UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 March 31, 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: 001-39122

 

89bio, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

36-4946844

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

142 Sansome Street, Second Floor

San Francisco, California 94104

94104

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (415) 500-4614

 

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, par value $0.001 per share

 

ETNB

 

Nasdaq Global 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, 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   

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of May 4, 2020, the registrant had 13,793,858 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholder’s Equity (Deficit)

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18

Item 4.

Controls and Procedures

18

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

20

Item 1A.

Risk Factors

20

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

61

Item 3.

Default Upon Senior Securities

61

Item 4.

Mine Safety Disclosures

61

Item 5.

Other Information

61

Item 6.

Exhibits

62

Signatures

63

 

 

 

 

i


 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

89bio, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

(Note 2)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

85,532

 

 

$

93,335

 

Restricted cash

 

 

24

 

 

 

25

 

Prepaid and other current assets

 

 

1,857

 

 

 

1,966

 

Total current assets

 

 

87,413

 

 

 

95,326

 

Property and equipment, net

 

 

204

 

 

 

155

 

Other assets

 

 

72

 

 

 

72

 

Total assets

 

$

87,689

 

 

$

95,553

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,055

 

 

$

989

 

Accrued expenses

 

 

3,732

 

 

 

4,620

 

Total current liabilities

 

 

7,787

 

 

 

5,609

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

14

 

 

 

14

 

Additional paid-in capital

 

 

164,028

 

 

 

163,526

 

Accumulated deficit

 

 

(84,140

)

 

 

(73,596

)

Total stockholders’ equity

 

 

79,902

 

 

 

89,944

 

Total liabilities and stockholders’ equity

 

$

87,689

 

 

$

95,553

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

1


 

89bio, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

7,778

 

 

$

4,309

 

General and administrative

 

 

2,924

 

 

 

523

 

Total operating expenses

 

 

10,702

 

 

 

4,832

 

Loss from operations

 

 

10,702

 

 

 

4,832

 

Other income, net

 

 

(157

)

 

 

(416

)

Net loss before tax

 

 

10,545

 

 

 

4,416

 

Income tax (benefit) expense

 

 

(1

)

 

 

23

 

Net loss and comprehensive loss

 

$

10,544

 

 

$

4,439

 

Net loss per share, basic and diluted

 

$

0.76

 

 

$

7.26

 

Weighted-average shares used to compute net loss per share, basic and diluted

 

 

13,789,786

 

 

 

611,226

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

2


 

89bio, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock, and Stockholders’ Equity (Deficit)

For the Three Months Ended March 31, 2020 and 2019

(Unaudited)

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amounts

 

 

 

Shares

 

 

Amounts

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2019

 

 

 

 

$

 

 

 

 

13,788,982

 

 

$

14

 

 

$

163,526

 

 

$

(73,596

)

 

$

89,944

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

4,876

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

493

 

 

 

 

 

 

493

 

Net loss and comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,544

)

 

 

(10,544

)

Balance as of March 31, 2020

 

 

 

 

$

 

 

 

 

13,793,858

 

 

$

14

 

 

$

164,028

 

 

$

(84,140

)

 

$

79,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amounts

 

 

 

Shares

 

 

Amounts

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance as of December 31, 2018

 

 

24,000,000

 

 

$

23,073

 

 

 

 

611,226

 

 

$

1

 

 

$

118

 

 

$

(16,176

)

 

$

(16,057

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

35

 

Net loss and comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,439

)

 

 

(4,439

)

Balance as of March 31, 2019

 

 

24,000,000

 

 

$

23,073

 

 

 

 

611,226

 

 

$

1

 

 

$

153

 

 

$

(20,615

)

 

$

(20,461

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

3


89bio, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(10,544

)

 

$

(4,439

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

12

 

 

 

3

 

Share-based compensation

 

 

493

 

 

 

35

 

Deferred tax assets

 

 

 

 

 

(19

)

Revaluation of convertible preferred stock liability

 

 

 

 

 

(437

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaids and other current assets

 

 

109

 

 

 

(82

)

Accounts payable

 

 

3,066

 

 

 

(427

)

Accrued expenses

 

 

(888

)

 

 

1,199

 

Net cash used in operating activities

 

 

(7,752

)

 

 

(4,167

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(61

)

 

 

(2

)

Net cash used in investing activities

 

 

(61

)

 

 

(2

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of stock options

 

 

9

 

 

 

 

Net cash provided by financing activities

 

 

9

 

 

 

 

Net decrease in cash and cash equivalents, and restricted cash

 

 

(7,804

)

 

 

(4,169

)

Cash and cash equivalents, and restricted cash at beginning of period

 

 

93,360

 

 

 

11,257

 

Cash and cash equivalents, and restricted cash at end of period

 

$

85,556

 

 

$

7,088

 

Components of cash and cash equivalents, and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

85,532

 

 

$

7,064

 

Restricted cash

 

 

24

 

 

 

24

 

Total cash and cash equivalents, and restricted cash

 

$

85,556

 

 

$

7,088

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment purchases included in accounts payable and accrued expenses

 

$

54

 

 

$

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

4


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Organization and Basis of Presentation

Description of Business

89bio, Inc. (“89bio” or the “Company”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of liver and cardio-metabolic diseases. The Company’s lead product candidate, BIO89-100, a specifically engineered glycoPEGylated analog of fibroblast growth factor 21, is currently being developed for the treatment of nonalcoholic steatohepatitis.

