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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2020
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
    
        
    
    
TO
        
    
    
    
Commission File Number
001-36500
 
 
CymaBay Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
  
94-3103561
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
7575 Gateway Blvd, Suite 110
Newark, CA
  
94560
(Address of principal executive offices)
  
(Zip Code)
(510)
293-8800
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
  
Trading
symbol(s)
  
Name of each exchange
on which registered
Common stock, $0.0001 par value per share
  
CBAY
  
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2
of the Exchange Act.
 
Large accelerated filer   ☐    Accelerated filer   ☒
Non-accelerated
filer		   ☐    Smaller reporting company   ☒
     Emerging growth company   ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    Yes  ☐    
 
No  ☒
As of October 31, 2020, there were 68,887,092
 
shares of the registrant’s common stock outstanding.
 
 
 
CYMABAY THERAPEUTICS, INC.
QUARTERLY REPORT ON
FORM 10-Q
TABLE OF CONTENTS
 
 
 
 
  
Page
 
PART I
 
  
 
3
 
Item 1.
 
  
 
3
 
 
 
  
 
3
 
 
 
  
 
4
 
 
 
  
 
5
 
 
 
  
 
6
 
 
 
  
 
7
 
Item 2.
 
  
 
20
 
Item 3.
 
  
 
28
 
Item 4.
 
  
 
28
 
     
PART II
 
  
 
29
 
Item 1A.
 
  
 
29
 
Item 6.
 
  
 
51
 
   
  
 
52
 
 
2
PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements
CymaBay Therapeutics, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(unaudited)
 
    
September 30,
2020
    
December 31,
2019
  
Assets
     
Current assets:
     
Cash and cash equivalents
    $ 47,273     $ 24,869  
Marketable securities
      113,991       166,076  
Accrued interest receivable
      284       687  
Prepaid research and development expenses
      3,761       9,910  
Other prepaid expenses and current assets
      820       1,381  
  
 
 
    
 
 
  
Total current assets
      166,129       202,923  
Property and equipment, net
      1,929       2,409  
Operating lease
right-of-use
asset
      268       235  
Other assets
      160       160  
  
 
 
    
 
 
  
Total assets
    $ 168,486     $ 205,727  
  
 
 
    
 
 
  
Liabilities and stockholders’ equity
     
Current liabilities:
     
Accounts payable
    $ 947     $ 2,503  
Accrued research and development expenses
      5,729       9,218  
Accrued restructuring
      93       3,193  
Other accrued liabilities
      3,693       2,722  
  
 
 
    
 
 
  
Total current liabilities
      10,462       17,636  
Long-term portion of operating lease liability
      1,389       1,743  
Total liabilities
      11,851       19,379  
Commitments and contingencies
            
Stockholders’ equity:
     
Preferred stock, $0.0001 par value: 10,000,000 shares authorized; no shares issued and outstanding
      —         —    
Common stock, $0.0001 par value: 200,000,000 shares authorized; 68,887,092 and 68,882,459 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
      7       7  
Additional
paid-in
capital
      817,653       812,133  
Accumulated other comprehensive income
      82       80  
Accumulated deficit
      (661,107 )      (625,872 ) 
  
 
 
    
 
 
  
Total stockholders’ equity
      156,635       186,348  
  
 
 
    
 
 
  
Total liabilities and stockholders’ equity
    $ 168,486     $ 205,727  
  
 
 
    
 
 
  
See accompanying notes to the condensed consolidated financial statements.
 
3
CymaBay Therapeutics, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share information)
(unaudited)
 
    
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
    
2020
    
2019
    
2020
    
2019
  
Operating expenses:
         
Research and development
    $ 7,743     $ 23,193     $ 25,194     $ 62,900  
General and administrative
      4,494       4,514       12,239       14,706  
Restructuring charges
      (587 )      —         (704 )      —    
  
 
 
    
 
 
    
 
 
    
 
 
  
Total operating expenses
      11,650       27,707       36,729       77,606  
  
 
 
    
 
 
    
 
 
    
 
 
  
Loss from operations
      (11,650 )      (27,707 )      (36,729 )      (77,606 ) 
Other income:
         
Interest income
      229       1,425       1,494       4,211  
  
 
 
    
 
 
    
 
 
    
 
 
  
Total other income
      229       1,425       1,494       4,211  
  
 
 
    
 
 
    
 
 
    
 
 
  
Net loss
    $ (11,421 )    $ (26,282 )    $ (35,235 )    $ (73,395 ) 
  
 
 
    
 
 
    
 
 
    
 
 
  
Other comprehensive
(loss)
income:
         
Unrealized
(loss)
gain on marketable securities
      (104 )      (51 )      2       235  
  
 
 
    
 
 
    
 
 
    
 
 
  
Total other comprehensive
(loss)
income
    $ (104 )      (51 )      2       235  
  
 
 
    
 
 
    
 
 
    
 
 
  
Comprehensive loss
    $ (11,525 )    $ (26,333 )    $ (35,233 )    $ (73,160 ) 
  
 
 
    
 
 
    
 
 
    
 
 
  
Basic
and d
iluted
net loss per common share
    $ (0.17 )    $ (0.38 )    $ (0.51 )    $ (1.10 ) 
Weighted average common shares outstanding used to calculate
basic and
diluted net loss per common share
      68,887,092       68,701,043       68,884,894       66,454,750  
See accompanying notes to the condensed consolidated financial statements.
 
4
CymaBay Therapeutics, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
    
Nine Months Ended
  
    
September 30,
  
    
2020
    
2019
  
Operating activities
     
Net loss
    $ (35,235 )    $ (73,395 ) 
Adjustments to reconcile net loss to net cash used in operating activities:
     
Depreciation and amortization
      468       422  
Stock-based compensation expense
      5,513       7,483  
Net accretion and amortization of investments in marketable securities
      (240 )      (1,909 ) 
Changes in assets and liabilities:
     
Interest receivable and other current assets
      42       (205 ) 
Prepaid expenses
      7,071       (6,074 ) 
Other assets
      —         1,019  
Accounts payable
      (1,556 )      (479 ) 
Accrued restructuring charges
      (3,100 )      —    
Accrued liabilities
      (2,872 )      3,363  
  
 
 
    
 
 
  
Net cash used in operating activities
      (29,909 )      (69,775 ) 
Investing activities
     
Purchases of property and equipment
      (21 )      (289 ) 
Purchases of marketable securities
      (153,951 )      (246,180 ) 
Proceeds from maturities of marketable securities
      206,278       198,881  
Proceeds from sale of marketable securities
      —         3,980  
  
 
 
    
 
 
  
Net cash provided by (used in) investing activities
      52,306       (43,608 ) 
Financing activities
     
Proceeds from issuance of common stock, net of issuance costs
      —         107,746  
Proceeds from issuance of common stock pursuant to equity award plans
      7       104  
  
 
 
    
 
 
  
Cash provided by financing activities
      7       107,850  
Net increase (decrease) in cash and cash equivalents
      22,404       (5,533 ) 
  
 
 
    
 
 
  
Cash and cash equivalents at beginning of period
      24,869       48,995  
  
 
 
    
 
 
  
Cash and cash equivalents at end of period
    $ 47,273     $ 43,462  
  
 
 
    
 
 
  
Supplemental disclosure
     
Cash paid for amounts included in the measurement of lease liabilities
    $ 484     $ 470  
See accompanying notes to the condensed consolidated financial statements.
 
5
CymaBay Therapeutics, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share information)
(unaudited)
 
    
Three and Nine Months Ended September 30, 2020
  
                         
Accumulated
              
                  
Additional
     
Other
          
Total
  
    
Common Stock
     
Paid-in
     
Comprehensive
    
Accumulated
    
Stockholders’
  
    
Shares
     
Amount
     
Capital
     
Income(Loss)
    
Deficit
    
Equity
  
Balances as of December 31, 2019
      68,882,459      $ 7      $ 812,133      $ 80     $ (625,872 )    $ 186,348  
Stock-based compensation expense
      —          —          1,998        —         —         1,998  
Net loss
      —          —          —          —         (13,088 )      (13,088 ) 
Net unrealized loss on marketable securities
      —          —          —          (210 )      —         (210 ) 
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balances as of March 31, 2020
      68,882,459      $ 7      $ 814,131      $ (130 )    $ (638,960 )    $ 175,048  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Issuance of common stock upon exercise of stock options
      4,633        —          7        —         —         7  
Stock-based compensation expense
      —          —          963        —         —         963  
Net loss
      —          —          —          —         (10,726 )      (10,726 ) 
Net unrealized gain on marketable securities
      —          —          —          316       —         316  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balances as of June 30, 2020
      68,887,092      $ 7      $ 815,101      $ 186     $ (649,686 )    $ 165,608  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Stock-based compensation expense
      —          —          2,552        —         —         2,552  
Net loss
      —          —          —          —         (11,421 )      (11,421 ) 
Net unrealized loss on marketable securities
      —          —          —          (104 )      —         (104 ) 
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balances as of September 30, 2020
      68,887,092      $ 7      $ 817,653      $ 82     $ (661,107 )    $ 156,635  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
 
