The Company periodically assesses the estimated royalty payments to HCR and to the extent such payments are greater or less than its initial estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the accretion of interest on the royalty obligation. There are a number of factors that could materially affect the amount and the timing of royalty payments, most of which are not within the Company’s control. Such factors include, but are not limited to, the rate of elobixibat prescriptions, the number of doses administered, the introduction of competing products, manufacturing or other delays, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to HCR are in U.S. dollars while sales of elobixibat are in Japanese yen, and sales never achieving forecasted numbers, which would result in reduced royalty payments and reduced non-cash interest expense over the life of the royalty obligation. To the extent future royalties result in an amount less than the liability, the Company is not obligated to fund any such shortfall.
Recently adopted accounting pronouncements
As of January 1, 2019, the Company adopted ASU 2016‑02, “
Leases (Topic 842)
.” The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The Company has applied the transition provisions at the beginning of the period of adoption, which results in recording the cumulative adjustment to the opening balance sheet as of January 1, 2019. Under this transition provision, the Company will continue to apply the legacy guidance under ASC 840,
Leases
, including its disclosure requirements, in the comparative periods presented in fiscal 2019. On the date of the adoption, the Company recorded a ROU asset of $1.2 million and lease liabilities of $1.2 million. Additionally, the Company elected the following practical expedients: the Company has elected to not separate lease components from non-lease components in its lease contract; the Company will not apply the recognition requirements of ASC 842 to its leases with lease terms of 12 months or less but rather recognize the lease expense on a straight-line basis over the lease term;
Relief package
– the Company has not reassessed whether expired or existing contracts may contain a lease, the lease classification of expired or existing leases and whether previously capitalized indirect costs would qualify for capitalization under ASC 842.
Use of hindsight
– the Company has elected to use hindsight in assessing the likelihood of renewals, terminations and purchase options and in assessing impairment of ROU assets
. Portfolio approach –
the Company has elected to not apply the portfolio approach for groups of leases with similar characteristics.
2.
Fair Value of financial instruments
When measuring the fair value of financial instruments, the Company evaluates valuation techniques such as the market approach, the income approach and the cost approach. A three-level valuation hierarchy, which prioritizes the inputs to valuation techniques that are used to measure fair value, is based upon whether such inputs are observable or unobservable.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:
Level 1—Observable inputs such as quoted prices (unadjusted) for
identical
instruments in active markets;
Level 2—Observable inputs such as quoted prices for
similar
instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-derived valuations whose significant inputs are observable for substantially the full term of the assets or liabilities; and
Level 3—Unobservable inputs that reflect the reporting entity’s estimate of assumptions that market participants would use in pricing the asset or liability.
3. Commitments and contingencies
Commercial real estate leases
The Company’s portfolio of commercial real estate leases consists of office space for its corporate headquarters in Boston, Massachusetts and for administrative and research lab space in Göteborg, Sweden, both of which are accounted for as operating leases. These leases include renewal rights and, as for the corporate headquarters lease, escalating payments. On March 28, 2019, the Company entered into an amendment to the Boston, Massachusetts lease to (i) replace the Company’s prior office space with a new office space that is being leased from the same landlord and (ii) extend the term of the lease through the date ending eighty-eight months following July 1, 2019, when the Company took control of the new leased space. The new leased space contains monthly lease payments subject to annual escalations of $1.00 per square foot for the remaining term of the lease with the Company obligated to make approximately $7.3 million of aggregate lease payments over the term of the lease, or approximately $900,000 annually.
The Company’s lease in Göteborg, Sweden includes the rental of office and lab space plus a defined number of parking spaces and contained an original expiration date in November 2019. This lease includes annual rent escalations based on the changes in the Swedish Consumer Price Index. This lease renews automatically for consecutive three year terms unless notice of non-renewal is given by either party at least nine months prior to the end of the current term and subject to the Company’s right to terminate the lease at any time upon six months’ notice. Subsequent to the year ended December 31, 2018, this lease was renewed for an additional three year period through November 2022, with quarterly payments of $35,419.
As of June 30, 2019, the net balance of ROU assets totaled $0.3 million and were classified within other non-current assets. The current and long term balances of lease liabilities at June 30, 2019 were $0.1 million and $0.2 million, respectively, and were classified within other liabilities, and long-term liabilities, respectively. Operating lease expense under ASC 842 was $0.1 million and $0.2 million respectively for the three months and six months ended June 30, 2019. There were no short-term lease or variable lease costs incurred for the six months ended June 30, 2019. As of June 30, 2019, the weighted average remaining lease term for the Company’s operating leases was 3.4 years. Rent expense recognized under legacy GAAP for the Company’s operating leases was $0.1 million and $0.2 million for the three and six months ended June 30, 2018, respectively.
Agreements with CROs
As of June 30, 2019, the Company had various agreements with CROs for the conduct of specified research and development activities. Based on the terms of the respective agreements, the Company may be required to make future payments of up to $24.7 million to CROs upon the completion of contracted work.
