The following discussion and analysis of our financial condition and results of
operations should be read together with our unaudited financial statements and
the notes to those financial statements appearing elsewhere in this Quarterly
Report on Form 10-Q and the audited consolidated financial statements and notes
thereto and management's discussion and analysis of financial condition and
results of operations for the year ended
We are a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat chronic liver and intestinal diseases with high unmet need utilizing our proprietary bile acid chemistry. Our product candidates have the potential to treat orphan and more prevalent liver diseases for which there currently are limited therapeutic solutions.
Our lead product candidate, obeticholic acid, or OCA, is a bile acid analog, or a chemical substance that has a structure based on a naturally occurring human bile acid. OCA is a first-in-class product candidate that selectively binds to and induces activity in the farnesoid X receptor, or FXR, which we believe has broad liver-protective properties. We are developing OCA initially for primary biliary cirrhosis, or PBC, as a second line treatment for patients who have an inadequate response to or who are unable to tolerate standard of care therapy and therefore need additional treatment. PBC is a chronic autoimmune liver disease that, if inadequately treated, may eventually lead to cirrhosis, liver failure and death. In
OCA is also currently being evaluated in a Phase 2b trial for the treatment of nonalcoholic steatohepatitis, or NASH, known as the FLINT trial, which has been sponsored by the
In addition to PBC and NASH, we are developing OCA in other patient populations, including cirrhosis, primary sclerosing cholangitis, or PSC, portal hypertension, alcoholic hepatitis and bile acid diarrhea and anticipate initiating clinical trials for several of these indications throughout 2014. Furthermore, we plan to complete IND-enabling studies in INT-767, an earlier stage product for which we plan to initiate a Phase 1 trial in the first half of 2015. OCA has received orphan drug designation in
We have incurred net losses in each year since our inception in 2002. Our net losses were approximately
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We anticipate that our expenses will increase substantially as we:
16 • complete the development of our lead product candidate, OCA, for the treatment of PBC, NASH, and other patient populations; • seek to obtain regulatory approvals for OCA for PBC, NASH and other potential patient populations; • outsource the commercial manufacturing of OCA for any indications for which we receive regulatory approval; • engage in activities relating to the sales, marketing and distribution of OCA for any indications for which we may receive regulatory approval; • continue research and development efforts with our preclinical development compounds, such as INT-767, whether independently or with a third-party collaborator; • maintain, expand and protect our intellectual property portfolio; • add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts; and • operate as a public company.
We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital prior to the commercialization of OCA or any of our other product candidates. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.
We have our administrative headquarters in
Primary Endpoint Met in Phase 3 POISE Trial of OCA in PBC
The POISE data showed that OCA, at both a 10 mg dose and a 5 mg dose titrated to 10 mg, met the trial's primary endpoint of achieving a reduction in serum alkaline phosphatase, or ALP, to below a threshold of 1.67 times upper limit normal, with a minimum of 15% reduction in ALP level from baseline, and a normal bilirubin level after 12 months of therapy. Patients with ALP and bilirubin levels below the thresholds set forth in the POISE trial primary endpoint have been shown in long-term clinical studies to have a significantly lower risk of progressing to liver transplant and death. The proportion of patients meeting the POISE trial primary endpoint was 10% in the placebo group, 47% in the 10 mg OCA group and 46% in the OCA titration group (both dose groups p<0.0001 as compared to placebo) in an intention-to-treat analysis. The placebo group experienced a mean decrease in ALP from baseline of 5%, compared to a significant mean decrease of 39% in the 10 mg OCA dose group and 33% in the OCA titration group (both dose groups p<0.0001 as compared to placebo). OCA treated patients achieved highly statistically significant reductions in ALP beginning as early as two weeks after initiation of treatment, with a peak effect achieved by six months.
