Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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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.
This Quarterly Report on Form
10-Q
contains statements indicating expectations about future performance and other forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, that involve risks and uncertainties. Words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “potential,” “seek,” “target,” “goal,” “intend,” variations of such words, and similar expressions are intended to identify forward-looking statements. These statements appear throughout this Quarterly Report on Form
10-Q
and are statements regarding our current expectation, belief or intent, primarily with respect to our operations and related industry developments. Examples of these statements include, but are not limited to, statements regarding our expectations with respect to the following: our business and scientific strategies; the progress of our product development programs, including whether we may resume clinical testing, and the timing of results thereof; regulatory submissions and approvals; the impact of the
COVID-19
pandemic on our company and operations; our drug discovery technologies; our research and development expenses; protection of our intellectual property; sufficiency of our cash and capital resources and the need for additional capital; and our operations and legal risks. You should not place undue reliance on these forward-looking statements. Our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements for many reasons. Factors that might cause such a difference include those discussed under the caption “Risk Factors” and elsewhere in this Quarterly Report on Form
10-Q.
These and many other factors could affect our future financial and operating results. We undertake no obligation to update any forward-looking statement to reflect events after the date of this Quarterly Report.
CymaBay Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing and providing access to innovative therapies for patients with liver and other chronic diseases with high unmet medical need.
Our lead product candidate, seladelpar, is a potent and selective agonist of the peroxisome proliferator activated receptor delta (PPAR
δ
), a nuclear receptor that regulates genes directly or indirectly involved in the synthesis of bile acids/sterols, metabolism of lipids and glucose, inflammation and fibrosis. We have been developing seladelpar for the treatment of:
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•
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primary biliary cholangitis (PBC), a rare, chronic autoimmune disease that causes progressive destruction of the bile ducts in the liver resulting in impaired bile flow (cholestasis) and inflammation. The FDA has granted seladelpar Breakthrough Therapy Designation for the treatment of early stage PBC.
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primary sclerosing cholangitis (PSC), a rare, chronic cholestatic liver disease characterized by diffuse inflammation and fibrosis of the intrahepatic and extrahepatic bile ducts.
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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.
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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.
Primary Biliary Cholangitis (PBC)
In October 2018, we commenced enrollment of a global, Phase 3 registration study to evaluate seladelpar in patients with PBC and completed enrollment in October 2019. Data from two Phase 2 studies of seladelpar in PBC established seladelpar’s anti-cholestatic and anti-inflammatory effects and identified doses we believe have the potential to offer patients improved efficacy and better tolerability over the only approved second-line treatment available today. In addition to reductions in markers of cholestasis including alkaline phosphatase (AP), seladelpar also improved inflammatory and metabolic markers with patients experiencing decreases in levels of transaminases, high sensitivity
C-reactive
protein, and
low-density
lipoprotein cholesterol. Many PBC patients suffer from pruritus, or itching, which can significantly impact their quality of life. Based on data from our Phase 2 studies, and unlike the only approved second-line treatment currently available, seladelpar has not been associated with drug-induced pruritus.
Data from our completed our first Phase 2 High Dose and our ongoing second Phase 2 Low Dose studies of seladelpar in patients with PBC have established seladelpar’s anti-cholestatic and anti-inflammatory effects. In November 2018, we released updated data from the Phase 2 Low Dose study that continued to show sustained anti-cholestatic and anti-inflammatory effects with no worsening of pruritus through 52 weeks. Specifically, efficacy data was released on the first set of patients treated for 52 weeks and safety data on patients that received at least one dose of seladelpar in the study. Eligible PBC patients with either an inadequate response or intolerance to ursodeoxycholic acid (UDCA) were randomized to daily seladelpar at 5 or 10 mg. After 12 weeks, patients on 5 mg could escalate to 10 mg if their AP treatment goal was not met (5/10 mg group). The primary efficacy outcome was the AP %
change from baseline. At 52 weeks, the mean decreases in AP were
-47%
and
-46%
in the 5/10 and 10 mg groups, respectively. A key secondary outcome was the composite response measured at week 52 where a responder was defined as a patient with AP <1.67 x ULN,
≥
15% decrease in AP, and total bilirubin
≤
ULN. At 52 weeks, 59% and 71% of patients met the composite endpoint in the 5/10 and 10 mg groups, respectively. The anti-cholestatic effect of seladelpar was further substantiated with normalization of AP levels at 52 weeks in 24% and 29% of patients in the 5/10 and 10 mg groups, respectively. Treatment with seladelpar also demonstrated a robust anti-inflammatory activity with median transaminase decreases of
-31%
and
-33%
in the 5/10 and 10 mg groups, respectively.
