MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended
December 31, 2013.
We are a development-stage biopharmaceutical company focused on the identification, acquisition, development, and commercialization of novel products for the treatment of rare and ultra-rare diseases, with an initial focus on serious, debilitating metabolic genetic diseases. We focus on diseases for which the unmet medical need is high, the biology for treatment is clear, and for which there are no approved therapies. Since our inception in 2010, we have in-licensed potential treatments for five different diseases that are currently in or have completed Phase 1/2 or Phase 2 clinical studies. Our strategy, which is predicated upon time- and cost-efficient drug development, allows us to pursue multiple programs in parallel with the goal of delivering safe and effective therapies to patients with the utmost urgency. Our current pipeline consists of two product categories: biologics, including a monoclonal antibody and enzyme replacement therapies; and small-molecule substrate replacement therapies. Enzymes are proteins that the body uses to process materials needed for normal cellular function, and substrates are the materials upon which enzymes act. When enzymes or substrates are missing, the body is unable to perform its normal cellular functions, often leading to significant clinical disease. Several of our therapies are intended to replace deficient enzymes or substrates.
Our biologics pipeline includes the following three product candidates:
- KRN23, or UX023, is an antibody targeting fibroblast growth factor 23, or
FGF23, intended for the treatment of X-linked hypophosphatemia, or XLH, a
rare genetic disease that impairs bone growth. We are developing KRN23
pursuant to our collaboration with Kyowa Hakko Kirin Co., Ltd., or KHK. KHK
has completed one Phase 1 study, one Phase 1/2 study, and one longer-term
Phase 1/2 study of KRN23 in adults with XLH. We plan to initiate a Phase 2
pediatric study in 2014. We also expect to continue the clinical development
of KRN23 in adults with XLH.
- rhGUS, or UX003, is an enzyme replacement therapy we are developing for the
treatment of mucopolysaccharidosis 7, or MPS 7, a rare lysosomal storage
disease that often leads to multi-system disease, pervasive skeletal disease,
and early death. We initiated a Phase 1/2 clinical study in MPS 7 in December
- rhPPCA, or UX004, is an enzyme replacement therapy in preclinical development
for galactosialidosis, a rare lysosomal storage disease that can cause
multi-system clinical disease similar to MPS 7 including enlarged liver,
joint disease, abnormal bone development, short stature, and early death. We
plan to continue preclinical development of rhPPCA during 2014.
Our substrate replacement therapy pipeline includes the following product candidates in development for three diseases:
- Triheptanoin, or UX007, is a synthetic triglyceride with a specifically
designed chemical composition being studied as an energy substrate
replacement therapy in an international open-label Phase 2 study for the
treatment of long-chain fatty acid oxidation disorders, or LC-FAOD. This is a
set of rare metabolic diseases caused by the inability to convert fat into
energy leading to low blood sugar, muscle rupture, and heart and liver disease. - Triheptanoin is also in a Phase 2 study for the treatment of glucose
transporter type-1 deficiency syndrome, or Glut1 DS, a rare metabolic disease
of brain energy deficiency that is characterized by seizures, developmental
delay, and movement disorder.