89bio, Inc. was formed as a Delaware corporation on June 28, 2019, for the purpose of completing an initial public offering (“IPO”) and related transactions in order to carry on the business of 89Bio Ltd., which was incorporated in Israel in January 2018.

The Company completed an internal reorganization transaction in September 2019, pursuant to which 89Bio Ltd. became a wholly owned subsidiary of 89bio, Inc. (the “Reorganization”). As part of the Reorganization, all of the equity holders of 89Bio Ltd. exchanged 100% of the equity of 89Bio Ltd. for 100% of the equity of 89bio, Inc. The Reorganization was considered a transaction between entities under common control.

Initial Public Offering

On November 13, 2019, 89bio, Inc. completed the IPO, pursuant to which it issued and sold an aggregate of 6,100,390 shares of common stock (inclusive of 795,703 shares pursuant to the underwriters’ option to purchase additional shares) at the IPO price of $16.00 per share, resulting in net proceeds of $87.7 million after deducting underwriting discounts and commissions of $6.8 million and other offering expenses of $3.1 million. Upon the closing of the IPO, the Company’s outstanding convertible preferred stock automatically converted into 7,077,366 shares of common stock of 89bio, Inc. based on a proportional adjustment to the conversion ratio of the convertible preferred stock on a 1-for-6.217 basis.

Liquidity

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. To date, the Company has not generated revenues from its activities and has incurred substantial operating losses. Management expects the Company to continue to generate substantial operating losses for the foreseeable future until it completes development of its products and seeks regulatory approvals to market such products. The Company had cash and cash equivalents of $85.5 million as of March 31, 2020. Management expects to continue to fund its operations primarily through utilization of its current financial resources and through additional raises of capital.

The Company intends to raise such capital through the issuance of additional equity financing and/or debt financing. However, if such financing is not available at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of its products. The Company expects that its cash and cash equivalents as of March 31, 2020 will be sufficient to fund operating expenses and capital expenditure requirements for a period of at least one year from the date these unaudited condensed consolidated financial statements are filed with the Securities and Exchange Commission (“SEC”).

2. Summary of Significant Accounting Policies

Unaudited Condensed Consolidated Financial Statements

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting.

The accompanying interim condensed consolidated financial statements are unaudited. The interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2019 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position, results of operations and comprehensive loss, and cash flows. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2019 was derived from the audited financial statements as of that date. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 18, 2020.

5


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include but are not limited to the fair value of stock options, the convertible preferred stock liability and certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

 

Fair Value Measurements

Financial assets and liabilities are recorded at fair value on a recurring basis in the balance sheets. The carrying values of Company’s financial assets and liabilities, including cash and cash equivalents, restricted cash, prepaid and other current assets, accounts payable, and accrued expenses approximate their fair values due to the short-term maturity of these instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. Assets and liabilities recorded at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity with the inputs to the valuation of these assets or liabilities as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable inputs for similar assets or liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active;

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Convertible Preferred Stock Liability

The freestanding instruments related to the commitment by the Series A convertible preferred stockholders to purchase and by the Company to sell its Series A convertible preferred stock in subsequent closings, contingent upon the achievement of certain developmental milestones and approval by the board of directors, at a fixed price per stock, were considered a liability (or an asset), measured at fair value as the shares underlying the rights contained liquidation preferences upon certain “deemed liquidation events” that were not solely within the Company’s control and which were considered in-substance contingent redemption features. The instruments were subject to revaluation at each balance sheet date until settlement or extinguishment, with revaluations recognized as either a component of other income, net in the condensed consolidated statements of operations and comprehensive loss, or additional paid-in capital in the condensed consolidated balance sheets. Upon the completion of the Company’s IPO, the remaining shares of convertible preferred stock that were previously issuable under the third closing were no longer issuable. Accordingly, the preferred stock liability was extinguished and because the transaction occurred between related parties, the resulting $25.6 million was accounted for as a capital contribution by the preferred stockholders.

Risk and Uncertainties

In December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to other countries, including the United States, and has been declared a pandemic by the World Health Organization.

If COVID-19 continues to spread in the United States and worldwide, the Company may experience disruptions that could negatively impact its ability to recruit and onboard new employees and productivity, disrupt the business and delay preclinical and clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of restrictions and limitations on the Company’s ability to conduct business in the ordinary course. At this point, the extent to which COVID-19 may impact the Company’s operating results and financial condition is uncertain.