Legal Contingency
On February 19, 2019, the Company filed a complaint for breach of contract and breach of implied covenant of good faith and fair dealing against Ferring International Center S.A. (the Respondent) in the United States District Court for the Southern District of New York. Based on procedural considerations, we decided to refile the complaint in the Supreme Court of the State of New York, County of New York on April 26, 2019. We previously entered into the License Agreement, dated July 2, 2012, as amended as of October 2013 (the License Agreement), by and between Respondent and us, pursuant to which Respondent, among other things, conducted two Phase 3 clinical trials to evaluate the efficacy and safety of elobixibat as a treatment for chronic idiopathic constipation, known as Echo 1 and Echo 2, which ended in 2014. As previously disclosed, Respondent stopped Echo 1 and Echo 2 early citing an issue related to the distribution of study drug to study sites that was unrelated to the performance of elobixibat and terminated the License Agreement. The complaint alleges that Respondent breached its obligations under the License Agreement to (1) make earned milestone payments, (2) use good clinical practices, good laboratory practices and good manufacturing practices, and (3) use commercially reasonable efforts. The complaint also alleges that Respondent violated the covenant of good faith and fair dealing implied in the License Agreement. In the complaint, the Company is seeking, among other things, compensatory damages of at least € 37 million (converted to $42.2 million as of June 30, 2019). On July 31, 2019 Respondent filed a motion to dismiss the complaint.
The Company has retained outside counsel under a contingency fee arrangement, and as a result, the Company will not incur attorneys’ fees for litigating the matter, but counsel will receive a contingent fee of 33 1/3% of the net recovery (after deduction of expenses) in the event a recovery is received.
Due to their nature, it is difficult to predict the outcome, or the costs involved in any litigation. Furthermore, Respondent may have significant resources and interest to litigate and therefore, although we have a contingency fee arrangement, this litigation could be protracted and may ultimately involve significant legal expenses.
4. Net loss per share
Basic net loss per share, or Basic EPS, is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding. Diluted net loss per share, or Diluted EPS, is calculated by dividing the net loss by the weighted-average number of shares of common stock plus dilutive common stock equivalents outstanding.
The following table sets forth the computation of Basic EPS and Diluted EPS (in thousands, except for share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Basic and Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(16,628)
|
|
$
|
(14,603)
|
|
$
|
(33,285)
|
|
$
|
(16,222)
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
12,355,969
|
|
|
11,938,357
|
|
|
12,178,376
|
|
|
11,417,463
|
|
Basic and Diluted EPS
|
|
$
|
(1.35)
|
|
$
|
(1.22)
|
|
$
|
(2.73)
|
|
$
|
(1.42)
|
|
The following outstanding common stock equivalents were excluded from the computation of Diluted EPS for the three and six months ended March 31, 2019 and 2018 because including them would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Options to purchase common stock and RSUs
|
|
1,820,351
|
|
1,393,297
|
|
1,820,351
|
|
1,393,297
|
|
5. Income taxes
The Company did not record a tax provision or benefit for the three months ended June 30, 2019 or 2018. The Company has continued to maintain a full valuation allowance against its net deferred tax assets. The Company has had an overall net operating loss position since its inception.
6. Financings
At-the-Market Offering Program
In October 2017, the Company entered into an at-the-market offering program, which we refer to as the 2017 Sales Agreement relating to the sale of shares of the Company’s common stock having an aggregate offering price of up to $50.0 million. In February 2018, the Company sold an aggregate of 728,862 shares of common stock pursuant to the 2017 Sales Agreement and received proceeds, net of offering expenses, of approximately $24.2 million. On March 6, 2019, the Company terminated the 2017 Sales Agreement and entered into a new sales agreement, which we refer to as the 2019 Sales Agreement, with respect to an at-the-market offering program relating to the sale of shares of the Company’s common stock having an aggregate offering price of up to $50.0 million. In May 2019, the Company sold an aggregate of 637,367 shares of common stock pursuant to the 2019 Sales Agreement and received proceeds, net of offering expenses, of approximately $20.8 million.
I
tem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included elsewhere in this quarterly report and our audited financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10‑K for the year ended December 31, 2018, filed with the SEC. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results, performance or experience could differ materially from what is indicated by any forward-looking statement due to various important factors, risks and uncertainties, including, but not limited to, those set forth under “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this quarterly report or under “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10‑K for the year ended December 31, 2018, in Item 1A of Part II of this Quarterly Report on Form 10-Q, or in other filings that we make with the SEC.