- SA-ER, or UX001, is an extended-release form of sialic acid in a Phase 2
extension study for the treatment of hereditary inclusion body myopathy, or
HIBM, a neuromuscular disorder that causes muscle weakness and wasting. Data
from the Phase 2 study were presented at the
(AAN) Annual Meeting in
the Phase 2 study in an extension study and anticipate that data from the
extension study will be available in late 2014. 15
The following table summarizes our current product candidate pipeline:
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KRN23 (UX023) for the treatment of XLH
KRN23 is a fully human monoclonal antibody administered via subcutaneous injection that is designed to bind and reduce the biological activity of FGF23 to increase abnormally low phosphate levels in patients with XLH. Patients with XLH have low serum phosphate levels due to excessive phosphate loss into the urine, which is directly caused by the effect on kidney function of excess FGF23 production in bone cells. Low phosphate levels lead to poor bone mineralization and a variety of clinical manifestations, including rickets leading to bowing and other skeletal deformities, short stature, bone pain and fractures, poor quality bone, and muscle weakness. There is no approved drug therapy or treatment for the underlying cause of XLH. Most patients are managed using frequently dosed oral phosphate and vitamin D therapy, which is only partially effective at improving bone disease and growth and has significant side effects. Oral phosphate/vitamin D replacement therapy requires extremely close monitoring due to the potential for excessive phosphate levels and secondary increases in calcium, which can result in severe damage to the kidneys from excess calcium phosphate deposits and other complications. Additionally, some patients are unable to tolerate the regimen due to the chalky stool that results from taking large amounts of oral phosphate or the high frequency of dosing required. In
August 2013, we formed a collaboration with KHK to jointly develop and commercialize KRN23 for the treatment of XLH. KHK has conducted one Phase 1 study, one Phase 1/2 study and one longer-term Phase 1/2 study of KRN23 in adults with XLH. We reviewed safety and efficacy data from the Phase 1/2 studies prior to entering into our collaboration with KHK, and we entered into the collaboration based in part upon our conclusion that these data were supportive of further development (serum phosphate, renal tubular reabsorption of phosphate, and vitamin D levels were increased, and the product appeared well tolerated). Results from the Phase 1 single dose study in 38 adult XLH patients were presented at the American Society for Bone and Mineral ResearchAnnual Meeting in October 2013and published in the Journal of Clinical Investigationin February 2014. The data demonstrated that KRN23 was well tolerated and increased serum phosphate, or phosphorus, as well as vitamin D levels. Of the 38 adult XLH patients, 12 received a single subcutaneous injection of KRN23 (at doses of 0.1, 0.3, 0.6, or 1.0 mg/kg), 17 received a single intravenous injection of KRN23 (at doses of 0.003, 0.01, 0.03, 0.1, or 0.3 mg/kg) and 9 received placebo. The effect of KRN23 on the increase in serum phosphate levels was comparable between intravenous and subcutaneous administration; however, time to reach peak effect was slower and duration of effect was greater with subcutaneous administration compared with intravenous administration. The demonstrated improvement in serum phosphate levels suggests that significant benefit could be expected. Corresponding changes were observed in renal tubular reabsorption of phosphate. Increases in vitamin D were also observed, suggesting improved intestinal absorption of both phosphate and calcium. Changes were not observed in serum calcium. No serious adverse events were reported in the Phase 1 study. Approximately 83% of the subjects experienced at least one non-serious treatment-emergent adverse event, the most common of which were nausea and headache; no patients in the placebo or subcutaneous treatment arms reported these events. In the subcutaneous arm, two patients (approximately 17%) experienced elevated levels of the enzyme amylase in the blood, and two other patients (approximately 17%) experienced back pain. There did not appear to be a relationship between the incidence and types of adverse events and the dose administered following a single dose of study drug. 16 --------------------------------------------------------------------------------
We expect KHK to release data from the completed Phase 1/2 adult repeat-dose studies during 2014.
We plan to initiate a Phase 2 pediatric study in 2014, in patients with radiographic evidence of bone disease, following discussions with multiple regulatory agencies on our pediatric study design. Depending on the results of our Phase 2 pediatric study, we intend to conduct a Phase 3 pediatric trial. Given the high turnover and growth of bone during childhood and the critical role phosphate plays in bone growth, pediatric XLH patients have the highest morbidity and potential for benefit in a shorter timeframe. As a result, pediatric XLH patients may also have the greatest potential for improvement based on third-party data regarding enzyme replacement therapy in hypophosphatasia, which is another genetic bone disease with poor bone mineralization related to phosphate metabolism caused by a different, unrelated mechanism. We also expect to continue to develop KRN23 in adults with XLH and plan to conduct an adult Phase 2b study in parallel with our Phase 3 pediatric trial.