 

6


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Recently Adopted Accounting Pronouncement

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The Company adopted this standard effective from January 1, 2020, with the removed and modified disclosures adopted on a retrospective basis and the new disclosures adopted on a prospective basis. The standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02—Leases (“ASU 2016-02”), requiring the recognition of lease assets and liabilities on the balance sheet. The standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. The standard is effective for public entities for fiscal years beginning after December 15, 2018 and for nonpublic entities for fiscal years beginning after December 15, 2020. As an emerging growth company, ASU 2016-02 is effective for the Company for the year ending December 31, 2021 and interim periods within the year ending December 31, 2022. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new standard is effective for public entities for fiscal years beginning after December 15, 2020 and for nonpublic entities for fiscal years beginning after December 15, 2021. As an emerging growth company, ASU 2019-12 is effective for the Company for the year ending December 31, 2022 and interim periods within the year ending December 31, 2023. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

3. Fair Value Measurements

The Company’s convertible preferred stock liability represented a Level 3 financial liability measured at fair value on a recurring basis prior to its extinguishment as of December 31, 2019. Accordingly, there was no Level 3 financial liability as of March 31, 2020.

 

For the three months ended March 31, 2019, changes in the fair value of the Company’s Level 3 financial liability were measured on a recurring basis as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

Beginning balance

 

$

1,671

 

Revaluation of convertible preferred stock liability recorded in

   other income, net

 

 

(437

)

Ending balance

 

$

1,234

 

 

The Company’s convertible preferred stock liability resulted from the initial sale of Series A convertible preferred stock where the investors committed to purchase additional shares of Series A convertible preferred stock in subsequent closings, contingent upon the achievement by the Company of certain development milestones and approval by the board of directors. The investors’ commitment to purchase and the Company’s commitment to sell shares of Series A convertible preferred stock represented a freestanding instrument accounted for at fair value and re-measured at each reporting date. The Company estimated the fair value of this commitment using the Black-Scholes option-pricing model using the following assumptions:

 

 

 

Three Months Ended

 

 

 

 

March 31, 2019

 

 

Stock price

 

$

0.99

 

 

Exercise price

 

$

1.00

 

 

Expected term (years)

 

0.24-2.25

 

 

Expected volatility

 

 

72.0

 

%

Risk-free interest rate

 

2.3-2.4

 

%

7


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

4. Consolidated Balance Sheet Components

 

Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued research and development expense

 

$

2,169

 

 

$

2,326

 

Accrued employee and related expenses

 

 

730

 

 

 

1,396

 

Accrued professional and legal fees

 

 

552

 

 

 

573

 

Accrued other

 

 

281

 

 

 

325

 

Total accrued expenses

 

$

3,732

 

 

$

4,620

 

 

5. Commitments and Contingencies

Leases

Future minimum lease payments under the Company’s non-cancellable operating lease obligations as of March 31, 2020, are as follows (in thousands):

 

 

 

 

 

 

Remainder of 2020

 

$

161

 

2021

 

 

216

 

2022

 

 

8

 

Total future minimum annual payments

 

$

385

 

 

Rent expense was $60,000 and $27,000 for the three months ended March 31, 2020 and 2019, respectively.

Asset Transfer and License Agreement with Teva Pharmaceutical Industries Ltd

In April 2018, the Company concurrently entered into two Asset Transfer and License Agreements (the “Teva Agreements”) with Teva Pharmaceutical Industries Ltd (“Teva”) under which it acquired certain patents and intellectual property relating to two programs: (1) Teva’s glycoPEGylated FGF21 program, including the compound TEV-47948 (BIO89-100), a glycoPEGylated long-acting FGF21 and (2) Teva’s development program of small molecule inhibitors of Fatty Acid Synthase. Pursuant to the Teva Agreements, the Company paid Teva an initial nonrefundable upfront payment of $6.0 million and the Company could be obligated to pay Teva up to $67.5 million under each program, for a total of $135.0 million, upon the achievement of certain clinical development and commercial milestones. In addition, the Company is obligated to pay Teva tiered royalties at percentages in the low-to-mid single-digits on worldwide net sales on all products containing the Teva compounds.

The Teva Agreements can be terminated (i) by the Company without cause, after the first anniversary of the effective date, upon 120 days’ written notice to Teva, (ii) by either party, if the other party materially breaches any of its obligations under the Agreements and fails to cure such breach within 60 days after receiving notice thereof, or (iii) by either party, if a bankruptcy petition is filed against the other party and is not dismissed within 60 days. In addition, Teva can also terminate the agreement related to the Company’s glycoPEGylated FGF21 program in the event the Company, or any of its affiliates or sublicensees, challenges any of the Teva patents licensed to the Company, and the challenge is not withdrawn within 30 days of written notice from Teva.