Overview
We are a biopharmaceutical company focused on the development and commercialization of novel bile acid modulators to treat orphan pediatric liver diseases and other liver or gastrointestinal diseases and disorders. The initial target indication for our lead product candidate, odevixibat, is progressive familial intrahepatic cholestasis, or PFIC, a rare, life-threatening genetic disorder affecting young children for which there is currently no approved drug treatment. We completed a Phase 2 clinical trial of odevixibat in children with chronic cholestasis and pruritus, and in May of 2018 we enrolled the first patient in our Phase 3 clinical trial for odevixibat, given once per day as an oral capsule or sprinkled over food, in patients with PFIC types 1 and 2, which we refer to as PEDFIC 1. We are using the planned commercial formulation in PEDFIC 1, but any commercial product will include final trade dress. In the first quarter 2019, we revised our statistical analysis methodology for PEDFIC 1, in line with guidance from the FDA. One result of the revision is an improvement in the power of the study. We expect to have top line data from PEDFIC 1 in mid-2020. We also submitted a protocol amendment for PEDFIC 2, our long term, open label extension study, which includes an additional cohort of PFIC patients who are not eligible for PEDFIC 1. The first sites have been activated for the expanded PEDFIC 2 cohort. In June of 2018, the FDA granted a rare pediatric disease designation to odevixibat for the treatment of PFIC, which affirms our eligibility to apply for a rare pediatric disease priority review voucher upon submission of a new drug application for odevixibat. In September of 2018, the FDA granted fast track designation for odevixibat for the treatment of pruritus associated with PFIC. In October of 2018, the FDA granted orphan drug designation to odevixibat for the treatment of Alagille syndrome, or ALGS, a rare, life threatening disease that affects the liver and for which there is no approved pharmacologic treatment option. In December of 2018, the European Commission granted orphan designation to odevixibat for the treatment of biliary atresia, another rare, life threatening disease that affects the liver and for which there is no approved pharmacologic treatment option. In January of 2019, the FDA granted orphan drug designation to odevixibat for the treatment of biliary atresia. In addition to PFIC, we plan to initiate a pivotal clinical trial for odevixibat in biliary atresia, which we believe to be one of the most common rare pediatric liver diseases, in 2020, and we plan to conduct clinical development of odevixibat in 2020 as a treatment for one or more other pediatric cholestatic liver diseases and disorders. Our most advanced product candidates in addition to odevixibat include elobixibat, which is approved in Japan for the treatment of chronic constipation and for which we initiated a Phase 2 clinical trial as a treatment for nonalcoholic fatty liver disease, or NAFLD, and NASH, with the first patients enrolled in June 2019, and A3384, which is a product candidate to treat bile acid malabsorption, or BAM. We have method of use patents for odevixibat with a natural expiry in 2031, but which can run through 2034 with potential patent term extensions. In June 2018, we were granted a patent for a method of using elobixibat to treat NASH in both the U.S. and Europe. We also have a preclinical program in NASH.
The precise prevalence of PFIC is unknown, and we are not aware of any patient registries or other method of establishing with precision the actual number of patients with PFIC in any geography. PFIC has been estimated to affect between one in every 50,000 to 100,000 children born worldwide. Benign recurrent familial intrahepatic cholestasis, or BRIC,
is a disease that is caused by the same genetic defect as PFIC, and patients who manifest the same symptoms as PFIC but their symptomatology tends to be episodic in nature. We estimate that BRIC affects between one in every 50,000 to 100,000 children born worldwide. Based on the published incidence, published regional populations, and
estimated median life expectancies, we estimate the prevalence of PFIC together with BRIC to be approximately 8,000 to 10,000 patients in the U.S. and E.U. but we are not able to estimate the prevalence of PFIC or BRIC with precision.
We estimate that there are approximately 3,000 to 4,000 PFIC patients in the U.S. and E.U. We also estimate that there are approximately 5,000 to 6,000 BRIC patients in the U.S. and E.U. We currently have not modeled other regional opportunities in Asia, the Middle East and Latin America. We are aware there may be higher prevalence of disease in some countries such as Saudi Arabia and Turkey. We hold global rights to odevixibat unencumbered. Our current plan is to commercialize odevixibat ourselves in the U.S. and E.U., and we have begun the process of identifying potential partners for other regions. There are currently no drugs approved for the treatment of PFIC. First-line treatment for PFIC is typically off-label ursodeoxycholic acid, or UDCA, which is approved in the United States and elsewhere for the treatment of primary biliary cholangitis, or PBC. However, many PFIC patients do not respond well to UDCA, undergo partial external bile diversion, or PEBD, surgery and often require liver transplantation. PEBD surgery is a life-altering and undesirable procedure in which bile is drained outside the body to a stoma bag that must be worn by the patient 24 hours a day.
Other Indications Under Development for Odevixibat.
We plan to initiate a pivotal clinical trial with odevixibat in biliary atresia in 2020. We plan to conduct clinical development of odevixibat in 2020 as a treatment for other pediatric cholestatic liver diseases and disorders as well, which may include ALGS and primary sclerosing cholangitis.
Biliary atresia is a partial or total blocking or absence of large bile ducts that causes cholestasis and resulting accumulation of bile that damages the liver. The estimated worldwide incidence of biliary atresia is between 4.5 and 8.5 for every 100,000 live births. There are currently no drugs approved for the treatment of biliary atresia. The current standard of care is a surgery known as the Kasai procedure, or hepatoportoenterostomy, in which the obstructed bile ducts are removed and a section of the small intestine is connected to the liver directly. However, only an estimated 25% of those initially undergoing the Kasai procedure will survive to their twenties without need for liver transplantation. The European Commission granted orphan designation to odevixibat for the treatment of biliary atresia in December of 2018. In January of 2019, the FDA granted orphan drug designation to odevixibat for the treatment of biliary atresia. We intend to initiate a pivotal clinical trial with odevixibat for the treatment of biliary atresia in 2020.