rhGUS (UX003) for the treatment of MPS 7
Recombinant human beta-glucuronidase, or rhGUS, is an intravenous, or IV, enzyme replacement therapy for the treatment of MPS 7, also known as Sly Syndrome. Patients with MPS 7 suffer from severe cellular and organ dysfunction that typically leads to death in the teens or early adulthood. MPS 7 is caused by a deficiency of the lysosomal enzyme beta-glucuronidase, which is required for the breakdown of certain complex carbohydrates known as glycosaminoglycans, or GAGs. The inability to properly break down GAGs leads to their accumulation in many tissues, resulting in a serious multi-system disease. There are currently no approved drug therapies for MPS 7. We licensed exclusive worldwide rights to rhGUS-related know-how and cell lines from
Saint Louis Universityin November 2010. We have conducted preclinical studies to support the chronic IV administration of rhGUS. Administration of rhGUS resulted in substantial distribution of enzyme, as well as reduction in tissue pathology in a wide variety of tissues, including the liver, spleen, lung, heart, kidney, muscle, bone, and brain. No adverse toxicology related to rhGUS was noted in these studies. In December 2013we initiated an open-label, Phase 1/2 study in the United Kingdomto evaluate the safety, tolerability, efficacy, and dose of IV administration every other week of rhGUS in up to five patients with MPS 7 who are between five and 30 years of age. The initial 12-week treatment period will be followed by a dose-titration period and a long-term extension study. We expect to release interim data from this study during 2014. Preliminary data from the Phase 1/2 study were presented at the American Collegeof Medical Genetics and Genomics (ACMG) Annual Clinical Genetics Meetingin March 2014. Results from three patients who had been administered 2 mg/kg of rhGUS every other week for two, six, and 12 weeks showed evidence of clearance of lysosomal storage as indicated by the decrease in urinary GAG excretion beginning at two weeks of treatment of approximately 30-50%. At the 12 week assessment of the first patient, absolute liver size was reduced by approximately 11%. This represents a 46% decrease in the excess liver size above normal for age and gender. The remaining patients have not yet reached the 12 week time point for liver size assessment. No serious adverse events were observed during up to 12 weeks of treatment, and no infusion-associated reactions were observed after a total of 13 infusions to date in these three subjects. The Phase 1/2 study will continue, and additional 12-week interim data are expected in the second half of 2014. If these results are supportive, we plan to initiate a pivotal Phase 3 study. We are also supplying rhGUS to an investigator who is treating a single U.S. patient under an emergency investigational new drug, or eIND, application. Results from the treatment of this patient were presented at the Lysosomal Disease Network's 10th Annual World Symposium in February 2014. Preliminary data showed a reduction in lysosomal storage based on reduced excretion of urinary GAG and a reduction in the size of the enlarged liver and spleen. The patient showed an improvement of pulmonary function and no infusion-associated reactions during the first 14 weeks of treatment. The patient's caregivers also reported improved stamina and increased time spent in school. The European Medicines Agency, or EMA, has agreed that approval under exceptional circumstances could be possible for a proposed 12-patient placebo-controlled pivotal study in this disease with urinary GAG levels as a surrogate primary endpoint provided the data was strongly supportive of a favorable benefit/risk ratio. The EMA requested that some evidence or trend in improvement in clinical endpoints be observed to support the primary endpoint, but recognized that a statistically significant result on clinical endpoints was unlikely given the small number of patients expected to be enrolled in the study. The United States Food and Drug Administration, or FDA, has not yet agreed to the pivotal study plan and would like to see additional data correlating urinary GAG levels with other clinical endpoints, which we are collecting. In addition to the above development plan, we intend to study MPS 7 patients under the age of five years, including potentially younger infants born with hydrops fetalis. Currently, these infants often die within a few months to one year, but enzyme replacement therapy might be able to reduce GAG storage and improve health and survival in these patients. This program would not start until we had obtained sufficient information from the Phase1/2 study to support the initiation of a trial in younger patients. 17 --------------------------------------------------------------------------------
rhPPCA (UX004) for the treatment of galactosialidosis
Recombinant human protective protein cathepsin-A, or rhPPCA, which we in-licensed from
St. Jude Children's Research Hospitalin September 2012, is in preclinical development as an enzyme replacement therapy for galactosialidosis, a rare lysosomal storage disease for which there are no currently approved drug therapies. Similar to MPS patients, patients with galactosialidosis present with both soft tissue storage in the liver, spleen, and other tissues, as well as connective tissue (bone and cartilage) related disease. As with MPS 7, an enzyme deficiency results in accumulation of substrates in the lysosomes, causing skeletal and organ dysfunction, and death. We plan to continue preclinical development of rhPPCA during 2014.