The Company accounted for the acquisition of technology as an asset acquisition because it did not meet the definition of a business. The Company recorded the total consideration transferred to Teva as research and development expense in the condensed consolidated statements of operations and comprehensive loss because the acquired technology represented in-process research and development and had no alternative future use. During the three months ended March 31, 2020 and 2019, there were no license payment expenses related to the Teva Agreements.

8


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

6. Convertible Preferred Stock

In April 2018, the Company entered into the Series A Share Purchase Agreement (the “Series A SPA”), pursuant to which the investors committed to invest an aggregate amount of up to $60.0 million for the issuance of shares of Series A convertible preferred stock at a price of $1.00 per share.

The initial closing occurred on April 16, 2018, and the Company issued 14,900,000 shares of Series A convertible preferred stock at a price per share of $1.00 for net cash proceeds of $14.7 million. In addition, a convertible note in the amount of $100,000 that was outstanding and automatically convertible in the Company’s next equity financing, converted into 100,000 shares of Series A convertible preferred stock upon the initial closing of the Series A financing. The investors also committed to purchase 15,000,000 and 30,000,000 shares of Series A convertible preferred stock at a price of $1.00 per share in second and third closings, respectively, contingent upon the achievement by the Company of certain development milestones and approval by the board of directors.

The investors’ commitment to purchase and the Company’s commitment to sell shares of Series A convertible preferred stock represent a freestanding instrument accounted for at fair value and re-measured at each reporting date. For the three months ended March 31, 2020 and 2019, the Company recorded a gain of $0 and $437,000, respectively, for the revaluation of the convertible preferred stock liability within other income, net in the condensed consolidated statements of operations and comprehensive loss.

In December 2018 and in June 2019, the Company and the Series A convertible preferred stockholders agreed to issue 9,000,000 and 20,000,000 shares of Series A convertible preferred stock at a price of $1.00 per share, respectively, related to the second and third closings. Aggregate net proceeds of $9.0 million were received in December 2018 and $20.0 million were received in June and July 2019.

On October 25, 2019, the Company and the Series A preferred stockholders amended the Series A SPA, and the parties agreed that the Series A SPA would terminate upon consummation of the Company’s IPO.

Upon the completion of the Company’s IPO on November 13, 2019, the remaining 16,000,000 shares of convertible preferred stock that were previously issuable under the third closing were no longer issuable. Accordingly, the preferred stock liability was extinguished and because the transaction occurred between related parties, the resulting $25.6 million was accounted for as a capital contribution by the preferred stockholders. 

Additionally, immediately prior to the completion of the Company’s IPO, all outstanding shares of convertible preferred stock automatically converted into 7,077,366 shares of common stock and the related carrying value was reclassified to common stock and additional paid-in capital. Accordingly, there were no shares of convertible preferred stock outstanding as of March 31, 2020 and December 31, 2019.

7. Share-Based Compensation

Equity Incentive Plans

In 2018, the Company’s board of directors adopted the 89Bio Ltd. 2018 Equity Incentive Plan (the “2018 Plan”). In connection with the Reorganization, in September 2019, the Company’s board of directors approved the 2019 Equity Incentive Plan (the “2019 Plan”), which became effective on September 17, 2019. From and after the effective date of the 2019 Plan, the Company will no longer be making any future awards under the 2018 Plan.

9


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

The Company initially reserved 2,844,193 shares of common stock for issuance under the 2019 Plan. In addition, the number of shares of common stock reserved for issuance under the 2019 Plan will automatically increase on the first day of January for a period of up to ten years, commencing on January 1, 2020, in an amount equal to 4% of the total number of shares of the Company’s capital stock outstanding on the immediately preceding December 31, or a lesser number of shares determined by the Company’s board of directors. As of March 31, 2020, there were 1,676,191 shares of common stock available for issuance as future option grants under the 2019 Plan.

Employee Stock Purchase Plan (ESPP)

In October 2019, the Company adopted the 2019 Employee Stock Purchase Plan (“ESPP”), which became effective following the date of the IPO. The Company initially reserved 225,188 shares of common stock for purchase under the ESPP. The number of shares of common stock reserved for issuance under the ESPP will automatically increase on the first day of January for a period of up to ten years, in an amount equal to 1% of the total number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or a lesser number of shares determined by the Company’s board of directors. Purchases will be accomplished through the participation of discrete offering periods. Each offering will be no more than 27 months long. For each offering period, ESPP participants will purchase shares of common stock at a price per share equal to 85% of the lesser of the fair market value of the Company’s common stock on (1) the first trading day of the applicable offering period or (2) the last trading day of each purchase period the applicable offering period.

The first six month offering period pursuant to the ESPP commenced on January 1, 2020. Total share-based compensation related to the ESPP for the three months ended March 31, 2020 was $13,000. As of March 31, 2020, 363,078 shares of common stock were available for issuance under the ESPP.