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
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.
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
(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
quarter. As a result 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:
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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.
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Clinical trial operations
– To date, our clinical trial operations personnel and vendors are adapting to remote working conditions and continue to progress toward completion of our clinical trials. However, in the future our employees and contractors involved in conducting our clinical trial activities may not be able to access their applicable work facilities for an extended period of time as a result of facility closure orders and the possibility that governmental authorities further modify such restrictions. In collaboration with our clinical research organization partners, we sponsor clinical trials that take place at investigator sites in the United States and internationally. Due to the wide geographic dispersion of our clinical trials, it is uncertain what impact
COVID-19
travel and facility access restrictions in various countries and jurisdictions may have on our near term ability (or that of our partners and investigators) to complete or wind down our clinical trial activities in an efficient and timely manner.
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Drug regulator interactions
– The FDA and comparable foreign regulatory agencies may experience operational interruptions or delays, which could impact timelines for regulatory meetings, submissions, trial initiations, and regulatory approvals
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•
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Financial reporting and compliance
– To date, there has been no adverse impact on our ability to maintain our established financial reporting functions and internal controls over financial reporting. However, our ability to prepare our financial results timely and accurately is partially dependent upon the availability of third-party information systems and other cloud-based services. Any degradation in the quality or timeliness of critical third-party information or cloud-based services could adversely impact our financial reporting capabilities.
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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.
As of March 31, 2020, we had an accumulated deficit of $639.0 million, primarily as a result of expenditures for research and development and general and administrative expenses from inception to that date. While we have generated revenue from a past license arrangement, we will not generate any future revenue from that license agreement. Further, we have terminated all of the clinical trials of seladelpar, and as a result all of our product candidates are at an early stage of development and will require additional work before they can be licensed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate sufficient revenue to achieve and sustain profitability. As stated above, following the announcement of the histological observations in our NASH Phase 2 study in November 2019, we commenced a process to evaluate strategic alternatives to maximize shareholder value. Our results of operations for the three months ended March 31, 2020 and 2019 are presented below (in thousands):
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Three Months Ended
March 31,
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$
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$
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$
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)
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General and administrative
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)
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)
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)
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Total other income (expense)
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)
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$
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)
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$
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)
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$
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Operating expenses consist of research and development and general and administrative expenses as presented in the table below (in thousands):
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Three Months Ended
March 31,
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$
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$
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$
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)
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General and administrative
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)
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$
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$
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$
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)
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Research & Development Expenses
Conducting research and development is central to our business model. We expect that our research and development expenses for the year ending December 31, 2020 to be significantly less than prior years following the decision to terminate ongoing seladelpar-related clinical trials and the placement of the seladelpar program on hold pending further scientific investigation.
For the three months ended March 31, 2020 and 2019, research and development expenses were $9.5 million and $18.6 million, respectively. Research and development expenses are detailed in the table below (in thousands):
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Three Months Ended
March 31,
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Seladelpar PBC clinical studies
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$
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$
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)
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Seladelpar NASH clinical studies
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)
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Seladelpar PSC clinical studies
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Seladelpar drug manufacturing & development
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)
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Internal research and development costs
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)
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Total research and development
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$
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)
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Our project costs consist primarily of:
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expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical activities;
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the cost of acquiring and manufacturing clinical trial and other materials; and
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other costs associated with development activities, including additional studies.
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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.