    
Three and Nine Months Ended September 30, 2019
  
                         
Accumulated
              
                  
Additional
     
Other
          
Total
  
    
Common Stock
     
Paid-in
     
Comprehensive
    
Accumulated
    
Stockholders’
  
    
Shares
     
Amount
     
Capital
     
Income (Loss)
    
Deficit
    
Equity
  
Balances as of December 31, 2018
      59,456,493      $ 6      $ 693,534      $ (58 )    $ (523,064 )    $ 170,418  
Issuance of common stock upon exercise of stock options and incentive awards
      37,550        —          97        —         —         97  
Stock-based compensation expense
      —          —          2,342        —         —         2,342  
Issuance of common stock, net of $7,254 issuance costs
      9,200,000        1        107,745        —         —         107,746  
Net loss
      —          —          —          —         (23,075 )      (23,075 ) 
Net unrealized gain on marketable securities
      —          —          —          103       —         103  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balances as of March 31, 2019
      68,694,043      $ 7      $ 803,718      $ 45     $ (546,139 )    $ 257,631  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Issuance of common stock upon exercise of stock options and incentive awards
      7,000        —          7        —         —         7  
Stock-based compensation expense
      —          —          2,276        —         —         2,276  
Net loss
      —          —          —          —         (24,038 )      (24,038 ) 
Net unrealized gain on marketable securities
      —          —          —          183       —         183  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balances as of June 30, 2019
      68,701,043      $ 7      $ 806,001      $ 228     $ (570,177 )    $ 236,059  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Stock-based compensation expense
      —          —          2,865        —         —         2,865  
Net loss
      —          —          —          —         (26,282 )      (26,282 ) 
Net unrealized loss on marketable securities
      —          —          —          (51 )      —         (51 ) 
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balances as of September 30, 2019
      68,701,043      $ 7      $ 808,866      $ 177     $ (596,459 )    $ 212,591  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
See accompanying notes to the condensed consolidated financial statements.
 
6
CymaBay Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Organization and Description of Business
CymaBay Therapeutics, Inc. (the Company or CymaBay) 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. The Company’s key clinical development candidate is seladelpar
(MBX-8025).
Seladelpar has been under development for the treatment of the liver diseases primary biliary cholangitis (PBC), primary sclerosing cholangitis (PSC) and nonalcoholic steatohepatitis (NASH). In the fourth quarter of 2019, all development programs for seladelpar were placed on clinical hold pending an investigation into
certain
histologic findings identified by study pathologists in the Company’s Phase 2b study for seladelpar in patients with NASH. In July 2020, following the completion of the scientific investigation, the FDA lifted the clinical hold on the seladelpar program, and the Company reinitiated the development of seladelpar. The Company was incorporated in Delaware in October 1988 as Transtech Corporation. The Company’s headquarters and operations are located in Newark, California and it operates in one segment.
Liquidity
The Company has incurred net operating losses and negative cash flows from operations since its inception. During the three and nine months ended September 30, 2020, the Company incurred a net loss of $11.4 million and $35.2 million, respectively. During the nine months ended September 30, 2020, the Company used $29.9 million of cash in operations. As of September 30, 2020, the Company had an accumulated deficit of $661.1 million.
CymaBay has incurred substantial research and development expenses during the course of studying its product candidates in clinical trials. To date, none of the Company’s product candidates have been approved for marketing and sale, and the Company has not recorded any revenue from product sales. Generally, the Company’s ability to achieve profitability is dependent on its ability to successfully develop, acquire or
in-license
additional product candidates, conduct clinical trials for those product candidates, obtain regulatory approvals, and support commercialization activities for those product candidates. Any products developed will require approval of the U.S. Food and Drug Administration (FDA) or a foreign regulatory authority prior to commercial sale. The regulatory approval process is expensive, time-consuming, and uncertain, and any denial or delay of approval could have a material adverse effect on the Company. Even if approved, the Company’s products may not achieve market acceptance and will face competition from both generic and branded pharmaceutical products.
In the fourth quarter of 2019, the Company’s clinical trials in PBC, PSC, and NASH were terminated and all development programs for seladelpar were placed on clinical hold pending further investigation and review of certain histological observations seen in NASH patients and pending additional discussions with the FDA. In parallel with this review, the Company also commenced a process to evaluate potential ways to maximize stockholder value, including possible mergers and business combinations, a sale of part or all of the Company’s assets, collaboration and licensing agreements, dissolution and liquidation of the Company’s assets, and/or continuing development of internal programs.
In the second quarter of 2020, as part of the Company’s ongoing review of seladelpar, an independent panel of expert pathologists and hepatologists convened in an
in-depth
analysis of the findings and concluded unanimously that there was no clinical, biochemical, or histological evidence of seladelpar-induced liver injury in the Phase 2b NASH study. The Company discussed these findings and other matters with the FDA and submitted a complete response letter in an effort to answer outstanding FDA questions and seek approval from the FDA to lift the clinical hold. In July 2020, the Company received a response from the FDA lifting the clinical hold thereby permitting the Company to reinstate clinical development of seladelpar. Considering these developments, the Company completed its formal review of strategic options to maximize
stock
holder value and made the determination to restart clinical development of seladelpar.
As of September 30, 2020, the Company had cash, cash equivalents and marketable securities totaling $161.3 million. The Company believes its cash, cash equivalents and marketable securities are sufficient to fund the Company’s operating plan into 2022. The Company’s future liquidity and capital resource needs could be impacted by numerous factors, including but not limited to, funding requirements associated with the continued development of seladelpar and other internal programs, or the incurrence of costs associated with potential collaborations or licensing arrangements. The Company has historically obtained and, expects to obtain additional financing to fund its business strategy through future equity offerings; debt financing; one or more possible licenses, collaborations or other similar arrangements with respect to development and/or commercialization rights of the Company’s product candidates; or a combination of the above. It is unclear if or when any such transactions will occur, on satisfactory terms or at all. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business strategies. If adequate funds are not available to the Company, it could have a material adverse effect on the Company’s business, results of operations, and financial condition.
 
7
2. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying interim condensed consolidated financial statements are unaudited and comprise the consolidation of CymaBay and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method.
These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and also reflect reporting requirements of the United States Securities and Exchange Commission (SEC) for interim reporting. As permitted under SEC rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. GAAP requires management to make informed estimates and assumptions that impact the amounts and disclosures reported in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Actual results could differ materially from those estimates and assumptions. The Company believes a high level of judgment is involved in determining and estimating the valuation of stock-based compensation and accrued clinical expenses. These estimates form the basis for making judgments about the carrying values of assets and liabilities when these values are not readily apparent from other sources. Estimates are assessed each reporting period and updated to reflect current information and any changes in estimates will generally be reflected in the period first identified.
In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include normal recurring adjustments necessary for the fair presentation of the Company’s financial position and its results of operations and comprehensive loss and its cash flows for the periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the fiscal year ended December 31, 2019, which is contained in the Company’s Annual Report on Form
10-K
as filed with the SEC on March 16, 2020. The results for the nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the entire year ending December 31, 2020 or future operating periods.
Fair Value of Financial Instruments
The Company’s financial instruments during the periods reported consist of cash and cash equivalents, marketable securities, accrued interest receivable, prepaid research and development expenses, other prepaid expenses, other assets, accounts payable, accrued research and development expenses, accrued restructuring, and other accrued liabilities. Fair value estimates of these instruments are made at a specific point in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment. The carrying amounts of financial instruments such as cash and cash equivalents, accrued interest receivable, prepaid research and development expenses, other prepaid expenses, other assets, accounts payable, and accrued expenses approximate the related fair values due to the short maturities of these instruments.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and maximizes the use of unobservable inputs and is as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.
Level 3—Inputs that are significant to the fair value measurement and are unobservable (i.e. supported by little market activity), which requires the reporting entity to develop its own valuation techniques and assumptions.
 