The Company recorded share-based compensation for the periods indicated as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Research and development

 

$

192

 

 

$

7

 

General and administrative

 

 

301

 

 

 

28

 

Total share-based compensation

 

$

493

 

 

$

35

 

 

The fair value of option awards granted for the periods indicated was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2020

 

 

2019

 

 

Stock Options

 

 

 

 

 

 

 

 

 

Expected term (years)

 

6.00-6.11

 

 

 

6.11

 

 

Expected volatility

 

86.4-87.5

 

%

 

61.8

 

%

Risk-free interest rate

 

0.5-1.5

 

%

2.5-2.6

 

%

Expected dividend

 

 

 

 

 

 

 

 

The following table summarizes stock option activity for the three months ended March 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

Options

 

 

Price

 

 

Term

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

(In years)

 

 

(In thousands)

 

Balance outstanding as of December 31, 2019

 

 

1,320,243

 

 

$

3.34

 

 

 

9.23

 

 

$

30,353

 

Granted

 

 

439,800

 

 

 

31.66

 

 

 

 

 

 

 

 

 

Exercised

 

 

(4,876

)

 

 

1.93

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(40,482

)

 

 

2.87

 

 

 

 

 

 

 

 

 

Balance outstanding as of March 31, 2020

 

 

1,714,685

 

 

 

10.62

 

 

 

9.21

 

 

$

28,115

 

Exercisable as of March 31, 2020

 

 

299,571

 

 

$

2.00

 

 

 

8.69

 

 

$

6,850

 

10


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

8. Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.

The following outstanding potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Stock options to purchase common stock

 

 

1,714,685

 

 

 

734,569

 

Employee stock purchase plan

 

 

1,735

 

 

 

 

Convertible preferred stock, as converted

 

 

 

 

 

3,860,383

 

Total

 

 

1,716,420

 

 

 

4,594,952

 

 

9. Related Party Transactions

The Company incurred $4,000 and $33,000 in professional consulting services expense related to certain members of the board of directors for the three months ended March 31, 2020 and 2019, respectively, which is recorded within research and development expenses in the Company’s condensed consolidated statements of operations and comprehensive loss. The related party liability balance was $0 as of March 31, 2020 and $11,000 as of December 31, 2019, respectively, which is recorded within accounts payable and accrued expenses in the Company’s condensed consolidated balance sheets.

The Company and the Series A preferred stockholders amended the Series A SPA on October 25, 2019, and the parties agreed that the Series A SPA would terminate upon consummation of the Company’s IPO. Upon the completion of the Company’s IPO on November 13, 2019, the remaining 16,000,000 shares of convertible preferred stock that were issuable were no longer issuable. Accordingly, the preferred stock liability was extinguished and because the transaction occurred between related parties, the resulting $25.6 million was accounted for as a capital contribution by the preferred stockholders and recorded as part of additional paid-in capital in the condensed consolidated balance sheets (see Note 6).

11


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

10. Subsequent Event

On April 7, 2020, the Company and certain of its subsidiaries entered into a Loan and Security Agreement (the “Loan Agreement”) with the lenders referred to therein (the “Lenders”), and Silicon Valley Bank, as collateral agent. The Loan Agreement provides for (i) a secured term A loan facility (the “Term A Loan Facility”) of up to $10.0 million and (ii) a secured term B loan facility (the “Term B Loan Facility”) of up to $5.0 million that is available upon the Company satisfying certain milestones. The Term A Loan Facility matures on November 1, 2022; provided, that if the Term B Loan Facility is funded, the facilities instead mature on September 1, 2023. The loan will bear interest at the greater of (i) 4.50% and (ii) the sum of (a) the Prime Rate as reported in The Wall Street Journal plus (b) 1.25%.

In addition, under the Loan Agreement, the Company agreed to issue the Lenders warrants to purchase shares of the Company’s common stock. On April 7, 2020, warrants to purchase 25,000 shares of the Company’s common stock were issued with a warrant exercise price of $22.06 per share. Additional warrants exercisable for 8,333 shares of common stock will be issued in connection with the Term B Loan Facility, if funded.

 

 

 

 

12


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward Looking Statements

 

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2019. Our actual results could differ materially from those described in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-Q.