Triheptanoin (UX007) for the treatment of LC-FAOD
We are developing triheptanoin for oral administration intended as a substrate replacement therapy for patients LC-FAOD. Triheptanoin is a medium odd-chain triglyceride of three seven-carbon fatty acids designed to provide substrate replacement for fatty acid metabolism and restore production of energy. Patients with LC-FAOD have a deficiency that impairs the ability to produce energy from fat, which can lead to depletion of glucose in the body, and severe liver, muscle, and heart disease, as well as death. There are currently no approved drugs or treatments specifically for LC-FAOD. The current standard of care for LC-FAOD includes diligent prevention of fasting combined with the use of low-fat/high-carbohydrate diets, carnitine supplementation in some cases, and medium even-chain triglyceride, or MCT, oil supplementation. Despite treatment with the current standard of care, many patients continue to suffer significant morbidity and mortality. We licensed certain intellectual property rights relating to triheptanoin from
Baylor Research Institutein August 2012. Triheptanoin has been studied clinically for 13 years in approximately 130 human subjects affected by a variety of diseases, including greater than 60 patients with LC-FAOD. Multiple investigator-sponsored open-label studies suggest clinical improvements with triheptanoin treatment, even for patients who were on standard of care. We recently presented a retrospective medical record review study assessing the clinical outcome of triheptanoin treatment on LC-FAOD subjects who have been participating in a compassionate use program at the University of Pittsburgh Medical Center. The data showed that treatment with triheptanoin appeared to reduce the frequency and severity of hospitalizations previously experienced by these patients for disease-related causes, including muscle rupture, hypoglycemia, and cardiomyopathy. A reduction in mean total hospital days per year from 17.55 to 5.40 (69%; p = 0.0242) was observed after transitioning from standard of care to triheptanoin therapy. Triheptanoin is currently being evaluated in a prospective international open-label Phase 2 study in approximately 30 severely affected LC-FAOD patients. A principal goal of the study is to determine the appropriate clinical endpoints and patient population for testing in potential later-stage pivotal studies. The study will evaluate patients, ages 6 months to 35 years, exhibiting significant clinical manifestations of LC-FAOD despite current therapy. Prior to initiating treatment with triheptanoin, subjects will continue current therapy for four weeks to establish their baseline condition. Triheptanoin will then be titrated to an expected target dose of 25-35% of total daily caloric intake via oral administration, while ensuring tolerability. The study will assess the impact of triheptanoin on several endpoints, including cycle ergometer performance, 12-minute walk test, muscle strength, creatine kinase levels, hypoglycemia, liver size, cardiac disease, and major medical events. The patients will be followed to evaluate the effects of triheptanoin treatment on acute clinical pathophysiology associated with LC-FAOD over 24 weeks, then may continue treatment for an additional 54 weeks for observation of major medical events. Data from this study should be available in 2015.