8
The following tables present the fair value of the Company’s financial assets measured at fair value on a recurring basis using the above input categories (in thousands):
 
    
As of September 30, 2020
  
    
Level 1
     
Level 2
     
Level 3
     
Total
  
Cash equivalents:
            
Money market funds
    $ 42,518      $ —        $ —        $ 42,518  
  
 
 
     
 
 
     
 
 
     
 
 
  
 
Total cash equivalents
      42,518        —          —          42,518  
Marketable securities:
            
U.S. and foreign commercial paper
      —          31,059        —          31,059  
U.S. and foreign corporate debt securities
      —          25,830        —          25,830  
Asset-backed securities
      —          9,605        —          9,605  
U.S. treasury securities
      —          32,002        —          32,002  
U.S. agency securities
 
 
—
 
 
 
 
 
15,495
 
 
 
—
 
 
 
15,495
 
  
 
 
     
 
 
     
 
 
     
 
 
  
 
Total marketable securities
      —          113,991        —          113,991  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total assets measured at fair value
    $ 42,518      $ 113,991      $ —        $ 156,509  
  
 
 
     
 
 
     
 
 
     
 
 
  
 
    
As of December 31, 2019
  
    
Level 1
     
Level 2
     
Level 3
     
Total
  
Cash equivalents:
            
Money market funds
    $ 18,597      $ —        $ —        $ 18,597  
  
 
 
     
 
 
     
 
 
     
 
 
  
 
Total cash equivalents
      18,597        —          —          18,597  
Marketable securities:
            
U.S. and foreign commercial paper
      —          51,102        —          51,102  
U.S. and foreign corporate debt securities
      —          56,729        —          56,729  
Asset-backed securities
      —          39,788        —          39,788  
U.S. treasury securities
      —          18,457        —          18,457  
  
 
 
     
 
 
     
 
 
     
 
 
  
 
Total marketable securities
      —          166,076        —          166,076  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total assets measured at fair value
    $ 18,597      $ 166,076      $ —        $ 184,673  
  
 
 
     
 
 
     
 
 
     
 
 
  
The Company estimates the fair value of its money market funds, corporate debt, asset-backed securities, commercial paper, and U.S. treasury
and
agency
 
securities
by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs.
 
9
Cash, Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking, interest-bearing, and demand money market accounts.
The Company invests excess cash in marketable securities with high credit ratings that are classified in Level 1 and Level 2 of the fair value hierarchy. These securities consist primarily of corporate debt, commercial paper, asset-backed securities, and U.S. treasury
and
agency
 
securities and are classified as
“available-for-sale.”
The Company considers marketable securities as short-term investments if the maturity date is less than or equal to one year from the balance sheet date. The Company considers marketable securities as long-term investments if the maturity date is in excess of one year of the balance sheet date.
Realized gains and losses from the sale of marketable securities, if any, are calculated using the specific-identification method. Realized gains and losses and declines in value judged to be other-than-temporary are included in interest income or expense in the condensed consolidated statements of operations and comprehensive loss. Unrealized holding gains and losses are reported in accumulated other comprehensive loss in the condensed consolidated balance sheets. To date, the Company has not recorded any impairment charges on its marketable securities related to other-than-temporary declines in market value. In determining whether a decline in market value is other-than-temporary, various factors are considered, including the cause, duration of time and severity of the impairment, any adverse changes in the investees’ financial condition, and the Company’s intent and ability to hold the security for a period of time sufficient to allow for an anticipated recovery in market value.
The following tables summarize amortized cost, unrealized gain and loss, and fair value of the Company’s
available-for-sale
marketable securities (in thousands): 
 
10
    
Amortized
Cost
     
Gross
Unrealized
Gains
     
Gross
Unrealized
Losses
     
Estimated
Fair Value
  
As of September 30, 2020:
            
Cash equivalents:
            
Money market funds
    $ 42,518      $ —        $ —        $ 42,518  
  
 
 
     
 
 
     
 
 
     
 
 
  
 
Total cash equivalents
      42,518        —          —          42,518  
Short-term investments:
            
U.S. and foreign commercial paper
      31,059        —          —          31,059  
U.S. and foreign corporate debt securities
      25,773        57        —          25,830  
Asset-backed securities
      9,600        5        —          9,605  
U.S. treasury securities
      31,984        18        —          32,002  
U.S. agency securities
 
 
15,493
 
 
 
 
2
 
 
 
—
 
 
 
 
 
15,49
5
 
  
 
 
     
 
 
     
 
 
     
 
 
  
 
Total short-term investments
      113,909        82        —          113,991  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total marketable securities
    $ 156,427      $ 82      $ —        $ 156,509  
  
 
 
     
 
 
     
 
 
     
 
 
  
 
    
Amortized
Cost
     
Gross
Unrealized
Gains
     
Gross
Unrealized
Losses
     
Estimated
Fair Value
  
As of December 31, 2019:
            
Cash equivalents:
            
Money market funds
    $ 18,597      $ —        $ —        $ 18,597  
  
 
 
     
 
 
     
 
 
     
 
 
  
 
Total cash equivalents
      18,597        —             18,597  
Short-term investments:
            
U.S. and foreign commercial paper
      51,102        —          —          51,102  
U.S. and foreign corporate debt securities
      56,691        38        —          56,729  
Asset-backed securities
      39,756        33        —          39,789  
U.S. treasury securities
      18,447        9        —          18,456  
  
 
 
     
 
 
     
 
 
     
 
 
  
 
Total short-term investments
      165,996        80           166,076  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total marketable securities
    $ 184,593      $ 80      $ —        $ 184,673  
  
 
 
     
 
 
     
 
 
     
 
 
  
Concentrations of Risk
Cash, cash equivalents, and marketable securities consist of financial instruments that potentially subject the Company to a concentration of credit risk to the extent of the fair value recorded on the balance sheet. The Company invests cash that is not required for immediate operating needs primarily in highly liquid instruments that bear minimal risk. The Company has established guidelines relating to the quality, diversification, and maturities of securities to enable the Company to manage its credit risk. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments and issuers of investments to the extent recorded on the condensed consolidated balance sheets.
Certain materials and key components that the Company utilizes in its operations are obtained through single suppliers. Since the suppliers of key components and materials must be named in an NDA filed with the FDA for a product, significant delays can occur if the qualification of a new supplier is required. If delivery of material from the Company’s suppliers were interrupted for any reason, the Company may be unable to supply any of its product candidates for clinical trials.
 
1
1
Other Risks and Uncertainties
In March 2020, the World Health Organization declared the global novel coronavirus disease
(COVID-19)
outbreak a pandemic. To date, the Company’s operations have not been significantly impacted by the
COVID-19
outbreak. However, the Company cannot at this time predict the specific extent, duration, or full impact that the
COVID-19
outbreak will have on its condensed consolidated financial condition and operations. The impact of the
COVID-19
coronavirus outbreak on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions. These developments and the impact of
COVID-19
on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be adversely affected.
Leases
The Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement is or contains a lease at contract inception. Operating leases are included in operating lease
right-of-use
assets, other accrued liabilities, and long-term portion of operating lease liabilities in the Company’s condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019. Operating lease
right-of-use
assets and liabilities are recognized at the lease commencement date based on the net present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured the Company will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.
The operating lease
right-of-use
assets also include any lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the expected lease term. The Company has elected to not separate lease and
non-lease
components for its leased assets and accounts for all lease and
non-lease
components of its agreements as a single lease component.
Research and Development Expenses
Research and development expenses consist of costs incurred in identifying, developing, and testing product candidates. These expenses consist primarily of: costs for research and development personnel, including related stock-based compensation; contract research organizations (CRO) and other third parties that assist in managing, monitoring, and analyzing clinical trials; investigator and site fees; laboratory services; consultants; contract manufacturing services;
non-clinical
studies, including materials; and allocated expenses, such as depreciation of assets, and facilities and information technology that support research and development activities. Research and development costs are expensed as incurred, including expenses that may or may not be reimbursed under research and development funding arrangements. Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid assets until the goods are received or services are rendered. Such payments are evaluated for current or long
-
term classification based on when they are expected to be realized. Additionally, if expectations change such that the Company does not expect goods to be delivered or services to be rendered, such prepayments are charged to expense.
The Company records expenses related to clinical studies and manufacturing development activities based on its estimates of the services received and efforts expended pursuant to contracts with multiple CROs and manufacturing vendors that conduct and manage these activities on its behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In amortizing or accruing service fees, the Company estimates the time period over which services will be performed, enrollment of subjects, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the Company will adjust the accrued or prepaid expense balance accordingly. To date, there have been no material differences from the Company’s estimates to the amounts actually incurred.
Restructuring Charges
The Company recognizes restructuring charges related to reorganization plans that have been committed to by management and when liabilities have been incurred. In connection with these activities, the Company records restructuring charges at fair value for, a) contractual employee termination benefits when obligations are associated to services already rendered, rights to such benefits have vested, and payment of benefits is probable and can be reasonably estimated, b)
one-time
employee termination benefits when
 
1
2
management has committed to a plan of termination, the plan identifies the employees and their expected termination dates, the details of termination benefits are complete, it is unlikely changes to the plan will be made or the plan will be withdrawn and communication to such employees has occurred, and c) contract termination costs when a contract is terminated before the end of its term.
One-time
employee termination benefits are recognized in their entirety when communication has occurred and future services are not required. If future services are required, the costs are recorded ratably over the remaining period of service. Contract termination costs to be incurred over the remaining contract term without economic benefit are recorded in their entirety when the contract is canceled.
The recognition of restructuring charges requires the Company to make certain judgments and estimates regarding the nature, timing and amount of costs associated with the planned reorganization plan. To the extent the Company’s actual results differ from its estimates and assumptions, the Company may be required to revise the estimates of future accrued restructuring liabilities, requiring the recognition of additional restructuring charges or the reduction of accrued restructuring liabilities already recognized. Such changes to previously estimated amounts may be material to the consolidated financial statements. Changes in the estimates of the restructuring charges are recorded in the period the change is determined.
At the end of each reporting period, the Company evaluates the remaining accrued restructuring balances to ensure that no excess accruals are retained, and the utilization of the provisions are for their intended purpose in accordance with developed restructuring plans.
 