Overview

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of liver and cardio-metabolic diseases. Our lead product candidate, BIO89-100, a specifically engineered glycoPEGylated analog of FGF21, is currently being developed for the treatment of nonalcoholic steatohepatitis, or NASH. NASH is a severe form of nonalcoholic fatty liver disease, or NAFLD, characterized by inflammation and fibrosis in the liver that can progress to cirrhosis, liver failure, hepatocellular carcinoma, or HCC and death. There are currently no approved products for the treatment of NASH. FGF21 is a clinically-validated mechanism that has been shown in humans to reduce steatosis and address cardio-metabolic dysregulation. We believe BIO89-100 may be a differentiated FGF21 therapy based on its robust and durable biological effects and a favorable tolerability profile, as well as its potential for a longer dosing interval. Combining these characteristics with the ability to address the key liver pathologies in NASH, as well as the underlying metabolic dysregulation in NASH patients, BIO89-100 has the potential to become a mainstay of NASH therapy. We successfully completed a Phase 1a, first-in-human, SAD clinical trial with 58 healthy volunteers. The magnitude and significance of BIO89-100’s biological effects after a single dose on lipid parameters were robust and durable. In April 2020, due to the ongoing COVID-19 pandemic, we closed enrollment of our proof of concept (“POC”) Phase 1b/2a clinical trial in patients with NASH or patients with NAFLD and a high risk of NASH with 98% of patients enrolled. We expect to report topline data in the second half of 2020. We also intend to develop BIO89-100 for the treatment of SHTG, a condition identified by severely elevated levels of triglycerides (greater than or equal to 500 mg/dL), which is associated with an increased risk of NASH, cardiovascular events and acute pancreatitis. We believe BIO89-100 has the potential to address multiple drivers of underlying metabolic dysregulation, which would make it an ideal candidate for selected liver and cardio-metabolic diseases. We have delayed the initiation of our Phase 2 trial in SHTG patients, which was planned for the first half of 2020, due to the ongoing COVID-19 pandemic. The Phase 2 trial in SHTG patients will evaluate the ability of BIO89-100 to reduce fasting plasma triglyceride levels compared to baseline levels. We are working to complete all operational activities to be prepared to enroll the Phase 2 trial in SHTG patients once the external environment relating to the COVID-19 pandemic is conducive to executing the trial safely and effectively. In May 2020, the U.S. Food and Drug Administration (“FDA”) cleared our Investigational New Drug application for SHTG. We have adequate clinical supplies for our ongoing Phase 1b/2a clinical trial in NASH patients and our planned Phase 2 trial in SHTG patients.

Based on FDA guidance for the development of SHTG treatments, as well as the regulatory path followed by other companies that have successfully developed SHTG therapies, we believe that a combination of smaller clinical trials and shorter development timelines could mean that SHTG potentially represents a quicker path to market for BIO89-100. However, the ongoing COVID-19 pandemic could adversely affect our development timelines, including a delay in the initiation of our planned Phase 2 trial in SHTG patients, and we do not yet know the full extent of other potential delays, which could prevent or delay us from obtaining approval for BIO89-100.

We commenced operations in 2018 and have devoted substantially all of our resources to raising capital, acquiring our initial product candidate, identifying and developing BIO89-100, licensing certain related technology, conducting research and development activities, including preclinical studies and early clinical trials, and providing general and administrative support for these operations. Prior to our initial public offering (“IPO”), we had funded our operations primarily from the issuance and sale of capital stock. In November 2019, we completed our IPO pursuant to which we issued 6,100,390 shares of our common stock at a price of $16.00 per share. We received net proceeds of $87.7 million from the IPO.

As of March 31, 2020, our cash and cash equivalents totaled $85.5 million. Based on our current operating plan, we believe that our cash and cash equivalents, will be sufficient to meet our anticipated cash requirements into the second half of 2021.

We have incurred net losses since our inception. Our net losses for the three months ended March 31, 2020 and 2019 were $10.5 million and $4.4 million, respectively. As of March 31, 2020, we had an accumulated deficit of $84.1 million. We expect to continue to incur significant expenses and increasing operating losses as we advance BIO89-100 and any future product candidates through clinical trials, seek regulatory approval for BIO89-100 and any future product candidates, expand our clinical, regulatory, quality, manufacturing and commercialization capabilities, protect our intellectual property, prepare for and, if approved, proceed to commercialization of BIO89-100 and any future product candidates, expand our general and administrative support functions, including hiring additional personnel, and incur additional costs associated with operating as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

13


 

We have never generated revenue and do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for BIO89-100, which we expect will not be for at least several years, if ever. Accordingly, until such time as we can generate significant revenue from sales of BIO89-100, if ever, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar 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 when needed would have a negative impact on our financial condition and could force us 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.

Components of Results of Operations

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for the development of our lead product candidate, BIO89-100. Our research and development expenses consist primarily of external costs related to preclinical and clinical development, including costs related to acquiring patents and intellectual property, expenses incurred under license agreements and agreements with contract research organizations and consultants, costs related to acquiring and manufacturing clinical trial materials, including under agreements with contract manufacturing organizations and other vendors, costs related to the preparation of regulatory submissions and expenses related to laboratory supplies and services, as well as personnel costs. Personnel costs consist of salaries, employee benefits and share-based compensation for individuals involved in research and development efforts.

We expense all research and development expenses in the periods in which they are incurred. We accrue for costs incurred as the services are being provided by monitoring the status of specific activities and the invoices received from our external service providers. We adjust our accrual as actual costs become known.