Triheptanoin (UX007) for the treatment of Glut1 DS
We are also developing triheptanoin for patients with Glut1 DS. Glut1 DS is caused by a mutation affecting the gene that codes for Glut1, which is a protein that transports glucose from the blood into the brain. Because glucose is the primary source of energy for the brain, Glut1 DS results in a chronic state of brain energy deficiency and is characterized by seizures, developmental delay, and movement disorder. There are currently no approved drugs specific to Glut1 DS. The current standard of care for Glut1 DS is the ketogenic diet, an extreme high-fat (70-80% of daily calories as fat)/low-carbohydrate diet, which generates ketone bodies as an alternative energy source to glucose, and one or more antiepileptic drugs. The ketogenic diet can be effective in reducing seizures but compliance can be difficult, and the diet has demonstrated limited effectiveness in the treatment of developmental delay and movement disorders. In addition, ketogenic diet can lead to side effects including renal stones. In general, Glut 1 DS patients are considered relatively refractory to antiepileptic drugs with only approximately 10% achieving seizure control on antiepileptic drugs alone. There are currently no antiepileptic drugs approved specifically for patients with Glut 1 DS. Triheptanoin is intended as a substrate replacement therapy to provide an alternative source of energy to the brain in Glut1 DS patients. Although an open-label investigator-sponsored clinical study is ongoing and the results have not yet been reported, there are anecdotal reports of benefit in terms of reduced seizures and improved development rate in some Glut1 DS subjects taking triheptanoin. In
March 2014, we initiated a Phase 2 global, randomized, double-blind, placebo-controlled, parallel-group study of up to 50 patients who are currently not fully compliant with ketogenic diet and continue to have seizures. The primary efficacy objective is the reduction in frequency of seizures compared to placebo following a 6-week baseline period and subsequent 8-week placebo-controlled treatment period. The blinded treatment period will be followed by an open-label extension period in which patients will be treated with triheptanoin through week 52. Patient enrollment may be modified based on an interim analysis. We expect to release data from this trial in 2015. 18 --------------------------------------------------------------------------------
We also continue to support investigator-sponsored trials studying triheptanoin across multiple indications.
SA-ER (UX001) for the treatment of HIBM
We are developing an extended-release, oral formulation of sialic acid, or SA-ER, for the treatment of hereditary inclusion body myopathy, or HIBM, which is also known as GNE myopathy. HIBM is characterized by severe progressive muscular myopathy, or disease in which muscle fibers do not function properly, with onset typically in the late teens or twenties. Patients with HIBM have a genetic defect in the gene coding for a particular enzyme that is involved in the first step in the biosynthesis of sialic acid. Therefore, HIBM patients have a sialic acid deficiency, which interferes with muscle function, leading to myopathy and atrophy. Patients typically lose major muscle function within ten to 20 years of diagnosis. There is no approved drug therapy for HIBM. SA-ER is intended as a substrate replacement therapy designed to address sialic acid deficiency and restore muscle function in HIBM patients. We have conducted a Phase 2 randomized, double-blind, placebo-controlled study of SA-ER in 47 HIBM patients. Data from this study were presented at the
American Academy of Neurology(AAN) Annual Meeting in April 2014.Patients in the study were initially randomized to receive placebo, 3 grams, or 6 grams of SA-ER per day. After 24 weeks, placebo patients crossed over to either 3 grams or 6 grams total daily dose, on a blinded basis, for an additional 24 weeks. The final analysis compared change at week 48 from baseline for the combined groups at 6 grams versus 3 grams of SA-ER. Assessments included pharmacokinetics, composites of upper extremity and lower extremity muscle strength as measured by dynamometry, other clinical endpoints, patient reported outcomes, and safety. At 24 weeks, assessments of upper extremity composite of muscle strength showed a statistically significant difference in the 6 gram group compared to placebo (+2.33 kg; 5.5% relative difference from baseline; p=0.040). At 48 weeks, a statistically significant difference between the combined 6 gram group and the combined 3 gram group was observed (+3.44 kg; 8.5% relative difference from baseline; p=0.0033). Patients with less advanced disease (able to walk more than 200 meters at baseline), a predefined subset, showed a more pronounced difference (+4.69 kg; 9.7% relative difference from baseline; p=0.00055). The lower extremity composite showed a similar pattern of response but did not show a statistically significant difference between the dose groups. None of the groups showed a significant decline in the lower extremity composite during the treatment period. A positive trend was seen in patient-reported outcomes of functional activity. SA-ER appeared to be well tolerated with no serious adverse events observed to date in either dose group, and no dose-dependent treatment-emergent adverse events were identified. Most adverse events were mild to moderate and most commonly gastrointestinal and pain related to bone biopsy procedures.