1
3
Stock-Based Compensation
Employee and director stock-based compensation is measured at fair value on the grant date of the award. Compensation cost is recognized as expense on a straight-line basis over the vesting period for options and on an accelerated basis for stock options with performance conditions, net of estimated forfeitures. For stock options with performance conditions, the Company evaluates the probability of achieving performance conditions at each reporting date. The Company begins to recognize the expense when it is deemed probable that the performance conditions will be met. The Company uses the Black-Scholes option pricing model to determine the fair value of stock option awards. The determination of fair value for stock-based awards using an option-pricing model requires management to make certain assumptions regarding subjective input variables such as expected term, dividends, volatility and risk-free rate. Due to limited historical stock price data, the Company has estimated volatility considering both the Company’s historical stock price volatility and that of a selected peer group of comparable publicly traded companies. During the second quarter of 2020, the Company determined its historical stock price data was sufficient to exclusively estimate volatility for awards granted during
the
three months ended June 30, 2020
 and thereafter
. The change in estimate did not have a material impact on the Company’s estimated fair value of its awards. If actual results are not consistent with the Company’s assumptions and judgments used in making these estimates, the Company may be required to increase or decrease compensation expense, which could be material to the Company’s results of operations.
Equity awards granted to
non-employees
are valued using the Black-Scholes option pricing model. Stock-based compensation expense for nonemployee services has historically been subject to remeasurement at each reporting date as the underlying equity instruments vest and was recognized as an expense over the period during which services are received. Upon the adoption of Accounting Standards Update (ASU) 2018-07,
Compensation—Stock Compensation
on January 1, 2019, the valuation was fixed at the implementation date and will be recognized as an expense on a straight-line basis over the remaining service period.
Income Taxes
On March 27, 2020, the president signed into law the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, an economic stimulus package in response to the
COVID-19
global pandemic and the Families First Coronavirus Response Act, or FFCR Act, which permits employees of certain organizations paid sick time stemming from
COVID-19-related
issues. The CARES Act contains several corporate income tax provisions, including making remaining alternative minimum tax (AMT) credits immediately refundable; providing a
5-year
carryback of net operating losses (NOLs) generated in tax years 2018, 2019, and 2020, and removing the 80% taxable income limitation on utilization of those NOLs if carried back to prior tax years or utilized in tax years beginning before 2021; and temporarily liberalizing the interest deductibility rules under Section 163(j) of the CARES Act, by raising the adjusted taxable income limitation from 30% to 50% for tax years 2019 and 2020 and giving taxpayers the election of using 2019 adjusted taxable income for purposes of computing 2020 interest deductibility. The Company has an immaterial amount of refundable AMT credits that will be fully refundable through the CARES Act but does not expect to generate additional income tax refunds from the NOL carryback provision.
On June 29, 2020, Governor Newsom signed into law California Assembly Bill 85 (California AB 85), which suspends the usages of NOLs for taxable years 2020, 2021, and 2022 for taxpayers with taxable income of $1.0 million or more and limits the amount of tax that can be offset by business credits to $5.0 million for tax years 2020, 2021, and 2022. The carryover period for NOL deductions and business credit limitation disallowed by this provision will be extended.
The Company is still evaluating the impact of these changes in tax law but does not currently expect the provisions of the CARES Act and California AB 85 to have a material effect on the realizability of deferred income tax assets or tax expense as any such impact will be fully offset by the valuation allowance on the Company’s deferred tax assets.
Net Loss Per Common Share
Basic net loss per share of common stock is based on the weighted average number of shares of common stock outstanding equivalents during the period. Diluted net loss per share of common stock is calculated as the weighted average number of shares of common stock outstanding adjusted to include the assumed exercises of stock options, if dilutive.
 
1
4
In all periods presented, the Company’s outstanding stock options were excluded from the calculation of diluted net loss per share because their effects were antidilutive. The following table presents the computation of basic and diluted net loss per share (in thousands, except share and per share amounts):
 
 
  
Three Months Ended

September 30,
 
  
Nine Months Ended

September 30,
 
 
  
2020
 
  
2019
 
  
2020
 
  
2019
 
Numerator:
  
      
  
      
  
      
  
      
Net loss allocated to common stock-basic and diluted
    $ (11,421 )    $ (26,282 )    $ (35,235 )    $ (73,395 )
 
Denominator:
            
Weighted average number of common stock shares outstanding - basic and diluted
      68,887,092        68,701,043        68,884,894        66,454,750  
Net loss per share - basic and diluted:
    $ (0.17 )    $ (0.38 )    $ (0.51 )    $ (1.10 )
                                                                                                                             
The following table shows the total outstanding securities considered anti-dilutive and therefore excluded from the computation of diluted net loss per share (in thousands):
 
 
  
Three Months Ended

September 30,
 
  
Nine Months Ended

September 30,
 
 
  
2020
 
  
2019
 
  
2020
 
  
2019
 
Common stock options
   
 
8,126
 
   
 
7,949
 
   
 
8,126
 
   
 
7,949
 
Incentive awards
   
 
101
 
   
 
127
 
   
 
101
 
   
 
127
 
  
 
 
     
 
 
     
 
 
     
 
 
  
Total
   
 
8,227
 
   
 
8,076
 
   
 
8,227
 
   
 
8,076
 
  
 
 
     
 
 
     
 
 
     
 
 
  
                                                                                                                             
Recently Adopted Accounting Pronouncements
ASU
2018-18
In November 2018, the FASB issued ASU
2018-18,
Collaborative Arrangements (Topic 808):
Clarifying the Interaction between Topic 808 and Topic 606
. The guidance clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer. For the Company, the amendment became effective January 1, 2020. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
ASU
2018-15
In August 2018, the FASB issued ASU
No. 2018-15, Intangibles
(Topic 350):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software. This new standard also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This ASU is effective for public companies for fiscal years beginning after December 15, 2019. This standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company prospectively adopted this ASU on January 1, 2020, and it did not have a material effect on its condensed consolidated financial statements.
 
1
5
ASU
2018-13
In August 2018, the FASB issued ASU
2018-13,
Fair Value Measurement (Topic 820):
Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
which modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted for any removed or modified disclosures. The Company adopted this ASU on January 1, 2020, and it did not have a material effect on its condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
ASU
2016-13
In June 2016, the FASB issued ASU
No. 2016-13,
Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments
, an amendment which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to
available-for-sale
debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. In November 2019, FASB issued ASU
No. 2019-10,
Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which deferred the adoption deadline for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, and entities are required to use a modified retrospective approach, with certain exceptions. The Company intends to adopt the standard on January 1, 2023 and will assess potential effects of the guidance prior to the adoption date.
ASU
2019-12
In December 2019, the FASB issued ASU
2019-12,
Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes
, which removes certain exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a
step-up
in the tax basis of goodwill. The guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the impact of this standard on its condensed consolidated financial statements and related disclosures.
3. Other Accrued Liabilities
Other accrued liabilities consist of (in thousands):
 
    
September 30,
2020
     
December 31,
2019
  
Accrued compensation
    $ 2,392      $ 2,013  
Accrued professional fees and other
      839        302  
Operating lease liability
      462        407  
  
 
 
     
 
 
  
Total other accrued liabilities
    $ 3,693      $ 2,722  
  
 
 
     
 
 
  
4. Accrued Restructuring
In December 2019, the Company commenced a reorganization plan to reduce its operating costs and better align its workforce with the needs of its business following the Company’s November 25, 2019 announcement that it had halted clinical development of seladelpar. As of September 30, 2020, and December 31, 2019, the restructuring liability is included in current liabilities on the condensed consolidated balance sheet
.
Restructuring charges incurred to date under this plan primarily consisted of employee termination benefits and contract termination costs associated with nonrefundable prepayments and exit fees relating to third-party manufacturers that the Company
 