ALGS is a genetic condition associated with liver, heart, eye, kidney and skeletal abnormalities. In particular, ALGS patients have fewer than normal bile ducts inside the liver, which leads to cholestasis and the accumulation of bile and causes scarring in the liver. ALGS is estimated to affect between one in every 30,000 to 70,000 children born worldwide. There are currently no drugs approved for the treatment of ALGS. Current treatment for ALGS is generally in line with current treatments for PFIC as described above. In October of 2018, the FDA granted orphan drug designation to odevixibat for the treatment of ALGS.
Primary sclerosing cholangitis refers to swelling (inflammation), scarring, and destruction of bile ducts inside and outside of the liver. The first symptoms are typically fatigue, itching and jaundice, and many patients with sclerosing cholangitis also suffer from inflammatory bowel disease. The estimated incidence of primary sclerosing cholangitis is 6.3 cases per 100,000 people. There are currently no drugs approved for the treatment of sclerosing cholangitis. First-line treatment is typically off-label UDCA, although UDCA has not been established to be safe and effective in patients with sclerosing cholangitis in well controlled clinical trials.
Elobixibat as a potential treatment for NASH
.
NASH is a common, serious and sometimes fatal chronic liver disease that resembles alcoholic liver disease but occurs in people who drink little or no alcohol. Based on multiple epidemiological studies published by third parties in 2014 and 2015, we estimate that NASH affects 2 to 3.5% of adults, representing over 9 million people in the United States and 10 million people in the European Union. There are currently no drugs approved for the treatment of NASH. Lifestyle changes, including modification of diet and exercise to reduce body weight, as well as treatment of concomitant diabetes and dyslipidemia, are commonly accepted as the standard of care for NASH, but have not conclusively been shown to prevent disease progression.
Based on findings on parameters relevant to NASH in clinical trials of elobixibat that we previously conducted in patients with chronic constipation and in patients with elevated cholesterol and findings on other parameters relevant to NASH from nonclinical studies that we previously conducted with elobixibat or a different IBAT inhibitor, we believe elobixibat has potential benefit in the treatment of NASH. We initiated our Phase 2 clinical trial of elobixibat in NAFLD and NASH, with the first patients enrolled in June2019.
Since inception, we have incurred significant operating losses. As of June 30, 2019, we had an accumulated deficit of $129.8 million. We expect to continue to incur significant expenses and increasing operating losses as we continue our development of, and seek marketing approvals for, our product candidates, prepare for and begin the commercialization of any approved products, and add infrastructure and personnel to support our product development efforts and operations as a public company in the United States.
As a clinical-stage company, our revenues, expenses and results of operations are likely to fluctuate significantly from quarter to quarter and year to year. We believe that period-to-period comparisons of our results of operations should not be relied upon as indicative of our future performance.
As of June 30, 2019, we had approximately $157.7 million in cash and cash equivalents.
Financial Operations Overview
The following discussion sets forth certain components of our consolidated statements of operations as well as factors that impact those items.
Revenue
We generate revenue primarily from the receipt of royalty revenue, upfront or license fees and milestone payments. License agreements with commercial partners generally include nonrefundable upfront fees and milestone payments, the receipt of which is dependent upon the achievement of specified development, regulatory or commercial milestone events, as well as royalties on product sales of licensed products, if and when such product sales occur, and payments for pharmaceutical ingredient or related procurement services. For these agreements, management applies judgment in the allocation of total agreement consideration to the performance obligations on a reliable basis that reasonably reflects the selling prices that might be expected to be achieved in stand-alone transactions. For additional information about our revenue recognition, refer to Note 1 to our condensed consolidated financial statements included in this quarterly report.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of personnel costs (including salaries, benefits and stock-based compensation) for employees in research and development functions, costs associated with nonclinical and clinical development services, including clinical trials and related manufacturing costs, third-party contract research organizations, or CROs, and related services and other outside costs, including fees for third-party professional services such as consultants. Our nonclinical studies and clinical studies are performed by CROs. We expect to continue to focus our research and development efforts on nonclinical studies and clinical trials of our product candidates. As a result, we expect our research and development expenses to continue to increase for the foreseeable future.
Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs such as fees paid to CROs and others in connection with our nonclinical and clinical development activities and related manufacturing. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.
Successful development of our current and potential future product candidates is highly uncertain. Completion dates and costs for our programs can vary significantly by product candidate and are difficult to predict. As a result, we cannot estimate with any degree of certainty the costs we will incur in connection with development of any of our product candidates. We anticipate we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the results of ongoing and future clinical trials, our ability to enter into licensing, collaboration and similar arrangements with respect to current or potential future product candidates, the success of research and development programs and our assessments of commercial potential.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs (including salaries, benefits and stock-based compensation) for our executive, finance and other administrative employees. In addition, general and administrative expenses include fees for third-party professional services, including consulting, information technology, legal and accounting services and other corporate expenses and allocated overhead.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles for interim financial information. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates and assumptions on historical experience and on various assumptions that we believe are reasonable under the circumstances, and we evaluate them on an ongoing basis. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenues and expenses that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates and judgments. In addition, our reported financial condition and results of operations could vary if new accounting standards are enacted that are applicable to our business.
Our critical accounting policies and the methodologies and assumptions we apply under them have not materially changed since March 6, 2019, the date we filed our Annual Report on Form 10-K for the year ended December 31, 2018. For more information on our critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2018
.
