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May 11, 2020, 4:26 p.m. EDT


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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Operating results for the three months ended March 31, 2020, are not necessarily indicative of results that may occur in future interim periods or for the full fiscal year.

primary sclerosing cholangitis (PSC), a rare, chronic cholestatic liver disease characterized by diffuse inflammation and fibrosis of the intrahepatic and extrahepatic bile ducts.

Nonalcoholic steatohepatitis (NASH), a prevalent and serious chronic liver disease caused by excessive fat accumulation in the liver that results in inflammation and cellular injury that can progress to fibrosis and cirrhosis, and potentially liver failure and death.

In the fourth quarter of 2019, all development programs for seladelpar were placed on clinical hold pending an investigation into atypical histologic findings identified by study pathologists in our Phase 2b study for seladelpar in patients with NASH.

        analysis from the study was also shared on the effect of seladelpar on pruritus,
        or itching, which is a common clinical symptom of PBC that adversely effects a
        patient's quality of life. After 26 weeks, the median changes in the pruritus
        visual analog scale (VAS) was
        in the 5 /10 and 10 mg groups, respectively. These data suggest that seladelpar
        is not associated with drug-induced pruritus and support further evaluation of
        seladelpar's potential benefit on pruritus.
        In February 2019, the FDA granted seladelpar Breakthrough Therapy Designation
        for the treatment of early stage PBC, and in October 2016, seladelpar received
        EMA PRIority MEdicines (PRIME) designation for the treatment of PBC. In November
        2016, the FDA granted orphan drug designation to seladelpar for the treatment of
        PBC, and in September 2017, the EMA's Committee for Orphan Medicinal Products
        (COMP) granted orphan drug designation to seladelpar for the treatment of PBC.
        Nonalcoholic Steatohepatitis (NASH)
        In February 2019, we completed enrollment of a placebo-controlled Phase 2b
        study to evaluate seladelpar at three doses in biopsy-proven NASH. The primary
        efficacy outcome is the change from baseline in liver fat content at 12 weeks
        measured by magnetic resonance imaging using the proton density fat fraction
        The study also includes pathology assessments of liver biopsy samples at
        baseline and at 52 weeks to examine the potential of seladelpar treatment to
        resolve NASH and/or decrease fibrosis. In preclinical studies, Seladelpar was
        found to reverse NASH pathology, decrease fibrosis, inflammation, hepatic lipids
        and reverse insulin resistance in the
        mouse which is a diabetic obese model of NASH.
        Primary Sclerosing Cholangitis (PSC)
        In June 2019, we initiated a Phase 2 randomized, placebo-controlled,
        dose-ranging study of seladelpar in patients with PSC to enroll approximately
        100 patients at 60 sites globally. Seladelpar at doses of 5, 10, and 25 mg once
        daily will be studied versus placebo in a 1:1:1:1 randomization. The primary
        efficacy outcome is the relative change in alkaline phosphatase (AP) from
        baseline at 24 weeks.
        Recent Developments in the Seladelpar Program
        In November 2019, the Phase 2b study of seladelpar in subjects with NASH and the
        Phase 2 study of seladelpar in patients with PSC were terminated due to
        histological findings identified by study pathologists during the evaluation of
        planned liver biopsies in the NASH study. In December 2019, the ongoing studies
        of seladelpar in subjects with PBC were terminated and all development programs
        for seladelpar were placed on clinical hold.
        In May 2020, we announced completion of an independent expert panel review into
        the findings from our NASH Phase 2b study. The eight-person panel included three
        hepatopathologists and five hepatologists with expertise in drug-induced liver
        injury, NASH and PBC. The panel unanimously concluded that the data in
        aggregate, including the complete absence of clinical and biochemical evidence
        of drug induced liver injury and the lack of significant differences in
        histologic features or their changes across the placebo and treatment groups,
        did not support injury related to seladelpar. The panel also unanimously
        supported lifting of the clinical hold and the re-initiation of clinical
        We have not yet shared any data or conclusions from the expert panel with the
        FDA. We plan to obtain initial feedback from the FDA prior to submitting a
        complete response to the seladelpar clinical hold; however, there is no
        guarantee of how and when the FDA will respond, whether or not they will require
        additional information or if they will accept the conclusions that have been
        made by the panel or lift the clinical hold on the development of seladelpar.
        We estimate our overall cash burn will be between $30 million and $35 million
        for the six months ending June 30, 2020. Of this total, we expect between
        $20 million to $23 million will be used primarily to fund clinical study
        patient monitoring, and seladelpar investigation activities.
        Strategic Options Review
        Following the announcement of the histological observations in our NASH Phase 2
        study in November 2019 and the subsequent termination of our ongoing seladelpar
        clinical trials in November and December 2019, we commenced a process to
        evaluate strategic alternatives to maximize stockholder value. This includes a
        comprehensive evaluation of possible mergers and business combinations, a sale
        of part or all of our assets, collaboration and licensing agreements,
        dissolution and liquidation of our assets, and/or continuing development of our
        internal programs.
        In March 2020, the World Health Organization declared the global novel
        coronavirus disease
        outbreak a pandemic. Through our quarter ended March 31, 2020, our operations,
        financial condition and liquidity have not been significantly impacted by the
        outbreak. However, economic and health conditions in the United States and
        across most of the globe have changed rapidly since the end of the