1
6
contracted with for clinical supplies. Employee termination benefits include severance costs, employee-related benefits, supplemental
one-time
termination payments, and
non-cash
share-based compensation expense related to the acceleration of stock options. Charges and other costs related to the workforce reduction and structure realignment are presented as restructuring charges in the consolidated statements of operations and comprehensive loss. Substantially all cash payments are expected to be paid out by the end of 2020. 
The following table summarizes the accrued restructuring liabilities and utilization by cost type associated with the restructuring activities during the three and nine months ended September 30, 2020 (in thousands):
 
    
Termination
Benefits
     
Contract
Termination
Costs
     
Total
  
Balances as of December 31, 2019
    $ 2,780      $ 413      $ 3,193  
Restructuring charges
      23        —          23  
Reductions for cash payments
      (1,499 )       —          (1,499 ) 
  
 
 
     
 
 
     
 
 
  
Balances as of March 31, 2020
      1,304        413        1,717  
Restructuring charges
      (377 )       —          (377 ) 
Reductions for cash payments
      (461 )       —          (461 ) 
  
 
 
     
 
 
     
 
 
  
Balances as of June 30, 2020
      466        413        879  
Restructuring charges
      (174 )      
(41
3
)
      (587 ) 
Reductions for cash payments
      (199 )       —          (199 ) 
  
 
 
     
 
 
     
 
 
  
Balances as of September 30, 2020
    $ 93      $ —      $ 93  
  
 
 
     
 
 
     
 
 
  
In the three and nine months ended September 30, 2020, the Company adjusted restructuring charges by $0.2 million and $0.5 million, respectively, to reverse a portion of severance liabilities associated with severance benefits that were forfeited by certain executives pursuant to the terms of their respective employment agreements.
 
In the three months ended September 30, 2020, the Company reversed $0.4 million of contract termination costs resulting from an arrangement between the Company and the vendor to waive these costs.
In addition to the activity in the above table, the Company also recognized in restructuring charges zero and $48,000 pertaining to nonrefundable prepaid research and development costs for clinical trial materials no longer expected be delivered for the three and nine months ended September 30, 2020. The Company also recorded zero and $0.2 million in
non-cash,
stock-based compensation associated with the acceleration of stock options of a departed executive for the three and nine months ended September 30, 2020.
5. Collaboration and License Agreements
Janssen Pharmaceutical NV and Janssen Pharmaceuticals, Inc.
In June 2006, the Company entered into an exclusive, worldwide, royalty-bearing license to seladelpar and certain other PPAR
d
compounds (the PPAR
d
Products) with Janssen Pharmaceutical NV (Janssen NV), with the right to grant sublicenses to third parties to make, use and sell such PPAR
d
Products. Under the terms of the agreement, the Company has full control and responsibility over the research, development and registration of any PPAR
d
Products and is required to use diligent efforts to conduct all such activities. Janssen NV has the sole responsibility for the preparation, filing, prosecution, maintenance of, and defense of the patents with respect to, the PPAR
d
Products. Janssen NV has a right of first negotiation under the agreement to license the PPAR
d
Product(s) from the Company in the event that the Company elects to seek a third
-
party corporate partner for the research, development, promotion, and/or commercialization of such PPAR
d
Products. Under the terms of the agreement Janssen NV is entitled to receive up to an 8% royalty on net sales of PPAR
d
Products. No amounts were incurred or accrued for this agreement as of and for the three and nine months ended September 30, 2020 and 2019.
In June 2010, the Company entered into two development and license agreements with Janssen Pharmaceuticals, Inc. (Janssen), a subsidiary of Johnson and Johnson, to further develop and discover undisclosed metabolic disease target agonists for the treatment of Type 2 diabetes and other disorders. The Company received a termination notice from Janssen, effectively ending these development and licensing agreements in early April 2015. In December 2015, the Company exercised an option, and Janssen granted the Company an exclusive, worldwide license with rights to sublicense, pursuant to the terms of one of the original agreements to continue to develop compounds with activity against an undisclosed metabolic disease target.
 
1
7
DiaTex, Inc.
In June 1998, the Company entered into a license agreement with DiaTex, Inc. (DiaTex) relating to products containing halofenate, its enantiomers, derivatives, and analogs (the licensed products). The license agreement provides that DiaTex and the Company are joint owners of all the patents and patent applications covering the licensed products and methods of producing or using such compounds, as well as certain other
know-how
(the covered IP). As part of the license agreement, the Company received an exclusive worldwide license, including as to DiaTex, to use the covered IP to develop and commercialize the licensed products. The Company also retained the right to
sub-license
the covered IP. The license agreement contains a requirement to make additional payments for development achievements and royalty payments on any sales of licensed products containing arhalofenate. In December 2016, the agreement was amended by the parties to change the timing of a specified development milestone. No development payments were made or became due as of and for the three and nine months ended September 30, 2020 and 2019 and no royalties have been paid to date.
6. Leases
The Company has one material operating lease pertaining to 17,698 square feet of corporate office space in Newark, California pursuant to a lease agreement that commenced January 16, 2014 and was amended on April 16, 2018. As of September 30, 2020, the Company’s lease portfolio had a weighted average remaining term of 3.3 years, with an option to extend for an additional 5 years. The lease requires monthly lease payments that are subject to annual increases throughout the lease term. The optional period has not been considered in the determination of the
right-of-use
assets or lease liabilities associated with this lease as the Company did not consider it reasonably certain it would exercise the option.
The Company cannot determine the implicit rate in its lease, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The Company used an incremental borrowing rate as of the date of adoption for leases that commenced prior to January 1, 2019. The weighted average discount rate for the Company’s lease portfolio at September 30, 2020 was 12.6%.
The Company incurred 
rent expense
 of $
0.1
 million and $
0.4
 million for the
three
and
nine
months ended September 
30,
2020,
respectively, and $
0.2
 million and $
0.4
 million for the
three
and
nine
months ended September 
30,
2019,
respectively, that are included in operating expenses in the condensed consolidated statements of
operations
and comprehensive
loss
in relation to its operating lease, a portion of which was variable rent expense and not included within the measurement of the Company’s operating
right-of-use
assets and lease liabilities. The variable rent expense consists primarily of the Company’s proportionate share of operating expenses, property taxes, and insurance and is classified as lease expense due to the Company’s election to not separate lease and
non-lease
components. Short-term lease costs were not material. As of September 
30,
2020,
the Company’s operating lease
right-of-use
asset totaled $
0.3
 million, and the operating lease liability totaled $
1.9
 million. The short-term portion of the operating lease liability was $
0.5
 million and is contained within other accrued liabilities on the balance sheet, with the remaining $
1.4
 million liability reported on the balance sheet as long-term portion of operating lease liability.
 
Total cash paid for operating leases for the three and nine months ended September 30, 2020 was $0.2 million and $0.5 million, respectively. 
As of September 30, 2020, the maturities of the Company’s operating lease liabilities were as follows (in thousands):
 
    
Lease
  
    
Payments
  
Year ending December 31,
   
2020 (October through December)
    $ 163  
2021
      667  
2022
      686  
2023
      707  
2024
      30  
  
 
 
  
Total undiscounted future minimum lease payments
    $ 2,253  
Less: imputed interest
      402  
  
 
 
  
Total operating lease liability
    $ 1,851  
Less: current portion of operating lease liability (included in other accrued liabilities)
      462  
  
 
 
  
Long-term portion of lease liability
    $ 1,389  
  
 
 
  
 
1
8
7. Stockholders’ Equity
On March 8, 2019, pursuant to a shelf registration statement on Form
S-3,
the Company issued 8,000,000 shares of its common stock at $12.50 per share in an underwritten public offering (referred to as the March 2019 public offering). On March 11, 2019, the underwriters fully exercised their option to purchase additional shares resulting in the issuance of an additional 1,200,000 shares. Net proceeds to the Company from the March 2019 public offering were approximately $107.7 million after deducting underwriting discounts, commissions and other offering expenses.
On July 13, 2020, the Company filed a $200.0 million registration statement on Form
S-3
with the SEC and also entered into an
at-the-market
facility (ATM) to sell up to $75.0 million of common stock under the registration statement. To date, the Company has not sold any shares of common stock under the ATM.
8. Stock Plan and Stock-Based Compensation
Stock Plan
As permitted under the provisions of the Company’s 2013 Equity Incentive Plan (2013 Plan), the Board of Directors reduced the 
January 1,
 
2020

automatic increase in the share reserve to
zero
shares; accordingly,
no
new shares became available for issuance on January 
1,
2020
. As of September 
30,
2020,
there were
911,359
shares available for grant under the
2013
Plan.
Stock-Based Compensation Expense
Stock-based compensation expense is included in the condensed consolidated statements of operations and comprehensive loss and is as follows (in thousands):
 
    
Three Months Ended
     
Nine Months Ended
  
    
September 30,
     
September 30,
  
    
2020
     
2019
     
2020
     
2019
  
Research and development
    $ 1,055      $ 1,504      $ 2,163      $ 3,602  
General and administrative
      1,497        1,361        3,161        3,881  
Restructuring charges
      —          —          189        —    
  
 
 
     
 
 
     
 
 
     
 
 
  
Total stock-based compensation expense
    $ 2,552      $ 2,865      $ 5,513      $ 7,483  
  
 
 
     
 
 
     
 
 
     
 
 
  
19
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations 
Operating results for the three and nine months ended September 30, 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 our plans to 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. Further, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form
10-Q,
and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. We undertake no obligation to update any statements to reflect events after the date of this Quarterly Report.
Overview
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
d
), 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:
 
  •  
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.
 