In addition, both OCA dose groups met pre-specified secondary endpoints of improving other clinically relevant liver enzymes. Reductions in gamma-glutamyl transferase, or GGT, of 64% in the 10 mg OCA dose group and 50% in the OCA titration group, alanine transaminase, or ALT, of 42% in the 10 mg OCA dose group and 36% in the OCA titration group, and aspartate transaminase, or AST, of 24% in the 10 mg OCA dose group and 22% in the OCA titration group, were observed, respectively (both OCA dose groups p < 0.0005 as compared to placebo). PBC patients typically have significantly elevated HDL cholesterol levels and modest decreases in HDL were observed in both OCA dose groups, similar to those seen in the prior PBC clinical trials. In addition, modest but significant decreases in triglycerides, VLDL cholesterol and HDL cholesterol, but no change in LDL cholesterol were observed in the OCA dose groups.
Pruritus, generally mild to moderate, was the most frequently reported adverse event associated with OCA treatment and was observed in 38% of patients on placebo, 68% of patients in the 10 mg OCA group and 56% of patients in the OCA titration group. Eight patients discontinued due to pruritus, of whom none were in the placebo group, seven (10%) patients were in the 10 mg OCA group and only one (1%) patient was in the OCA titration group (in a patient who had titrated up to 10 mg). The incidence and severity of OCA-related pruritus in POISE diminished with time on therapy. Specifically, pruritus scores were no different from placebo in both OCA treatment groups during the second half of the trial.
Apart from pruritus, the incidence of adverse events was generally similar across both OCA and placebo groups (placebo: 90%, OCA 10 mg: 86%, OCA titration: 89%). Overall, serious adverse events, or SAEs, occurred in 22 (10%) of the patients and, although there were more SAEs in the OCA treatment groups, none were considered drug-related and there were no apparent patterns in the SAEs.
Financial Overview Revenue
To date, we have not generated any revenue from the sale of products. All our revenue has been derived from our collaborative agreements for the development and commercialization of certain of our product candidates. In
In the future, we may generate revenue from a combination of license fees and other upfront payments, research and development payments, milestone payments, product sales and royalties in connection with strategic alliances. We expect that any revenue we generate will fluctuate from quarter-to-quarter as a result of the timing of our achievement of preclinical, clinical, regulatory and commercialization milestones, if at all, the timing and amount of payments relating to such milestones and the extent to which any of our products are approved and successfully commercialized by us or our strategic alliance partners. If our strategic alliance partners fail to develop product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenues, and our results of operations and financial position would be adversely affected.
Research and Development Expenses
Since our inception, we have focused our resources on our research and development activities, including conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates. We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:
• salaries and related overhead expenses for personnel in research and development functions; • fees paid to consultants and clinical research organizations, or CROs, including in connection with our preclinical and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis; • costs related to acquiring and manufacturing clinical trial materials; • depreciation of leasehold improvements, laboratory equipment and computers; • costs related to compliance with regulatory requirements; and • costs related to stock options or other stock-based compensation granted to personnel in research and development functions.
From inception through
The table below summarizes our direct research and development expenses by program for the periods indicated. Our direct research and development expenses consist principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs, in connection with our clinical trials, and costs related to acquiring and manufacturing clinical trial materials. We have been developing OCA and other FXR agonists, as well as TGR5 agonists, and typically use our employee and infrastructure resources across multiple research and development programs. We do not allocate salaries, stock-based compensation, employee benefit or other indirect costs related to our research and development function to specific product candidates. Those expenses are included in "Personnel costs" and "Indirect research and development expense" in the table below.
18 Three Months Ended
March 31, 20132014 (In thousands)
Direct research and development expense by program: OCA
$ 2,845$ 5,009 INT-767 85 584 INT-777 44 - Total direct research and development expense 2,974 5,593 Personnel costs (1) 1,728 19,645 Indirect research and development expense 130 692 Total research and development expense $ 4,832 $ 25,930(1) Personnel costs include stock options and restricted stock units granted to employees and non-employees with an associated stock-based compensation expense of $709,000and $17.6 millionfor the three months ended March 31, 2013and 2014, respectively.