We continue to treat these patients in an extension study evaluating an increased daily dosage of sialic acid based on the dose dependence observed at weeks 24 and 48. We anticipate that data from the extension study should be available in late 2014. We also plan to discuss data from this program with regulatory authorities during 2014.
Financial Operations Overview
We are considered a development-stage company under U.S. generally accepted accounting principles, or U.S. GAAP, and have only a limited operating history. To date, we have invested substantially all of our efforts and financial resources to identifying, acquiring, and developing our product candidates, including conducting clinical studies and providing general and administrative support for these operations. To date, we have funded our operations primarily from the sale of convertible preferred stock and equity securities. We have never been profitable and have incurred net losses in each year since inception. Our net losses were
$13.6 millionand $6.7 millionfor the three months ended March 31, 2014and 2013. As of March 31, 2014we had incurred cumulative net losses of $73.2 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.
To date, we have not generated any revenue. We do not expect to receive revenue from any product candidates that we develop unless regulatory approvals are obtained for our products or we enter into collaborative agreements with third parties.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:
· expenses incurred under agreements with clinical study sites that conduct
research and development activities on our behalf;
· expenses incurred under license agreements with third parties;
· employee and consultant-related expenses, which include salaries, benefits,
travel, and stock-based compensation;
· laboratory and vendor expenses related to the execution of preclinical,
non-clinical, and clinical studies; 19
· the cost of acquiring, developing, and manufacturing clinical study materials; and
· facilities, depreciation, and other expenses, which include direct and
allocated expenses for rent and maintenance of facilities, insurance, and
other supply costs.
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and the services are performed. The largest component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our product candidates. We allocate research and development salaries, benefits, stock-based compensation, and indirect costs to our product candidates on a program-specific basis, and we include these costs in the program-specific expenses. We expect our research and development expenses will increase in absolute dollars in future periods as we continue to invest in research and development activities related to developing our product candidates, and as programs advance into later stages of development and we enter into larger clinical studies. The process of conducting the necessary clinical research to obtain
FDAapproval is costly and time consuming and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent, if any, we will generate revenue from the commercialization and sale of any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, allocated facilities costs, and other expenses for outside professional services, including legal, human resources, audit, and accounting services. Personnel costs consist of salaries, benefits, and stock-based compensation. We expect that our general and administrative expenses will increase in the future to support continued research and development activities, preparation for potential commercialization of our product candidates, and as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the
Securities and Exchange Commission, or SEC, and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities, and other administration and professional services.
Interest income consists of interest earned on our cash, cash equivalents, and short-term investments.