  •  
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.
Seladelpar
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 (ALP), 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 Phase 2 High Dose and our Phase 2 Low Dose studies of seladelpar in patients with PBC have established seladelpar’s anti-cholestatic and anti-inflammatory effects. Data from the Phase 2 Low Dose study that continued showed sustained anti-cholestatic and anti-inflammatory effects with no worsening of pruritus through 52 weeks. In the study, eligible PBC patients with
 
20
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 alkaline phosphatase (ALP) treatment goal was not met (5/10 mg group). The primary efficacy outcome was the ALP % change from baseline. At 52 weeks, the mean decreases in ALP 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 ALP <1.67 x ULN,
³
15% decrease in ALP, 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 ALP 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 was 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 included 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 was to be studied versus placebo in a 1:1:1:1 randomization. The primary efficacy outcome was to be the relative change in alkaline phosphatase (ALP) 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 also 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, did not support liver injury related to seladelpar. The panel also unanimously supported lifting the clinical hold and
re-initiation
of clinical development. In June 2020, we discussed the data, the panel’s conclusions, and other matters with the FDA and submitted a complete response letter to answer outstanding FDA questions and seek approval from the FDA to lift the clinical hold. In July 2020, we received a response from the FDA lifting the clinical hold, thereby permitting us to reinstate clinical development of seladelpar.
In August 2020, we announced positive results from ENHANCE, a phase 3 study, which demonstrated seladelpar appeared to be safe, well-tolerated, and efficacious in patients with PBC. ENHANCE was a double-blind, placebo-controlled, global study that randomized 265 patients to placebo, 5 mg of seladelpar, or 10 mg of seladelpar once daily. Although the study was terminated prior to the completion of the
52-week
treatment period, the statistical analysis plan was amended while the study remained blinded to adjust for evaluation of the primary and two key secondary endpoints at week 12 rather than week 52. Topline data for patients through 12 and to 26 weeks showed robust anti-cholestatic, anti-inflammatory and anti-pruritic activity of seladelpar. Specifically, 78.2% of patients on 10 mg of seladelpar compared with 12.5% on placebo achieved the primary composite outcome after 3 months (p<0.0001), and 27.3% of patients on 10 mg of seladelpar compared with 0% on placebo normalized ALP by 3 months (p<0.0001). In addition, the study revealed statistically significant improvement in pruritus at 3 months (p<0.05) for patients with
moderate-to-severe
itch treated with seladelpar 10 mg versus placebo.
 
21
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 announced a restructuring plan to reduce our workforce by approximately 60% to control our operating costs, and we commenced a process to evaluate strategic alternatives to maximize stockholder value. This review included 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, including seladelpar.
Following the FDA’s decision in July 2020 to lift the clinical hold on the seladelpar program, we subsequently concluded our formal review of strategic options to maximize shareholder value, having made the determination to restart clinical development of seladelpar in PBC and to evaluate suitable strategies to advance seladelpar in other indications. In addition, we intend to further evaluate opportunities to develop other internal programs and to potentially acquire or
in-license
new ones.
CB-0406
In
mid-2020,
we began to evaluate
CB-0406,
the active metabolite of arhalofenate, a
pro-drug
previously studied for chronic metabolic diseases, in a single and multiple ascending dose study in healthy subjects to establish its pharmacokinetics, safety and maximum tolerated dose. Decisions on any future development are contingent on it achieving a favorable profile with respect to safety and exposure.
COVID-19
Pandemic
In March 2020, the World Health Organization declared the global novel coronavirus disease
(COVID-19)
outbreak a pandemic. To date, 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 first quarter of 2020. 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 initiation and 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 and drug manufacturing operations
— In collaboration with our clinical research organization partners, we sponsor clinical trials that take place at investigator sites in the United States and internationally. We also partner with contract manufacturing organizations to develop, manufacture, and distribute our product candidate drug supplies. To date, these collective research and development personnel and vendors are adapting to
COVID-19
related travel restrictions and reduced access to work facilities through the use of remote working technologies and other measures as they continue to progress toward completion of our existing clinical trials. However, in the future, as we look to restart the clinical development of seladelpar and initiate other programs, our research and development employees and contractors may not be able to sufficiently access their applicable work facilities as a result of continued facility closure orders and the possibility that governmental authorities might further modify such restrictions. Furthermore, patients we expect to enroll in our future clinical trials may also be impacted by any ongoing travel and facility access restrictions. Although we and our contractors continue to plan for and develop pandemic-related risk mitigation strategies, it is uncertain whether these plans will continue to be sufficient to fully offset the potential impact that travel and facility access restrictions (or other unanticipated impediments) may have on our ability to execute our research and development activities in a timely and cost effective manner.
 
  •  
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.
 
22
  •  
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.
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. These developments and the impact of
COVID-19
on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, our results may be adversely affected.
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.
 
23
Results of Operations
General
As of September 30, 2020, we had an accumulated deficit of $661.1 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, our product candidates are at various stages of development and will require additional work before they can be licensed or commercialized. As stated above, the FDA placed the seladelpar program on clinical hold from December 2019 until early July 2020 during which time we significantly reduced our operating expenses. We reinitiated development of seladelpar and we will continue to evaluate other development opportunities. 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. Our results of operations for the three and nine months ended September 30, 2020 and 2019 are presented below (in thousands):
 
    
Three Months Ended

September 30,
    
Change

Q3
    
Nine Months Ended

September 30,
    
Change

Q3 YTD
  
    
2020
    
2019
    
2020 vs 2019
    
2020
    
2019
    
2020 vs 2019
  
($ in thousands)
                                     
Operating expenses:
             
Research and development
    $ 7,743     $ 23,193     $ (15,450 )    $ 25,194     $ 62,900     $ (37,706 ) 
General and administrative
      4,494     $ 4,514       (20 )      12,239     $ 14,706       (2,467 ) 
Restructuring charges
      (587 )      —         (587 )      (704 )      —         (704 ) 
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total operating expenses
      11,650       27,707       (16,057 )      36,729       77,606       (40,877 ) 
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Loss from operations
      (11,650 )      (27,707 )      16,057       (36,729 )      (77,606 )      40,877  
Other income:
             
Interest income
      229       1,425       (1,196 )      1,494       4,211       (2,717 ) 
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total other income
      229       1,425       (1,196 )      1,494       4,211       (2,717 ) 
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net loss
    $ (11,421 )    $ (26,282 )    $ 14,861     $ (35,235 )    $ (73,395 )    $ 38,160  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
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

September 30,
     
Change

Q3
    
Nine Months Ended

September 30,
     
Change

Q3 YTD
  
    
2020
    
2019
     
2020 vs 2019
    
2020
    
2019
     
2020 vs 2019
  
Operating expenses:
               
Research and development
    $ 7,743     $ 23,193      $ (15,450 )    $ 25,194     $ 62,900      $ (37,706 ) 
General and administrative
      4,494       4,514        (20 )      12,239       14,706        (2,467 ) 
Restructuring charges
      (587 )      —          (587 )      (704 )      —          (704 ) 
  
 
 
    
 
 
     
 
 
    
 
 
    
 
 
     
 
 
  
Total operating expenses
    $ 11,650     $ 27,707      $ (16,057 )    $ 36,729     $ 77,606      $ (40,877 ) 
  
 
 
    
 
 
     
 
 
    
 
 
    
 
 
     
 
 
  
Research & Development Expenses
Conducting research and development is central to our business model. We began to restart clinical development of seladelpar beginning in the three months ended September 30, 2020, following the FDA’s July 2020 decision to lift the clinical hold on seladelpar. While this will increase our research & development expense in the future, we expect that our overall research and development expenses for the year ending December 31, 2020 will be lower compared to prior year due to the impact of our cost containment efforts undertaken in the first half of 2020, while the seladelpar program was on clinical hold.
 