        pandemic, we may experience future disruptions that could impact aspects of our
        business, including our progress towards the completion of certain clinical
        studies, and other associated drug development activities. Possible disruptions
        are currently difficult to foresee. We continue to monitor areas of potential
        risk which include but are not limited to the following:
           Remote workforce operations
        - To date, our workforce has adapted to remotely working to maintain
        operations. Our increased reliance on personnel working from home could
        potentially negatively impact future productivity, or disrupt, delay, or
        otherwise adversely impact our business. In addition, remote operations
        could increase our cyber-security risk, create data accessibility
        concerns, and make us more susceptible to communication disruptions, any
        of which could adversely impact our business operations, or delay
        necessary interactions with regulators, contract manufacturers, contract
        research organizations, clinical trial sites, and other important agencies
        and contractors, which may result in increased costs to us.

Clinical trial operations

Drug regulator interactions

Financial reporting and compliance

Overall, we cannot at this time predict the specific extent, duration, or full impact that the

        outbreak will have on our financial condition and operations. The impact of the
        coronavirus outbreak on our financial performance will depend on future
        developments, including the duration and spread of the outbreak and related
        governmental advisories and restrictions, which could result in unexpected costs
        to us.
        Critical Accounting Policies and Use of Estimates
        Our management's discussion and analysis of our financial condition and results
        of operations is based on our condensed consolidated financial statements, which
        have been prepared in accordance with accounting principles generally accepted
        in the United States (GAAP). The preparation of these condensed consolidated
        financial statements requires us to make estimates and judgments that affect the
        reported amounts of assets and liabilities and disclosure of contingent assets
        and liabilities at the date of the financial statements, as well as the reported
        revenues and expenses during the reporting periods. We base our estimates on
        historical experience and on various other factors that we believe to be
        materially reasonable under the circumstances, the results of which form our
        basis for making judgments about the carrying value of assets and liabilities
        that are not readily apparent from other sources, and evaluate our estimates on
        an ongoing basis. Actual results may materially differ from those estimates
        under different assumptions or conditions.
        There have been no changes to our critical accounting policies since we filed
        our Annual Report on Form
        for the year ended December 31, 2019 with the SEC on March 16, 2020. For a
        description of our critical accounting policies, please refer to our Annual
        Report on Form
        Recent Accounting Pronouncements
        Refer to "Note 2. Summary of Significant Accounting Policies" in the notes to
        our unaudited interim condensed consolidated financial statements in Part I,
        Item 1 of this Quarterly Report on Form 10-Q, for a discussion of recent
        accounting pronouncements.

                                         Three Months Ended            Change
                                              March 31,                  Q1
                                         2020          2019         2020 vs 2019
        Operating expenses:
        Research and development       $   9,509     $  18,588     $       (9,079 )
        General and administrative         4,347         5,663             (1,316 )
        Restructuring charges                 71            -                  71
        Total operating expenses          13,927        24,251            (10,324 )
        Loss from operations             (13,927 )     (24,251 )          (10,324 )
        Other income (expense):
        Interest income                      839         1,176               (337 )
        Total other income (expense)         839         1,176               (337 )
        Net loss                       $ (13,088 )   $ (23,075 )   $        9,987

        Operating Expenses
        Operating expenses consist of research and development and general and
        administrative expenses as presented in the table below (in thousands):
                                       Three Months Ended            Change
                                            March 31,                  Q1
                                        2020          2019        2020 vs 2019
        Operating expenses:
        Research and development     $    9,509     $ 18,588     $       (9,079 )
        General and administrative        4,347        5,663             (1,316 )
        Restructuring charges                71           -                  71
        Total operating expenses     $   13,927     $ 24,251     $      (10,324 )

Research & Development Expenses

                                                        Three Months Ended            Change
                                                             March 31,                  Q1
                                                        2020           2019        2020 vs 2019
        Project costs:
        Seladelpar PBC clinical studies               $   5,584      $  8,844             (3,260 )
        Seladelpar NASH clinical studies                    897         3,043             (2,146 )
        Seladelpar PSC clinical studies                     252            -                 252
        Seladelpar drug manufacturing & development          -          1,328             (1,328 )
        Seladelpar other studies                            125           620               (495 )
        Other project costs                                 467           116                351
        Total project costs                               7,325        13,951             (6,626 )
        Internal research and development costs           2,184         4,637             (2,453 )
        Total research and development                $   9,509        18,588             (9,079 )

Our project costs consist primarily of:

the cost of acquiring and manufacturing clinical trial and other materials; and

other costs associated with development activities, including additional studies.

Internal research and development costs consist primarily of salaries and related fringe benefits costs for our employees (such as workers compensation and health insurance premiums), stock-based compensation charges, travel costs, and overhead expenses. Internal costs generally benefit multiple projects and are not separately tracked per project.

Restructuring Charges

                                                                Three Months Ended
                                                                     March 31,
                                                                2020          2019
        Net cash used in operating activities                 $ (14,708 )   $ (22,394 )
        Net cash provided by (used in) investing activities      46,633        (9,044 )
        Cash provided by financing activities                        -        108,017
        Net increase in cash and cash equivalents             $  31,925     $  76,579

Operating Activities

May 11, 2020

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