Other expense, net Other expense, net primarily consists of gains and losses resulting from the remeasurement of our convertible preferred stock warrant liability. We recorded adjustments to the estimated fair value of the convertible preferred stock warrants until their conversion into warrants to purchase shares of our common stock at the completion of our initial public offering. At that time, we reclassified the convertible preferred stock warrant liability to additional paid-in capital which will no longer be subject to fair value adjustments.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant and material changes in our critical accounting policies during the three months ended
March 31, 2014, as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in our in our most recent Annual Report on Form 10-K filed with the SEC. 20 --------------------------------------------------------------------------------
Results of Operations
Comparison of the three months ended
Research and Development Expenses (dollars in thousands)
Three Months Ended March 31, Dollar % 2014 2013 Change Change Development candidate: KRN23 $ 877 $ -
$ 877* rhGUS 1,329 2,142 (813 ) -38% rhPPCA 110 71 39 55% Triheptanoin (LC-FAOD) 1,382 866 516 60% Triheptanoin (Glut 1 DS) 1,026 42 984 2343% SA-ER 2,246 1,832 414 23% Other research and development costs 1,383 711 672 95% Total research and development expenses $ 8,353 $ 5,664 $ 2,68947% *not meaningful
Research and development expenses increased
· for KRN23, an increase of
pediatric trial design, other development planning, and regulatory
activities, since the product candidate was in-licensed in
· for rhGUS, a decrease of
development and manufacturing activity, partially offset by an increase in
clinical trial activities;
· for triheptanoin (LC-FAOD), an increase of
initiation of our clinical program, support of investigator-sponsored trials,
and costs related to manufacturing;
· for triheptanoin (Glut1 DS), an increase of
initiation of our clinical program, and drug production, since the product
candidate was in-licensed in
· for SA-ER, an increase of
and manufacturing activities for this program; and
· an increase of
support of our product candidate pipeline.
We expect our research and development expenses to increase in the future as we advance our product candidates through clinical development. The timing and amount of expenses incurred will depend largely upon the outcomes of current or future clinical studies for our product candidates as well as the related regulatory requirements, manufacturing costs and any costs associated with the advancement of our preclinical programs.
General and Administrative Expenses (dollars in thousands)
Three Months Ended March 31, Dollar % 2014 2013 Change Change
General and administrative
General and administrative expenses increased
$0.9 millionfor the three months ended March 31, 2014compared to the same period in 2013. The increase in general and administrative expenses was primarily due to increases in professional services costs and in personnel costs resulting from an increase in employees in support of our activities.
We expect general and administrative expenses to increase in order for us to continue to support the costs of being a public company.
Interest Income (dollars in thousands)
Three Months Ended March 31, Dollar % 2014 2013 Change Change Interest income $ 93 $ 26
$ 67258 % Interest income increased $0.1 millionfor the three months ended March 31, 2014compared to the same period in 2013, primarily due to funds invested in 2014 from the closing of our IPO in February 2014. 21 --------------------------------------------------------------------------------
Other Expense, net (dollars in thousands)
Three Months Ended March 31, Dollar % 2014 2013 Change Change Other expense, net $ 3,384
$ 14 $ 3,37024071 % Other expense, net increased $3.4 millionfor the three months ended March 31, 2014compared to the same period in 2013. This was primarily due to the $3.3 millionincrease in expense for the fair value remeasurement of the liability related to our convertible preferred stock warrants. The preferred stock warrants were converted to common stock warrants upon the completion of the IPO and are no longer subject to remeasurement.
