(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.
A 26-week 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 -50% and -55% 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 proof-of-concept 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 method (MRI-PDFF). 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 foz/foz 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 development. 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 close-out, 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. COVID-19 Pandemic In March 2020, the World Health Organization declared the global novel coronavirus disease (COVID-19) outbreak a pandemic. Through our quarter ended March 31, 2020, our operations, financial condition and liquidity have not been significantly impacted by the COVID-19 outbreak. However, economic and health conditions in the United States and across most of the globe have changed rapidly since the end of the
COVID-19 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
COVID-19 outbreak will have on our financial condition and operations. The impact of the COVID-19 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 10-K 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 10-K. 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.
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
May 11, 2020
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