24
For the three and nine months ended September 30, 2020 research and development expenses were $7.7 million and $25.2 million, respectively, and $23.2 million and $62.9 million, respectively, for the three and nine months ended September 30, 2019. Research and development expenses are detailed in the table below (in thousands):
 
    
Three Months Ended

September 30,
     
Change

Q3

2020 vs 2019
    
Nine Months Ended

September 30,
     
Change

Q3 YTD

2020 vs 2019
  
    
2020
    
2019
    
2020
     
2019
  
Project costs:
                
Seladelpar PBC clinical studies
    $ 2,279     $ 8,920      $ (6,641 )    $ 11,005      $ 27,718      $ (16,713 ) 
Seladelpar NASH clinical studies
      138       2,635        (2,497 )      1,607        7,993        (6,386 ) 
Seladelpar PSC clinical studies
      (36 )      1,288        (1,324 )      218        2,264        (2,046 ) 
Seladelpar drug manufacturing & development
      630       3,607        (2,977 )      1,010        7,014        (6,004 ) 
Seladelpar other studies
      170       530        (360 )      520        2,072        (1,552 ) 
Non-seladelpar
studies
      854       14        840       1,667        284        1,383  
  
 
 
    
 
 
     
 
 
    
 
 
     
 
 
     
 
 
  
Total project costs
      4,035       16,994        (12,959 )      16,027        47,345        (31,318 ) 
Internal research and development costs
      3,708       6,199        (2,491 )      9,167        15,555        (6,388 ) 
  
 
 
    
 
 
     
 
 
    
 
 
     
 
 
     
 
 
  
Total research and development
    $ 7,743     $ 23,193      $ (15,450 )    $ 25,194      $ 62,900      $ (37,706 ) 
  
 
 
    
 
 
     
 
 
    
 
 
     
 
 
     
 
 
  
Our project costs consist primarily of:
 
  •  
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;
 
  •  
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.
Comparison of the three and nine months ended September 30, 2020 and 2019
Research and development expenses declined primarily due to lower project costs. Total project costs decreased by $13.0 million to $4.0 million from $17.0 million for the three months ended September 30, 2020 and 2019, respectively. Total project costs decreased by $31.3 million to $16.0 million from $47.3 million for the nine months ended September 30, 2020 and 2019, respectively. Project costs for the three and nine months ended September 30, 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. Internal research and development costs were lower in the three and nine months ended September 30, 2020 primarily due to lower employee compensation incurred as a result of our December 2019
reduction-in-force.
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 the three and nine months ended September 30, 2020 and 2019
General and administrative expenses remained flat at $4.5 million when comparing the three months ended September 30, 2020 and 2019. General and administrative expenses decreased by $2.5 million to $12.2 million from $14.7 million for the nine months ended September 30, 2020 and 2019, respectively. General and administrative costs were lower in the nine months ended September 30, 2020 primarily due to lower employee compensation and other administrative expenses incurred as a result of our December 2019
reduction-in-force.
Restructuring Charges
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 $4.4 million of restructuring charges as of September 30, 2020.
 
25
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 substantially completed the reduction in force and incurred no material restructuring charges in the first quarter of 2020. In the second quarter of 2020, we reduced restructuring charges by $0.4 million to reverse a portion of previously accrued restructuring liabilities associated with severance benefits that were forfeited by certain executives pursuant to the terms of their respective employment agreements. These expense reversals were offset in part by a $0.2 million
non-cash
charge for stock-based compensation associated with the acceleration of stock options of a departed executive. In the third quarter of 2020, we reduced restructuring charges by$0.4 million as a result of contract termination costs which were forgiven as part of an agreement with a vendor.
Substantially all of the cash payments to be made under the restructuring plan are expected to be paid out by the end of 2020.
Other Income
Other income consists of interest income from our marketable securities.
Comparison of the three and nine months ended September 30, 2020 and 2019
Interest income decreased by $1.2 million to $0.2 million from $1.4 million for the three months ended September 30, 2020 and 2019, respectively. Interest income decreased by $2.7 million to $1.5 million from $4.2 million for the nine months ended September 30, 2020 and 2019, respectively. These decreases in interest income were driven primarily by lower prevailing interest rates and a more conservative investment portfolio balance compared to the prior year periods.
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. As of September 30, 2020, cash, cash equivalents and marketable securities totaled $161.3 million, compared to $190.9 million at December 31, 2019. 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 2022.
In July 2020, we filed a $200 million registration statement on Form
S-3
with the SEC and entered into an
at-the-market
facility (ATM) to sell up to $75 million of common stock under the registration statement. To date, we have not sold any shares of common stock under the ATM.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods indicated below (in thousands):
 
    
Nine Months Ended
September 30,
  
    
2020
     
2019
  
Net cash used in operating activities
    $ (29,909 )     $ (69,775 ) 
Net cash provided by (used in) investing activities
      52,306        (43,608 ) 
Cash provided by financing activities
      7        107,850  
  
 
 
     
 
 
  
Net increase (decrease) in cash and cash equivalents
    $ 22,404      $ (5,533 ) 
  
 
 
     
 
 
  
Operating Activities
: Net cash used in operating activities for the nine months ended September 30, 2020 decreased by $39.9 million to $29.9 million as compared to $69.8 million for the same period in the prior year, primarily due to a $38.2 million decrease in our net loss to $35.2 million from $73.4 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 also impacted by changes in our working capital.
 
26
Investing Activities:
Net cash provided by investing activities was $52.3 million for the nine months ended September 30, 2020 compared to net cash used in investing activities of $43.6 million for the same period in the prior year, primarily due to the timing of our investments in marketable securities.
Financing Activities:
Cash provided by financing activities was $7,000 for the nine months ended September 30, 2020 compared to $107.9 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 our $107.7 million March 2019 public offering of our common stock.
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.
 
27
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
 
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation as of September 30, 2020 under the supervision and with the participation of our management, including our President and Chief Executive Officer and Vice President, Finance, of the effectiveness of our “disclosure controls and procedures,” which are defined in Rule
13a-15(e)
under the Securities Exchange Act of 1934, as amended (the Exchange Act), as controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and Vice President, Finance, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our President and Chief Executive Officer and Vice President, Finance concluded that our disclosure controls and procedures were effective as of September 30, 2020.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our President and Chief Executive Officer and Vice President, Finance have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the
COVID-19
pandemic. We are continually monitoring and assessing the
COVID-19
situation on our internal controls to minimize the impact on their design and operating effectiveness.
 
28
PART II. OTHER INFORMATION
Item 1.
A. Risk Factors
In addition to the factors discussed elsewhere in this report, the following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we deem immaterial also may impair our business operations. If any of the following risks or such other risks actually occur, our business could be harmed. Many of the following risks and uncertainties are, and will be, exacerbated by the
COVID-19
pandemic and any worsening of the global business and economic environment as a result. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
Risks Related to the Current Status of our Business
Our business may be adversely affected by the ongoing
COVID-19
pandemic.
On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus causing the disease
COVID-19
a “Public Health Emergency of International Concern,” and on March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. While the
COVID-19
pandemic did not materially adversely affect our business operations in the three months ended September 30, 2020, 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 disruptions that could impact aspects of our business, including our progress towards the completion of certain clinical studies, our efforts to reinitiate the clinical development of seladelpar, including expanding our employee base as we begin efforts to restart our clinical development programs, and other associated drug development activities. Possible disruptions are currently difficult to foresee and include, but are not limited to, potential risk areas as noted below:
 
  •  
We are currently completing the shutdown of several clinical trials in geographies that are affected by the
COVID-19
pandemic and we are in the early planning stages of restarting clinical development of seladelpar. While we have not experienced significant impacts to our clinical activities through September 30, 2020, we believe that the
COVID-19
pandemic could potentially have an impact on various aspects of our clinical activities in the future. For example, our employees, representatives from our clinical research organization partners, and study investigators may be unable to efficiently collaborate to conduct investigator site activities
in-person
at the sites (as per standard practice) and may be required to delay, or alter their approach to complete this work due to diversion of resources at clinical sites or continued government-imposed limitations on travel. Furthermore, such restrictions could impact the rate of patient enrollment in any new clinical studies and the ability to efficiently treat such patients at investigator sites. Lastly, our employees and representatives from our contract manufacturing organizations may experience unanticipated challenges producing and distributing sufficient quantities of clinical drug supplies for use in our clinical trials.
 
  •  
We have closed our corporate office and requested that most of our personnel, including all of our administrative employees, work remotely, and restricted
on-site
staff to only those personnel and contractors who must perform essential activities that must be completed
on-site.
The
COVID-19
pandemic could disrupt our ability to secure supplies for our operations. The safety, health and well-being of our workforce is of primary concern and we may need to enact further precautionary measures to help minimize the risk of our employees being exposed to the novel coronavirus.
 
  •  
Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business. In addition, this 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.
 
  •  
Our employees and contractors involved in conducting our research and development 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 access restrictions.
 
  •  
The United States Foot and Drug Administration (FDA), comparable foreign regulatory agencies, and ethics boards may experience operational interruptions or delays, which could impact timelines for regulatory meetings, submissions, trial initiations, and regulatory approvals.
 