The successful development of our clinical and preclinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
• the scope, rate of progress and expense of our ongoing, as well as any
additional, clinical trials and other research and development activities;
• future clinical trial results; and • the timing and receipt of any regulatory approvals.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the
The majority of our research and development resources are focused on our ongoing and planned clinical and preclinical studies and the other work we plan to undertake to support our New Drug Application, or NDA, and Marketing Authorization Application, or MAA, filings for OCA for the treatment of PBC, which we currently plan to complete by the first half of 2015. We have incurred and expect to continue to incur significant expenses in connection with these efforts, including:
· We completed our Phase 3 POISE trial of OCA in patients with PBC in
and expect to continue the LTSE phase of the trial through 2019.
· We are currently in discussions with the
OCA in PBC that must be underway at the time the
FDAmakes a decision whether to grant accelerated approval. The clinical outcomes trial will be completed on a post-marketing basis. We currently anticipate finalizing the protocol for this trial during the third quarter of 2014 and initiating this trial around year end 2014.
· We plan to conduct a Phase 1 clinical trial in healthy volunteers to evaluate
the effect of OCA on the heart's electrical cycle, known as the QT interval,
and additional Phase 1 clinical trials in 2014.
· We have contracted with third-party manufacturers to produce the quantities of
OCA needed for regulatory approval as well as the necessary supplies for our other contemplated trials and are working to secure second manufacturers. We are currently reviewing potential third-party manufacturers for our commercial supply of OCA and plan to begin building commercial supplies, including supplies of the starting material for manufacturing OCA, in 2014.
· We have contracted with and plan to engage a number of consultants in relation
to our seeking of regulatory approval and intend to implement various
electronic software and systems in relation to our regulatory activities.
In addition, we are evaluating OCA in other chronic liver and other intestinal diseases. Pending our detailed review of the FLINT trial results and discussions with the
INT-767 and INT-777
We are currently conducting research in collaboration with
Other than OCA, our product development programs are at an early stage, and successful development of OCA and our future product candidates from these programs is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to maintain or enter into new strategic alliances with respect to each program or potential product candidate, the scientific and clinical success of each future product candidate, as well as ongoing assessments as to each future product candidate's commercial potential. We will need to raise additional capital and may seek additional strategic alliances in the future in order to advance our various programs.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for employees in executive, operational, finance and human resources functions. Other significant general and administrative expenses include OCA pre-commercial activities, facilities costs, accounting and legal services, directors and officer liability insurance, information technology, professional fees for directors, travel, and other expense of operating as a public company.
Our general and administrative expenses have increased and will continue to increase as we operate as a public company and due to the potential commercialization of our product candidates. We believe that these increases will likely include increased costs related to the hiring of additional personnel and increased fees for outside consultants, lawyers and accountants. We have also incurred and may continue to incur increased costs to comply with corporate governance, internal controls and similar requirements applicable to public companies. In 2014, we anticipate that we will also implement a number of software, systems and other infrastructural changes in relation to our operations as a public company.
20 Other Income, Net
Other income consists of interest income earned on our cash, cash equivalents and investment securities. We expect interest income to increase in future periods as we invest the proceeds from our equity financings.
Revaluation of Warrants
In conjunction with various financing transactions, we issued warrants to purchase shares of our common stock. As of
21 Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for each of the three months ended
March 31, 2013and 2014, together with the changes in those items in dollars: Three Months Ended March 31, Dollar Change 2013 2014 (In thousands) Licensing revenue $ 405 $ 405 $ - Operating expenses: Research and development 4,832 25,930 21,098 General and administrative 2,397 5,651 3,254 Loss from operations (6,824 ) (31,176 ) (24,352 ) Warrant revaluation expense (3,683 ) (226,627 ) (222,944 ) Other income, net 296 136 (160 ) Net loss $ (10,211 ) $ (257,667 ) $ (247,456 )Licensing Revenue
Licensing revenue was
Research and Development Expenses
Research and development expenses were
• increased non-cash stock-based compensation expense of approximately
$16.9 million, primarily related to the remeasurement of previously granted options to consultants; • an increase in personnel on our development team to manage the increased activities around our development program for OCA, resulting in increased compensation, bonus, and benefits expense of approximately $1.0 million; • increased Phase 1 clinical trial costs in support of the NDA/MAA filings of approximately $1.8 million; • increased indirect costs of approximately $561,000primarily due to increased legal costs related to our patent portfolio of $219,000, increased rent and utilities of approximately $100,000and increased travel related costs of $100,000; and • increased consulting costs in support of our anticipated NDA/MAA filings of approximately $312,000.