Comparison of three months ended March 31, 2020 and 2019
Total project costs decreased by $6.6 million to $7.3 million from $14.0 million for the three months ended March 31, 2020 and 2019, respectively. Project costs for the three months ended March 31, 2020 and 2019 consisted primarily of seladelpar-related clinical trial expenses. These decreases were driven by the decision in the fourth quarter of 2019 to shut down our seladelpar clinical trials and place the development program on clinical hold. Project costs incurred in the three months ended March 31, 2020 primarily included patient monitoring, early termination visits, data analysis, and other
close-out
activities.
General and Administrative Expenses
General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, and accounting services, rent, and other general operating expenses not otherwise included in research and development.
Comparison of three months ended March 31, 2020 and 2019
General and administrative expenses decreased by $1.3 million to $4.3 million from $5.7 million for the three months ended March 31, 2020 and 2019, respectively. The decrease was driven primarily by lower employee compensation and other administrative expenses incurred to as a result of our
reduction-in-force.
In December 2019, we announced a restructuring plan to reduce our workforce by approximately 60%. This reduction in workforce was primarily due to results from our Phase 2b clinical trials from our studies of seladelpar in NASH. Cumulatively, we have incurred in aggregate $5.2 million of restructuring charges as of March 31, 2020.
Restructuring charges consist of personnel-related costs, including severance costs, employee-related benefits, supplemental
one-time
termination payments, and
non-cash
share-based compensation expense related to the acceleration of stock options. Restructuring charges also includes contract termination costs (including costs to terminate agreements with our contract
manufacturers that we had previously contracted with for clinical supplies). In the fourth quarter of 2019, we completed a reduction in force and incurred no material restructuring charges in the first quarter of 2020. Substantially all of the cash payments are expected to be paid out by the end of 2020. We incurred $0.1 million of restructuring expenses in the three months ended March 31, 2020, which represented updates to estimated amounts previously accrued for based on actual payouts in the quarter.
We may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the workforce reduction.
Comparison of Three Months Ended March 31, 2020 and 2019
Other income (expense) consists primarily of interest income from our marketable securities Interest income, net decreased by $0.4 million to $0.8 million from $1.2 million for the three months ended March 31, 2020 and 2019, respectively. The decrease in interest income was driven primarily by lower prevailing interest rates and a reduced investment portfolio balance compared to the prior year period.
Liquidity and Capital Resources
We have financed our operations primarily through the sale of equity securities, licensing fees, issuance of debt and collaborations with third parties. At March 31, 2020, cash, cash equivalents and marketable securities totaled $176.2 million, compared to $190.9 million at December 31, 2019. A historical summary of more the recent sale of our equity securities is noted below followed by overviews of sources of liquidity from our licensing arrangements. Our cash, cash equivalents and investments are held in a variety of interest-bearing instruments, including deposits, money market funds, corporate debt, commercial paper, asset-backed securities, and U.S. treasury securities investments. We invest cash in excess of immediate requirements with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and degrees of risk. We believe these funds are sufficient to fund our current operating plan into 2021.
The following table sets forth a summary of the net cash flow activity for each of the periods indicated below (in thousands):
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Three Months Ended
March 31,
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Net cash used in operating activities
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$
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)
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$
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)
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Net cash provided by (used in) investing activities
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)
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Cash provided by financing activities
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Net increase in cash and cash equivalents
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$
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$
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: Net cash used in operating activities for the three months ended March 31, 2020 decreased by $7.7 million to $14.7 million as compared to $22.4 million for the same period in the prior year, primarily due to a decrease in our net loss to $13.1 million from $23.1 million in the prior year period as a result of our scaled-down operations following the placement of a clinical hold on our seladelpar development program. This effect was partially offset by changes in our working capital.
Net cash provided by investing activities was $46.6 million for the three months ended March 31, 2020 compared to cash used in investing activities of $9.0 million for the same period in the prior year, primarily due to the timing of our investments in marketable securities and portfolio risk management.
Cash provided by financing activities was none for the three months ended March 31, 2020 compared to $108.0 million for the same period in the prior year. Cash provided from financing activities was higher in the prior year period primarily due to the completion of the $107.7 million March 2019 public equity offering and also due to $0.1 million of proceeds from the exercise of stock option awards.
Off-Balance
Sheet Arrangements
We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating
off-balance
sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving
non-exchange
traded contracts.