalized amounts due to Shire for services and pass through expenses on existing trials and manufacturing activities.

In July 2019, we achieved a development milestone under the Shire License Agreement related to the initiation of the Phase 3 MARCH-PFIC clinical trial, which obligates us to make a $2.5 million payment to Shire and a $0.5 million payment to Satiogen.

See Note 6 to our condensed consolidated financial statements.

Components of Results of Operations

Operating Expenses

Research and Development Expenses

Research and development expenses have related primarily to preclinical and clinical development of our product candidates. Our research and development expenses include or could include:

 

salaries and related expenses for employee personnel, including benefits, travel and expenses related to stock-based compensation granted to personnel in development functions;

 

external expenses paid to clinical trial sites, contract research organizations and consultants that conduct our clinical trials;

 

expenses related to drug formulation development and the production of nonclinical and clinical trial supplies, including fees paid to contract manufacturers;

 

licensing milestone payments related to development, regulatory or commercialization events;

 

expenses related to nonclinical studies;

 

expenses related to compliance with drug development regulatory requirements; and

 

other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of equipment, and other supplies.

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We expense research and development costs as incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Because our product candidates are still in clinical and nonclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when, we may achieve profitability. Due to the early stage nature of our programs, we do not track costs on a project by project basis. As our programs become more advanced, we intend to track the external and internal cost of each program.

General and Administrative Expense

General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and insurance costs.

We expect that our general and administrative expenses will increase in the future as we expand our operating activities, increase headcount, as well as incur additional costs associated with being a publicly traded company and maintaining compliance with exchange listing and SEC requirements. These increases will likely include increased personnel expenses, legal fees, accounting fees, directors’ and officers’ liability insurance premiums and fees associated with investor relations and maintaining compliance with exchange listing and SEC requirements associated with operating as a public company.

Interest Income

Interest income consists of interest earned on our cash, cash equivalents and investments.

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 condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“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 at the date of the financial statements. We base our estimates upon 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 value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

We believe that the assumptions and estimates associated with accrued research and development expenditures and stock-based compensation have the most significant impact on our condensed financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

There have been no significant changes during the six months ended June 30, 2019 in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Prospectus, except for the determination of the fair value of our common stock, which is used in estimating the fair value of stock-based awards at grant date as discussed below.

Prior to our IPO, our common stock was not publicly traded, therefore we estimated the fair value of our common stock as discussed in the Prospectus. Following our IPO, the closing sale price per share of our common stock as reported on the Nasdaq Global Market (“Nasdaq”) on the date of grant will be used to determine the exercise price per share of our share-based awards to purchase common stock.

Recent Accounting Pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our condensed consolidated financial statements.

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Results of Operations for the Three Months Ended June 30, 2019

The following table sets forth our results of operations for the three months ended June 30, 2019 (in thousands):

 

 

 

Three Months Ended June 30,

 

 

 

2019

 

Operating expenses:

 

 

 

 

Research and development

 

$

11,589

 

General and administrative

 

 

2,445

 

Total operating expenses

 

 

14,034

 

Loss from operations

 

 

(14,034

)

Interest income

 

 

468

 

Other income, net

 

 

9

 

Net loss

 

$

(13,557

)

 

Research and Development Expenses

Research and development expenses were $11.6 million for the three months ended June 30, 2019 and were comprised primarily of $4.7 million for clinical trials and manufacturing expenses, including a reduction of estimated pass through expenses due to Shire of $0.3 million, $3.0 million for development milestone expenses related to initiation of the Phase 3 MARCH-PFIC clinical trial, $1.9 million of compensation related expenses, including stock-based compensation of $0.6 million, $0.9 million of consulting expenses, $0.6 million of expenses related to other general expenses and $0.5 million of non-clinical expenses.

General and Administrative Expenses

General and administrative expenses were $2.4 million for the three months ended June 30, 2019 and were comprised primarily of $1.8 million of compensation related expenses, including stock-based compensation of $1.0 million, $0.2 million of general legal and patent expenses, $0.2 million of professional services and $0.2 million of expenses related to other general expenses.

Interest Income

Interest income was $0.5 million for the three months ended June 30, 2019 and was comprised of interest earned on our cash, cash equivalents and investments during the period.