Payments associated with licensing agreements to acquire licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternate commercial use are expensed as incurred. Where contingent milestone payments are due to third parties under research and development arrangements or license agreements, the milestone payment obligations are expensed when the milestone results are probable and estimable, which is generally upon achievement of milestones.

We expect our research and development expenses to increase substantially for the foreseeable future as we continue the development of BIO89-100 and continue to invest in research and development activities. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming, and the successful development of BIO89-100 and any future product candidates is highly uncertain. To the extent that BIO89-100 continues to advance into larger and later stage clinical trials, our expenses will increase substantially and may become more variable. The actual probability of success for BIO89-100 or any future product candidate may be affected by a variety of factors, including the safety and efficacy of our product candidates, investment in our clinical programs, manufacturing capability and competition with other products. As a result, we are unable to determine the timing of initiation, duration and completion costs of our research and development efforts or when and to what extent we will generate revenue from the commercialization and sale of BIO89-100 or any future product candidate.

Our future clinical development costs may vary significantly based on factors such as:

 

the cost and timing of manufacturing BIO89-100 and any future product candidates;

 

delays in the development of BIO89-100 related to the ongoing COVID-19 pandemic;

 

per-patient trial costs;

 

the number of trials required for approval;

 

the number of sites included in the trials;

 

the countries in which the trials are conducted;

 

the length of time required to enroll eligible patients;

 

the number of patients that participate in the trials;

 

the number of doses evaluated in the trials;

 

the drop-out or discontinuation rates of patients;

 

potential additional safety monitoring requested by regulatory agencies;

14


 

 

the duration of patient participation in the trials and follow-up;

 

the phase of development of BIO89-100 and any future product candidates; and

 

the efficacy and safety profile of BIO89-100 and any future product candidates.

General and Administrative Expenses

Our general and administrative expenses consist primarily of personnel costs, expenses for outside professional services, including legal, human resource, audit and accounting services, consulting costs and allocated facilities costs. Personnel and related costs consist of salaries, benefits and share-based compensation for personnel in executive, finance and other administrative functions. Facilities costs consist of rent and maintenance of facilities. We expect our general and administrative expenses to increase for the foreseeable future as we increase the size of our administrative function to support the growth of our business and support our continued research and development activities. We also anticipate increased expenses as a result of operating as a public company, including increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs.

Other Income, Net

Other income, net primarily consists of the revaluation of our convertible preferred stock liability, prior to extinguishment upon our IPO.

Results of Operations

Three Months Ended March 31, 2020 and 2019

The following table summarizes our results of operations for the periods presented (in thousands):

 

 

 

Three Months Ended

 

 

 

 

 

 

 

March 31,

 

 

Increase/

 

 

 

2020

 

 

2019

 

 

(Decrease)

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

7,778

 

 

$

4,309

 

 

$

3,469

 

General and administrative

 

 

2,924

 

 

 

523

 

 

 

2,401

 

Total operating expenses

 

 

10,702

 

 

 

4,832

 

 

 

5,870

 

Loss from operations

 

 

10,702

 

 

 

4,832

 

 

 

5,870

 

Other income, net

 

 

(157

)

 

 

(416

)

 

 

259

 

Income tax (benefit) expense

 

 

(1

)

 

 

23

 

 

 

(24

)

Net loss and comprehensive loss

 

$

10,544

 

 

$

4,439

 

 

$

6,105

 

 

Research and Development Expenses

The following table summarizes the period-over-period changes in research and development expenses for the periods indicated (in thousands):

 

 

 

Three Months Ended

 

 

 

 

 

 

 

March 31,

 

 

Increase/

 

 

 

2020

 

 

2019

 

 

(Decrease)

 

Clinical development

 

$

4,348

 

 

$

1,417

 

 

$

2,931

 

Contract manufacturing

 

 

1,191

 

 

 

2,054

 

 

 

(863

)

Pre-clinical costs

 

 

656

 

 

 

107

 

 

 

549

 

Personnel-related expenses

 

 

1,403

 

 

 

596

 

 

 

807

 

Other expenses

 

 

180

 

 

 

135

 

 

 

45

 

Total research and development expenses

 

$

7,778

 

 

$

4,309

 

 

$

3,469

 

 

15


 

Research and development expenses increased by $3.5 million, or 81%, to $7.8 million for the three months ended March 31, 2020 from $4.3 million for the three months ended March 31, 2019. The increase was primarily due to an increase of $2.9 million in clinical development costs, an increase of $0.8 million in personnel-related costs, including share-based compensation, and an increase of $0.5 million in pre-clinical costs due to increased headcount and other costs as we ramped up our operations. The increase was partially offset by a decrease of $0.9 million in contract manufacturing costs.

General and Administrative Expenses

General and administrative expenses increased by $2.4 million, or 459%, to $2.9 million during the three months ended March 31, 2020 from $0.5 million for the three months ended March 31, 2019. The increase was primarily due to an increase of $1.1 million in professional services including legal and accounting consulting service fees, an increase of $0.9 million in personnel-related costs, including share-based compensation, driven by an increase in headcount and an increase of $0.4 million in insurance related costs.