Liquidity and Capital Resources
Since our inception, we have funded our operations primarily with
$103.9 millionin net proceeds from the sale of convertible preferred stock and $121.7 millionin net proceeds from the sale of common stock in our IPO. As of March 31, 2014, we had $165.4 millionin available cash, cash equivalents, and short-term investments and a deficit accumulated during the development stage of $73.2 million. Our cash, cash equivalents and investments are held in a variety of interest-bearing accounts, including corporate debt securities and money market accounts. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and credit risk. The following table summarizes our cash flows for the periods indicated (in thousands): Three Months Ended March 31, 20142013
Cash used in operating activities
Cash used in investing activities (65,398 )
Cash provided by financing activities 121,754
Net increase (decrease) in cash and cash
Cash Used in Operating Activities
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures. Due to our significant research and development expenditures, we have generated significant operating losses since our inception. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. Cash used in operating activities for the three months ended
March 31, 2014was $8.3 millionand reflected a net loss of $13.6 million, offset by non-cash charges of $0.1 millionfor depreciation and amortization, $0.5 millionfor the amortization of premium paid on purchased short-term investments, $0.8 millionfor stock-based compensation and $3.3 millionfor the revaluation of convertible preferred stock warrant liability. Cash used in operating activities also reflected a $2.4 millionincrease in prepaid expenses and other current assets primarily due to an increase in contract research organization (CRO) prepaid expenses and an increase in interest income receivable as our invested funds increased with the closing of our IPO in February 2014, a $2.1 millionincrease in accounts payable primarily due to higher clinical study and related costs, a $2.1 milliondecrease in other assets primarily related to the reclassification to permanent equity for the deferred offering costs related to our IPO, and a $1.2 milliondecrease in accrued expenses and other liabilities as a result of a decrease of accrued IPO costs and employee bonuses and an increase in clinical study and related costs as we continued to increase our research and development activities. Cash used in operating activities for the three months ended March 31, 2013was $6.3 millionand reflected a net loss of $6.7 million, offset by non-cash charges of $0.1 millionfor depreciation and amortization, $0.2 millionfor stock-based compensation, and insignificant expenses for the amortization of discounts on purchased short-term investments and the revaluation of the convertible preferred stock warrant liability. Cash used in operating activities reflected an increase in accounts payable and accrued and other liabilities of $1.0 millionrelated to higher clinical study and related costs and other research and development activities and an increase of $0.9 millionin prepaid and other current assets related to interest receivable on short-term investments and costs of research and development activities.
Cash Used in Investing Activities
Cash used in investing activities for the three months ended
March 31, 2014was $65.4 millionand related to purchases of short-term investments of $88.0 millionand property and equipment of $0.6 millionand an increase of $0.3 millionin restricted cash for the expansion of the space under our current lease, offset by proceeds from maturities of short-term investments of $23.5 million. Cash used in investing activities for the three months ended March 31, 2013was $15.1 millionand related to purchases of property and equipment of $0.2 millionand purchases of short-term investments of $14.9 million. 22 --------------------------------------------------------------------------------
Cash Flows Provided by Financing Activities
Cash provided by financing activities for the three months ended
March 31, 2014was $121.8 millionand was comprised of $126.1 millionin proceeds from the issuance of common stock from our IPO and proceeds from the exercise of stock options, offset by the payment of a $4.3 milliondividend to our preferred stockholders in connection with the closing of our IPO.
Cash provided by financing activities for the three months ended
Funding Requirements We believe that our existing capital resources, including net proceeds we received from the closing of our IPO in
February 2014, will be sufficient to fund our current operations into 2016. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We expect that we will require additional capital to fund our operations and complete our ongoing and planned clinical studies, and funding may not be available to us on acceptable terms or at all. We expect to finance future cash needs through equity or debt financings, strategic collaborations, or grants. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Our future funding requirements will depend on many factors, including the following:
· the scope, rate of progress, results and cost of our clinical studies,
nonclinical testing, and other related activities;
· the cost of manufacturing clinical supplies, and establishing commercial
supplies, of our product candidates and any products that we may develop;
· the number and characteristics of product candidates that we pursue;
· the cost, timing, and outcomes of regulatory approvals;
· the cost and timing of establishing sales, marketing, and distribution
· the terms and timing of any collaborative, licensing, and other arrangements
that we may establish, including any required milestone and royalty payments
If we need to raise additional capital to fund our operations, funding may not be available to us on acceptable terms or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our clinical studies, research and development programs or commercialization efforts. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
The following table summarizes our significant binding contractual obligations at
Payments due by period Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total Operating leases
$ 586 $ 1,340 $ 1,421$ 60 $ 3,407Manufacturing contract 850 - - - 850 Total $ 1,436 $ 1,340 $ 1,421$ 60 $ 4,257
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the