29
The
COVID-19
outbreak continues to rapidly evolve. The extent to which the outbreak may impact our business, including our preclinical, clinical and associated drug development activities, will depend on future developments which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of
COVID-19,
the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States, particularly in the San Francisco Bay Area where our executive offices are located, and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
Risks Related to Our Business as we Resume Product Development
We will need additional capital in the future to sufficiently fund our operations and research.
We have incurred significant net losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future, and we may never achieve or maintain profitability. As of September 30, 2020, we had cash, cash equivalents and marketable securities of approximately $161.3 million. We may need to raise additional equity and/or debt capital to fund our continued operations, including clinical trials and other product development. Our monthly spending levels vary based on new and ongoing development and corporate activities. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete.
In the event we do not successfully raise sufficient funds in financing our product development activities or do not have appropriate developmental assets, we will curtail our product development activities commensurate with the magnitude of the shortfall or our product development activities may cease altogether. To the extent that any costs of the ongoing development exceed our current estimates and we are unable to raise sufficient additional capital to cover such additional costs, we will need to reduce operating expenses, sell assets, enter into a strategic transaction, or effect a combination of the above. No assurance can be given that we will be able to affect any of such transactions on acceptable terms, if at all.
Our future funding requirements and sources will depend on many factors, including but not limited to the following:
 
  •  
the rate of progress and cost of our clinical studies;
 
  •  
the need for additional or expanded clinical studies;
 
  •  
the rate of progress and cost of our Chemistry, Manufacturing and Control development, registration, validation and commercial programs;
 
  •  
the timing, economic and other terms of any licensing, collaboration or other similar arrangement into which we may enter;
 
  •  
the costs and timing of seeking and obtaining U.S. Food and Drug Administration (FDA) and other regulatory approvals;
 
  •  
the extent of our other development activities;
 
  •  
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
 
  •  
the effect of competing products and market developments.
If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results and prospects and on our ability to develop our product candidates.
Our ability to generate future revenues from product sales is uncertain and depends upon our ability to successfully develop, obtain regulatory approval for, and commercialize product candidates.
Our ability to generate revenue and achieve profitability depends on our ability, alone or with collaborators, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize, product candidates. We do not anticipate generating revenues from sales of our product candidates for the foreseeable future, if ever. Our ability to generate revenues from product sales depends heavily on our success in generating a pipeline of product candidates.
Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data required to obtain regulatory approval and achieve product sales. Our anticipated development costs would likely increase if we do not obtain favorable results or if development of our product candidates is delayed. In particular, we would likely incur higher costs than we currently anticipate if development of our product candidates is delayed because we are required by a regulatory authority such as the U.S. FDA to perform studies or trials in addition to those that we currently anticipate. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing or amount of any increase in our anticipated development costs.
 
30
In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if at all. Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs in connection with commercialization. As a result, we cannot assure you that we will be able to generate revenues from sales of any approved product candidates, or that we will achieve or maintain profitability even if we do generate sales.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. We do not have any committed external source of funds. If appropriate opportunities become available, we may seek to raise additional equity and/or debt capital to fund our continued operations, including clinical trials and other product development.
To raise additional funds to support our operations, we may sell additional equity or debt securities, enter into collaborations, strategic alliances, or licensing arrangements or other marketing or distribution arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, and declaring dividends, and may impose limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.
If we raise additional funds through collaborations, strategic alliances, or licensing arrangements or other marketing or distribution arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us.
If we are unable to expand our operations or otherwise capitalize on our business opportunities, our business, financial condition and results of operations could be materially adversely affected. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts, or grant others rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Risks Related to Clinical Development and Regulatory Approval
We depend on the success of our product candidates and we may not obtain regulatory approval or successfully commercialize our product candidates.
We have not marketed, distributed or sold any products. The success of our business depends upon our ability to develop and commercialize our product candidates. The success of any product candidate will depend on many factors, including the following:
 
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successful enrollment and completion of clinical trials;
 
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receipt of marketing approvals from the FDA and regulatory authorities outside the United States for the product candidate;
 
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establishing commercial manufacturing capabilities by making arrangements with third-party manufacturers;
 
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launching commercial sales of the product, whether alone or in collaboration with others;
 
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acceptance of the product by patients, the medical community and third-party payors;
 
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effectively competing with other therapies;
 
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a continued acceptable safety profile of the product following marketing approval; and
 
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  •  
obtaining, maintaining, enforcing and defending intellectual property rights and claims.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidate, which would materially harm our business.
We depend on the successful completion of clinical trials for our product candidates.
Before obtaining regulatory approval for the sale of our product candidates, we must conduct additional clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products.
We may experience a number of unforeseen events during clinical trials for our product candidates, including seladelpar, that could delay or prevent the commencement and/or completion of our clinical trials, including the following:
 
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regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
 
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the clinical study protocol may require one or more amendments delaying study completion;
 
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clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
 
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the number of subjects required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, we may have to compete with other clinical trials to enroll eligible subjects, or subjects may drop out of these clinical trials at a higher rate than we anticipate;
 
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clinical investigators or study subjects fail to comply with clinical study protocols;
 
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trial conduct and data analysis errors may occur, including, but not limited to, data entry and/or labeling errors;
 
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our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
 
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we might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the subjects are being exposed to unacceptable health risks;
 
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regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;
 
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the cost of clinical trials of our product candidates may be greater than we anticipate;
 
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the supply or quality of our clinical trial materials or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and
 
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our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators to suspend or terminate the trials.
Because successful development of product candidates is uncertain, we are unable to estimate the actual funds required to complete research and development and commercialize our products under development.
Negative or inconclusive results of our future clinical trials of product candidates could cause the FDA or other regulatory authorities to require that we repeat or conduct additional clinical studies. If later stage clinical trials do not produce favorable results, our ability to obtain regulatory approval for our product candidates may be adversely impacted.
Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales.
Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. We may experience delays in clinical trials at any stage of development and testing of our product candidates and any delay could result in increased costs to us. Any clinical trials we undertake may not begin on time, have an effective design, enroll a sufficient number of subjects, or be completed on schedule, if at all.
 
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Events that may result in delays or unsuccessful completion of clinical trials include the following:
 
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inability to raise funding necessary to initiate or continue a trial;
 
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delays in obtaining regulatory approval to commence a trial;
 
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delays in reaching agreement with the FDA or other regulatory authorities on final trial design;
 
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imposition of a clinical hold following a reported safety event;
 
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an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;
 
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delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs) and clinical trial sites;
 
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delays in obtaining required institutional review board (IRB) approval at each site;
 
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delays in recruiting suitable patients to participate in a trial;
 
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delays in having subjects complete participation in a trial or return for post-treatment
follow-up;
 
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delays caused by subjects dropping out of a trial due to side effects or otherwise;
 
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changes to treatment guidelines or the introduction of a new standard of care;
 
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delays caused by clinical sites dropping out of a trial;
 
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time required to add new clinical sites;
 
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delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials; and
 
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delays in importing clinical trial materials into foreign countries where our clinical trials are being conducted.
If initiation or completion of any clinical trials we may undertake for our product candidates is delayed for any of the above reasons, our development costs may increase, the approval process could be delayed, any periods during which we may have the exclusive right to commercialize our product candidates may be reduced and our competitors may bring products to market before us. Any of these events could impair our ability to generate revenues from product sales and impair our ability to generate regulatory and commercialization milestones and royalties, all of which could have a material adverse effect on our business.
Our product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.
In May 2016, we announced results of a High Dose Phase 2 clinical study of seladelpar in patients with PBC. During the course of this trial three cases of asymptomatic, reversible transaminase elevations occurred, and we made the decision to discontinue the study early after review of safety and efficacy data demonstrated a need for further dose reduction to optimize clinical safety and efficacy. In November 2019, due to histologic observations in our NASH clinical trial, the NASH and PSC clinical trials were terminated and programs and the PBC program was placed on hold. In December 2019 the PBC clinical trials were terminated, pending further analysis of data from the NASH trial and further discussions with the FDA. This course of action terminated, or put on hold, substantially all of our active development programs. Although in June 2020 we shared data and conclusions from an expert panel with the FDA, and in July 2020 the FDA lifted the clinical hold, this process substantially delayed the development of seladelpar. The emergence of adverse events (AEs) and histological observations in subsequent seladelpar clinical trials could prevent us from further developing seladelpar or could result in the denial of regulatory approval.
Furthermore, if any of our approved products cause serious or unexpected side effects after receiving market approval, a number of potentially significant negative consequences could result, including the following:
 
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regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution in a form of a risk evaluation and mitigation strategy (REMS) plan;
 
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regulatory authorities may require the addition of labeling statements, such as black box or other warnings or contraindications that could diminish the usage of the product or otherwise limit the commercial success of the affected product;
 
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