Results of Operations
Three Months Ended June 30, 2019 and June 30, 2018
Result of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
|
|
2019
|
|
2018
|
|
$
|
|
|
(in thousands)
|
Revenue
|
|
$
|
1,250
|
|
$
|
730
|
|
$
|
520
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
11,034
|
|
|
6,411
|
|
|
4,623
|
General and Administrative
|
|
|
5,485
|
|
|
4,238
|
|
|
1,247
|
Other operating expense, net
|
|
|
8
|
|
|
487
|
|
|
(479)
|
Total operating expenses
|
|
|
16,527
|
|
|
11,136
|
|
|
5,391
|
Operating loss
|
|
|
(15,277)
|
|
|
(10,406)
|
|
|
(4,871)
|
Interest expense, net
|
|
|
(1,351)
|
|
|
(1,666)
|
|
|
315
|
Non-operating expense, net
|
|
|
-
|
|
|
(2,531)
|
|
|
2,531
|
Net loss
|
|
$
|
(16,628)
|
|
$
|
(14,603)
|
|
$
|
(2,025)
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
1,250
|
|
$
|
730
|
|
$
|
520
|
|
There was $1.3 million in revenue for the three months ended June 30, 2019 compared with $0.7 million for the three months ended June 30, 2018, an increase of $0.5 million. The higher revenue is due to the estimated royalty revenue received from EA Pharma for elobixibat for the treatment of chronic constipation.
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
Research and development expenses
|
|
$
|
11,034
|
|
$
|
6,411
|
|
$
|
4,623
|
|
Research and development expenses were $11.0 million for the three months ended June 30, 2019 compared with $6.4 million for the three months ended June 30, 2018, an increase of $4.6 million. The higher research and development expenses for the 2019 period were principally due to personnel expenses, and program expenses as we continue to increase our headcount, and program activities, respectively.
The following table summarizes our principal product development programs and the out-of-pocket third-party expenses incurred with respect to each clinical-stage product candidate and our preclinical programs for the three months ended June 30, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
Direct third-party project costs:
|
|
|
|
|
|
|
|
|
|
|
Odevixibat
|
|
$
|
4,469
|
|
$
|
3,461
|
|
$
|
1,008
|
|
Elobixibat
|
|
|
1,148
|
|
|
72
|
|
|
1,076
|
|
A3384
|
|
|
151
|
|
|
205
|
|
|
(54)
|
|
Preclinical
|
|
|
1,317
|
|
|
462
|
|
|
855
|
|
Total
|
|
$
|
7,085
|
|
$
|
4,200
|
|
$
|
2,885
|
|
Other project costs
(1)
:
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
$
|
2,770
|
|
$
|
1,347
|
|
$
|
1,423
|
|
Other costs
(2)
|
|
|
1,179
|
|
|
864
|
|
|
315
|
|
Total
|
|
$
|
3,949
|
|
$
|
2,211
|
|
$
|
1,738
|
|
Total research and development costs
|
|
$
|
11,034
|
|
$
|
6,411
|
|
$
|
4,623
|
|
|
(1)
|
|
Other project costs are leveraged across multiple programs.
|
|
(2)
|
|
Other costs include facility, supply, consultant and overhead costs that support multiple programs.
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
General and administrative expenses
|
|
$
|
5,485
|
|
$
|
4,238
|
|
$
|
1,247
|
|
General and administrative expenses were $5.5 million for the three months ended June 30, 2019 compared with $4.2 million for the three months ended June 30, 2018, an increase of $1.2 million. The increase is primarily attributable to personnel and related expenses as we continue to increase our headcount.
Other operating expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
Other operating expense, net
|
|
$
|
8
|
|
$
|
487
|
|
$
|
(479)
|
|
Other operating expense, net totaled $0.0 million for the three months ended June 30, 2019 compared with $0.5 million for the three months ended June 30, 2018. The difference resulted primarily from changes in currency exchange rates in the two periods.
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
Interest expense, net
|
|
$
|
(1,351)
|
|
$
|
(1,666)
|
|
$
|
315
|
|
Interest expense, net totaled $1.4 million of expense for the three months ended June 30, 2019 compared with $1.7 million of expense for the three months ended June 30, 2018. The difference was principally attributable to interest income associated with our interest bearing cash and cash equivalents offset by non-cash interest expense recorded in connection with the sale of future royalties, related to sales of elobixibat in Japan.
Other non-operating expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
|
(in thousands)
|
|
Other non-operating expense, net
|
|
$
|
—
|
|
$
|
(2,531)
|
|
$
|
2,531
|
|
Other non-operating expense, net for the three months ended June 30, 2018 was $2.5 million p
rimarily related to the foreign currency expense associated with our royalty monetization in 2018. There was no other non-operating expense, net for the three months ended June 30, 2019.