General and Administrative Expenses
General and administrative expenses were
• increased pre-commercial activities, including an increase in personnel resulting in increased compensation and related benefits, of approximately
$1.5 million; • an increase in non-cash stock-based compensation expense of approximately $500,000; • an increase in personnel to manage the increased activities due to our operating as a public company, resulting in increased compensation and the related benefit expense of approximately $482,000;
• increased legal expenses of approximately
• increased accounting and filing fees of approximately
• increased rent and utilities of approximately
22 Revaluation of Warrants
Our outstanding warrants are deemed to be derivative instruments that require liability classification and mark-to-market accounting. As such, at the end of each reporting period, the fair values of the warrants were determined by us using a Black-Scholes option-pricing model, resulting in the recognition of a loss of
Other Income, Net
Other income, net was primarily attributable to interest income earned on cash, cash equivalents and investment securities, which decreased compared to the prior year period as a result of the increase in the amortization of investment premiums.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred losses of
Since our inception through
Cash Flows The following table sets forth the significant sources and uses of cash for the periods set forth below: Three Months Ended March 31, 2013 2014 (In thousands) Net cash provided by (used in): Operating activities
$ (5,636 ) $ (12,318 )Investing activities (8,252 ) 7,706 Financing activities 87 2,460
Net decrease in cash and cash equivalents
Operating Activities. Net cash used in operating activities of
Investing Activities. Net cash provided by investing activities for the three months ended
Financing Activities. Net cash provided by financing activities for the three months ended
Future Funding Requirements
To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize OCA or any of our other product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. We have incurred and expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations.
Based upon our currently expected level of operating expenditures, we believe that our existing cash, cash equivalents, short-term investments, including the
The amount and timing of our future funding requirements will depend on many factors, including:
• the results of, and the data from, the Phase 2b FLINT trial of OCA in NASH
patients and our other clinical trials;
• the willingness of the
other completed and planned clinical and preclinical studies and other work, as the basis for review and marketing approval of OCA for PBC;
• the progress, costs, results of and timing of our planned confirmatory
clinical outcomes trial of OCA for the treatment of PBC;
• the progress, costs, results of and timing of clinical development of OCA for
other indications, including any additional clinical trials that may be needed to continue our development of, and to seek regulatory approval for, OCA in NASH;
• the outcome, costs and timing of seeking and obtaining
• the number and characteristics of product candidates that we pursue, including
our product candidates in preclinical development, such as INT-767, and whether we pursue their development independently or with a third-party collaborator;
• the ability of our product candidates to progress through pre-clinical and
clinical development successfully and in a timely manner;
• our need to expand our research and development activities;
• the costs associated with securing and establishing commercialization and
manufacturing capabilities and procuring the materials necessary for the manufacturing of our product candidates;
• market acceptance of our product candidates;
• the costs of acquiring licensing or investing in business, products, product
candidates and technologies;
• our ability to maintain, expand and defend the scope of our intellectual
property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense, and enforcement of any patents or to the intellectual property rights;
• our need and ability to hire additional management, scientific and medical,
commercial and other qualified personnel;
• the effect of competing technological and market developments;
• our need to implement additional internal systems, software and infrastructure,
including those to assist in our financial and reporting, clinical development and commercialization efforts; and
• the economic and other terms, timing of and success of our existing licensing
arrangement and any collaboration, licensing or other arrangement into which we may enter in the future.
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common 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 or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
Contractual Obligations and Commitments
Other than as described below, there have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations and Commitments" in our Annual Report on Form 10-K filed with the
The rent for the first year will be approximately
Pursuant to the terms of the new lease, we have provided the landlord with a letter of credit for
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under rules of the