Results of Operations for the Six Months Ended June 30, 2019

The following table sets forth our results of operations for the six months ended June 30, 2019 (in thousands):

 

 

 

Six Months Ended

June 30,

 

 

 

2019

 

Operating expenses:

 

 

 

 

Research and development

 

$

16,452

 

General and administrative

 

 

3,766

 

Total operating expenses

 

 

20,218

 

Loss from operations

 

 

(20,218

)

Interest income

 

 

700

 

Other income, net

 

 

4

 

Net loss

 

$

(19,514

)

 

Research and Development Expenses

Research and development expenses were $16.5 million for the six months ended June 30, 2019 and were comprised primarily of $7.5 million for clinical trials and manufacturing expenses, including a reduction of estimated pass through expenses due to Shire of $0.1 million, $3.0 million for development milestone expenses related to initiation of the Phase 3 MARCH-PFIC clinical trial, $2.7 million of compensation related expenses, including stock-based compensation of $0.7 million, $1.6 million of consulting expenses, $0.8 million of expenses related to other general expenses, $0.5 million of non-clinical expenses and $0.4 million of expenses related to services performed under the TSA with Shire.

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General and Administrative Expenses

General and administrative expenses were $3.8 million for the six months ended June 30, 2019 and were comprised primarily of $2.2 million of compensation related expenses, including stock-based compensation of $1.2 million, $0.6 million of general legal and patent expenses, $0.6 million of professional services and $0.4 million of expenses related to other general expenses.

Interest Income

Interest income was $0.7 million for the six months ended June 30, 2019 and was comprised of interest earned on our cash, cash equivalents and investments during the period.

Liquidity and Capital Resources

Overview

To date, we have incurred operating losses and negative cash flows from operations. Prior to our IPO, our operations have been financed primarily by net proceeds from the sale and issuance of our Series A redeemable convertible preferred stock (“Series A Preferred Stock”). As of June 30, 2019 and December 31, 2018, we had an accumulated deficit of $36.9 million and $17.3 million, respectively.

We anticipate that we will continue to incur net losses for the foreseeable future as we continue research efforts and the development of our product candidates, hire additional staff, including clinical, scientific, operational, financial and management personnel, and incur additional costs associated with being a public company.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Through June 2019, we have raised net cash proceeds of approximately $119.8 million primarily through equity financings. As of June 30, 2019, we had cash, cash equivalents and investments of $100.3 million. As of December 31, 2018, we had cash and cash equivalents of $52.0 million.

On July 22, 2019, we closed our IPO and issued an aggregate of 5,000,000 share of common stock at a price of $15.00 per share. We received net proceeds of approximately $67.3 million, after underwriting discounts, commissions and offering expenses.

We expect that the net proceeds from our IPO, together with our existing cash, cash equivalents and investments, will be sufficient to fund our operations for at least the next twelve months.

Until such time, if ever, as we can generate substantial product revenue from sales of maralixibat, volixibat or any future product candidates, we expect to finance our cash needs through a combination of equity offerings, debt financings and potential collaboration, license or development agreements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect rights as a stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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Cash Flows

The following table provides a summary of the net cash flow activity for the period indicated (in thousands):

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

Net cash used in operating activities

 

$

(10,443

)

Net cash used in investing activities

 

 

(58,445

)

Net cash provided by financing activities

 

 

58,760

 

Effect of exchange rate on cash and cash equivalents

 

 

(18

)

Net decrease in cash and cash equivalents

 

$

(10,146

)

 

Net cash used in operating activities was $10.4 million for the six months ended June 30, 2019, which consisted primarily of our net loss of $19.5 million reduced by $1.9 million stock-based compensation expense and a $7.1 million decrease in net assets due to an increase in accounts payable, accrued expenses and other liabilities primarily due to clinical and manufacturing activities of $7.9 million, an increase in prepaid expenses and other current assets of $0.7 million and an increase in other assets of $0.1 million.

Net cash used in investing activities was $58.4 million for the six months ended June 30, 2019, which primarily consisted of purchases of investments.

Net cash provided by financing activities was $58.8 million for the six months ended June 30, 2019, which consisted of $60.0 million in net proceeds from the issuance of 59,844,699 shares of Series A Preferred Stock, partially offset by cash payments of deferred offering costs incurred in connection with our IPO of $1.2 million.

Contractual Obligations and Commitments

The following table summarizes our principal contractual obligations and commitments as of June 30, 2019 that will affect our future liquidity (in thousands):

 

 

 

Payments due by period

 

 

 

Total