Six Months Ended June 30, 2019 and June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
1,820
|
|
$
|
11,932
|
|
$
|
(10,112)
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
19,363
|
|
|
12,562
|
|
|
6,801
|
|
General and Administrative
|
|
|
10,778
|
|
|
8,366
|
|
|
2,412
|
|
Other operating expense, net
|
|
|
2,304
|
|
|
1,991
|
|
|
313
|
|
Total operating expenses
|
|
|
32,445
|
|
|
22,919
|
|
|
9,526
|
|
Operating loss
|
|
|
(30,625)
|
|
|
(10,987)
|
|
|
(19,638)
|
|
Interest expense, net
|
|
|
(2,660)
|
|
|
(2,682)
|
|
|
22
|
|
Non-operating expense, net
|
|
|
-
|
|
|
(2,553)
|
|
|
2,553
|
|
Net loss
|
|
$
|
(33,285)
|
|
$
|
(16,222)
|
|
$
|
(17,063)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
1,820
|
|
$
|
11,932
|
|
$
|
(10,112)
|
|
There was $1.8 million in revenue for the six months ended June 30, 2019 compared with $11.9 million for the six months ended June 30, 2018, a decrease of $10.1 million. The decrease in revenue is
due to a milestone payment received in the second quarter of 2018 from EA Pharma due to the approval by the Japanese MHLW of the drug application for elobixibat for the treatment of chronic constipation and the estimated royalty revenue from EA Pharma for elobixibat for the period.
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
Research and development expenses
|
|
$
|
19,363
|
|
$
|
12,562
|
|
$
|
6,801
|
|
There was $19.4 million in research and development expenses for the six months ended June 30, 2019 compared with $12.6 million for the six months ended June 30, 2018, an increase of $6.8 million. The higher research and development expenses for the 2019 period were principally due to personnel expenses, and program expenses as we continue to increase our headcount, and program activities, respectively.
The following table summarizes our principal product development programs and the out-of-pocket third-party expenses incurred with respect to each clinical-stage product candidate and our preclinical programs for the six months ended June 30, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
Direct third-party project costs:
|
|
|
|
|
|
|
|
|
|
|
Odevixibat
|
|
$
|
7,833
|
|
$
|
6,851
|
|
$
|
982
|
|
Elobixibat
|
|
|
1,371
|
|
|
95
|
|
|
1,276
|
|
A3384
|
|
|
225
|
|
|
333
|
|
|
(108)
|
|
Preclinical
|
|
|
2,320
|
|
|
800
|
|
|
1,520
|
|
Total
|
|
$
|
11,749
|
|
$
|
8,079
|
|
$
|
3,670
|
|
Other project costs
(1)
:
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
$
|
5,470
|
|
$
|
2,757
|
|
$
|
2,713
|
|
Other costs
(2)
|
|
|
2,144
|
|
|
1,726
|
|
|
418
|
|
Total
|
|
$
|
7,614
|
|
$
|
4,483
|
|
$
|
3,131
|
|
Total research and development costs
|
|
$
|
19,363
|
|
$
|
12,562
|
|
$
|
6,801
|
|
|
(1)
|
|
Other project costs are leveraged across multiple programs.
|
|
(2)
|
|
Other costs include facility, supply, consultant and overhead costs that support multiple programs.
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
General and administrative expenses
|
|
$
|
10,778
|
|
$
|
8,366
|
|
$
|
2,412
|
|
There was $10.8 million in general and administrative expenses for the six month ended June 30, 2019 compared with $8.4 million for the six months ended June 30, 2018, an increase of $2.4 million. The increase is primarily attributable to personnel and related expenses as we continue to increase our headcount.
Other operating expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
Other operating expense, net
|
|
$
|
2,304
|
|
$
|
1,991
|
|
$
|
313
|
|
Other operating expense, net totaled $2.3 million for the six months ended June 30, 2019 compared with $2.0 million for the six months ended June 30, 2018. The difference resulted primarily from changes in currency exchange rates in the two periods.
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
Interest expense, net
|
|
$
|
(2,660)
|
|
$
|
(2,682)
|
|
$
|
22
|
|
Interest expense, net totaled $2.7 million of expense for the six months ended June 30, 2019 compared with $2.7 million of expense for the six months ended June 30, 2018.
The difference was principally attributable to non-cash interest expense recorded in connection with the sale of future royalties, related to sales of elobixibat in Japan, offset by interest income.
Other non-operating expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
|
|
(in thousands)
|
|
Other non-operating expense, net
|
|
$
|
—
|
|
$
|
(2,553)
|
|
$
|
2,553
|
|
Other non-operating expense, net for the six months ended June 30, 2018 was $2.6 million
primarily related to the foreign currency expense associated with our royalty monetization in 2018. There was no other non-operating expense, net for the six months ended June 30, 2019.
Liquidity and Capital Resources
Sources of Liquidity
We do not expect to generate significant revenue from product sales unless and until we or a potential future licensee or collaborator obtains marketing approval for, and commercializes, one or more of our current or potential future product candidates (other than elobixibat as a treatment for chronic constipation in Japan), which we do not expect to occur until at least 2021, if at all. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of and seek regulatory approvals for our product candidates. We are subject to all of the risks applicable to the development of new pharmaceutical products and may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. We expect that we will need substantial additional funding to complete development of and potentially commercialize our product candidates.
Our operations have historically been financed primarily through issuances of equity or convertible debt, upfront fees paid upon entering into license agreements, payments received upon the achievement of specified milestone events under license agreements, grants and venture debt borrowings. Our primary uses of capital are, and we expect will continue to be, personnel-related costs, third party expenses associated with our research and development programs, including the conduct of clinical trials, and manufacturing-related costs for our product candidates.
As of June 30, 2019, our cash and cash equivalents were approximately $157.7 million.
During the first quarter of 2018, following the Japanese MHLW’s approval of elobixibat for the treatment of chronic constipation in January 2018, we received a $44.5 million payment, net of certain transaction expenses, from HCR under our RIAA. Under the terms of the RIAA, we are eligible to receive an additional $15 million if a specified sales
milestone is achieved for elobixibat in Japan. Additionally, this approval triggered a milestone payment to us from EA Pharma of $11.2 million. As of June 30, 2019, we have received approximately $45.4 million in upfront and milestone payments from EA Pharma under a license agreement for the development and commercialization of elobixibat in specified countries in Asia. We are eligible to receive additional amounts of up to $4.9 million under the amended agreement, if a specified regulatory event is achieved for elobixibat. In addition, subject to the terms of the RIAA with HCR, we may in the future also become eligible under the license agreement to receive up to $31.9 million, if specified sales milestones are achieved for elobixibat and stepped royalties at rates beginning in the high single digits on any future elobixibat product sales
.
In January 2018, we completed an underwritten public offering of 2,265,500 shares of our common stock for net proceeds of approximately $69.9 million. Subsequently, in February 2018, we sold 728,862 shares of our common stock for net proceeds of approximately $24.2 million pursuant to an at-the-market offering program Sales Agreement that we entered into with Cowen in October 2017, or the 2017 Sales Agreement
. This agreement terminated on March 6, 2019. These sales were registered on our universal shelf registration statement on Form S-3, which was declared effective on December 5, 2017, or the 2017 Form S-3.
On March 6, 2019, we filed a new universal shelf registration on Form S-3 with the SEC, which was declared effective on April 30, 2019, pursuant to which we registered for sale up to $200 million of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, which we refer to as the 2019 Form S-3.
On March 6, 2019, we
entered into a new sales agreement, which we refer to as the 2019 Sales Agreement, with respect to an at-the-market offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million. Subsequently, in May 2019, we sold 637,367 shares of our common stock for net proceeds of approximately $20.8 million pursuant to the 2019 Sales Agreement.
Cash Flows
Six Months Ended June 30, 2019 and June 30, 2018
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
|
|
(in thousands)
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(26,513)
|
|
|
(6,519)
|
|
Investing activities
|
|
|
(409)
|
|
|
(61)
|
|
Financing activities
|
|
|
22,174
|
|
|
138,929
|
|
Total
|
|
$
|
(4,748)
|
|
$
|
132,349
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,415)
|
|
|
(2,352)
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(6,163)
|
|
|
129,997
|
|
Operating activities
Cash used in operating activities of $26.5 million during the six months ended June 30, 2019 was primarily a result of our $33.3 million net loss from operations and a net decrease in assets and liabilities of $4.7 million. The net decrease in operating assets and liabilities during the six months ended June 30, 2019 was primarily driven by decreases in accounts payable, accrued expenses and an increase to prepaid expenses and other current assets, and other assets. This decrease was offset by non cash items, including$4.1 million of non cash interest expense on liability related to royalty monetization, $3.9 million of stock-based compensation expense and $3.5 million in unrealized foreign exchange loss.
Cash used in operating activities was $6.5 million during the six months ended June 30, 2018. The cash used in operating activities was primarily a result of our $16.2 million net loss from operations and net decrease in assets and liabilities of $1.3 million. The net decrease in operating assets and liabilities during the six months ended June 30, 2018 was primarily driven by decreases in accrued expenses and other assets offset by increases to accounts payable and prepaid expenses and other current assets.
This decrease was offset by non-cash items, including $6.7 million in unrealized foreign exchange loss, $2.2 million of stock-based compensation expense and $2.0 million of non cash interest expense on liability related to royalty monetization.
Investing activities
Cash used in investing activities of $0.4 million during the six months ended June 30, 2019 was primarily due to the purchase of property, plant and equipment. Cash used in investing activities of $0.1 million during the six months ended June 30, 2018 was primarily due to the purchase of property, plant and equipment.
Financing activities
Cash provided by financing activities of $22.2 million during the six months ended June 30, 2019 was primarily related to proceeds from the issuance of common stock, net of issuance costs of $20.8 million and proceeds from exercise of options of $1.4 million. Cash provided by financing activities of $138.9 million during the six months ended June 30, 2018 was primarily related to proceeds from the issuance of common stock, net of issuance costs of $94.1 million and royalty monetization of $44.5 million.
Funding Requirements
Cash used to fund operating expenses is affected by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We believe that our existing cash and cash equivalents will be sufficient to meet our projected operating requirements at least into 2021, including for our Phase 3 clinical program for odevixibat in PFIC, but we will need additional financing to develop odevixibat for the treatment of one or more pediatric liver diseases in 2020. However, our operating plans may change as a result of many factors, including those described below, and we may need additional funds sooner than planned to meet operational needs and capital requirements. In addition, if the conditions for raising capital are favorable we may seek to raise additional funds at any time.
.
Our future funding requirements will depend on many factors, including the following:
|
·
|
|
the costs, design, duration and any potential delays of the Phase 3 clinical trial of odevixibat;
|
|
·
|
|
the scope, number, progress, duration, cost, results and timing of clinical trials and nonclinical studies of our current or future product candidates;
|
|
·
|
|
whether and to what extent milestone events are achieved under our license agreement with EA Pharma, our RIAA with HCR or any potential future licensee or collaborator;
|
|
·
|
|
the outcomes and timing of regulatory reviews, approvals or other actions;
|
|
·
|
|
our ability to obtain marketing approval for our product candidates;
|
|
·
|
|
our ability to establish and maintain additional licensing, collaboration or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;
|
|
·
|
|
the success of any other business, product or technology that we acquire or in which we invest;
|
|
·
|
|
our ability to maintain, expand and defend the scope of our intellectual property portfolio;
|
|
·
|
|
our ability to manufacture any approved products on commercially reasonable terms;
|
|
·
|
|
our ability to establish a sales and marketing organization or suitable third-party alternatives for any approved product;
|
|
·
|
|
the number and characteristics of product candidates and programs that we pursue;
|
|
·
|
|
the costs of acquiring, licensing or investing in businesses, product candidates and technologies;
|
|
·
|
|
our need and ability to hire additional management and scientific and medical personnel;
|
|
·
|
|
the costs to operate as a public company in the United States, including the need to implement additional financial and reporting systems and other internal systems and infrastructure for our business;
|
|
·
|
|
market acceptance of our product candidates, to the extent any are approved for commercial sale; and
|
|
·
|
|
the effect of competing technological and market developments.
|
We cannot determine precisely the completion dates and related costs of our development programs due to inherent uncertainties in outcomes of clinical trials and the regulatory approval process. We cannot be certain that we will be able to successfully complete our research and development programs or establish licensing, collaboration or similar arrangements for our product candidates. Our failure or the failure of any current or potential future licensee to complete research and development programs for our product candidates could have a material adverse effect on our financial position or results of operations.
We expect to continue to incur losses. Our ability to achieve and maintain profitability is dependent upon the successful development, regulatory approval and commercialization of our product candidates and achieving a level of revenues adequate to support our cost structure. We may never achieve profitability.
If the conditions for raising capital are favorable, we may seek to finance future cash needs through public or private equity or debt offerings or other financings. Additionally, if we need to raise additional capital to fund our operations, complete clinical trials, or potentially commercialize our product candidates, we may likewise seek to finance future cash needs through public or private equity or debt offerings or other financings. The necessary funding may not be available to us on acceptable terms or at all.
We filed a new universal shelf registration on Form S-3 with the SEC on March 6, 2019, which was declared effective on April 30, 2019, pursuant to which we registered for sale up to $200 million of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, which we refer to as the 2019 Form S-3. On March 6, 2019, we terminated the 2017 Sales Agreement and entered into a new sales agreement, which we refer to as the 2019 Sales Agreement, with respect to an at-the-market offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate value up to $50.0 million. In May 2019, we sold 637,367 shares of our common stock under the 2019 Sales Agreement for an aggregate of $21.4 million of gross proceeds, which results in $178.6 million of securities remaining available for issuance under the 2019 Form S-3, including $28.6 million of shares of
common stock remaining available for issuance under the 2019 Sales Agreement.
We make no assurances as to the continued effectiveness of the 2019 Form S-3. No additional securities registered under the 2017 Form S-3 will be offered or sold.
The sale of additional equity
or convertible debt securities
may result in significant dilution to our stockholders
, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders
. The incurrence of additional debt financing would result in debt service obligations and the instruments governing such debt may provide for operating and financing covenants that would restrict our operations. We may also seek to finance future cash needs through potential future licensing, collaboration or similar arrangements. These arrangements may not be available on acceptable terms or at all
, and we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us
. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our development programs or obtain funds through third-party arrangements that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) as of the end of the period covered by this Form 10‑Q, have concluded that, based on such evaluation and as a result of the material weaknesses discussed in our “Management’s Report on Internal Control over Financial Reporting” in our Form 10‑K for the year ended December 31, 2018 and below, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Material Weaknesses and Remediation of Material Weaknesses
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework).
Based on our assessment, our management concluded that the material weaknesses reported in our Annual Report on Form 10-K for the year ended December 31, 2018 remain un-remediated as of June 30, 2019.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As previously disclosed, the identified material weaknesses relate to our internal control processes and involve the control environment, risk assessment, control activity and monitoring activities. During the six-month period ended June 30, 2019, significant work has been undertaken to remediate the causes of the material weaknesses. Specifically, we have increased the staff of our finance organization including hiring
individuals with experience in U.S. GAAP and SEC reporting and/or skills in and ability to focus on internal control over financial reporting matters. Revised processes and redesigned financial reporting controls have been implemented. General information technology controls to support the effective operation of financial controls have been enhanced to address insufficient design. The material weaknesses will not be considered remediated until the redesigned and enhanced controls operate for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively. Because of the material weaknesses described above, our management believe that, as of June 30, 2019, our internal control over financial reporting was not effective.
Our management remains committed to remediating to ensure that we become compliant with the requirements of Section 404 of the Sarbanes-Oxley Act 2002. Even though significant progress has been made to strengthen our controls, further remediation may be needed. As we continue to evaluate and work to improve our internal control over financial reporting, our management may take additional measures.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no changes in our internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the three months ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.