Other Income, Net

Other income, net decreased by $0.2 million, or 62%, to $0.2 million for the three months ended March 31, 2020 from $0.4 million for the three months ended March 31, 2019. The decrease was primarily due to the revaluation of our convertible preferred stock liability in the first quarter of 2019.

Liquidity and Capital Resources

To date, we have incurred significant net losses and negative cash flows from operations. As of March 31, 2020, we had available cash and cash equivalents of $85.5 million and an accumulated deficit of $84.1 million. Prior to our IPO, we funded our operations from the issuance and sale of capital stock. In connection with our IPO, we issued and sold an aggregate of 6,100,390 shares of common stock at a price of $16.00 per share. We received proceeds of $87.7 million, net of underwriting discounts and commissions and estimated offering costs.

On April 7, 2020, we entered into a secured term loan facility with an aggregate committed principal amount of up to $15.0 million.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures related to our lead product candidate, BIO89-100. We plan to increase our research and development expenses substantially for the foreseeable future as we continue the clinical development of our current and future product candidates. At this time, due to the inherently unpredictable nature of clinical development, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval, and commercialize our current product candidate or any future product candidates. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or our current or any future license agreements which we may enter into or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast the timing and amounts of milestone, royalty and other revenue from licensing activities, which future product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

Based on our research and development plans, we expect that our existing cash and cash equivalents will be sufficient to fund our operations into the second half of 2021. However, our operating plans and other demands on our cash resources may change as a result of many factors, and we may seek additional funds sooner than planned. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us.

Our future funding requirements will depend on many factors, including the following:

 

the progress, timing, scope, results and costs of our clinical trials of BIO89-100 and preclinical studies or clinical trials of other potential product candidates we may choose to pursue in the future, including the ability to enroll patients in a timely manner for our clinical trials;

 

the costs and timing of obtaining clinical and commercial supplies and validating the commercial manufacturing process for BIO89-100 and any other product candidates we may identify and develop;

 

the cost, timing and outcomes of regulatory approvals;

 

the timing and amount of any milestone, royalty or other payments we are required to make pursuant to current or any future collaboration or license agreements;

 

costs of acquiring or in-licensing other product candidates and technologies;

16


 

 

the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;

 

the costs associated with attracting, hiring and retaining additional qualified personnel as our business grows;

 

our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting; and

 

the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

We expect to continue to generate substantial operating losses for the foreseeable future as we expand our research and development activities. We will continue to fund our operations primarily through utilization of our current financial resources and through additional raises of capital to advance our current product candidate through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the foreseeable future. However, there is no assurance that such funding will be available to us or that it will be obtained on terms favorable to us or will provide us with sufficient funds to meet our objectives. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.

To the extent that we raise additional capital through partnerships or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs or to grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our then-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. 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 trials or preclinical studies, research and development programs or commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

Cash Flows

The following table summarizes our cash flows for the periods presented (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Net cash used in operating activities

 

$

(7,752

)

 

$

(4,167

)

Net cash used in investing activities

 

 

(61

)

 

 

(2

)

Net cash provided by financing activities

 

 

9

 

 

 

 

Net decrease in cash and cash equivalents, and restricted cash

 

$

(7,804

)

 

$

(4,169

)

 

Net Cash Used in Operating Activities

During the three months ended March 31, 2020, net cash used in operating activities was $7.8 million, which consisted of a net loss of $10.5 million, partially offset by non-cash charges of $0.5 million and a net change of $2.3 million in our net operating assets and liabilities. The non-cash charges are primarily comprised of $0.5 million in share-based compensation. The change in our operating assets and liabilities was primarily due to a $2.2 million increase in accounts payable and accrued expenses as we grew our operations and a $0.1 million decrease in other current assets due to the timing of payments.

During the three months ended March 31, 2019, net cash used in operating activities was $4.2 million, which consisted of a net loss of $4.4 million, partially offset by non-cash gains of $0.5 million and a net change of $0.7 million in our net operating assets and liabilities. The non-cash gains are primarily comprised of the revaluation of our convertible preferred stock liability of $0.4 million. The change in our operating assets and liabilities was primarily due to a $0.8 million increase in accounts payable and accrued expenses as we grew our operations, partially offset by a $0.1 million increase in prepaid and other current assets.

Net Cash Used in Investing Activities

During the three months ended March 31, 2020 and 2019, net cash used in investing activities consisted of purchases of fixed assets.

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Net Cash Provided by Financing Activities

During the three months ended March 31, 2020 net cash provided by financing activities consisted of proceeds from the issuance of common stock upon exercise of stock options.

During the three months ended March 31, 2019, there was no net cash provided by financing activities.

Contractual Obligations and Other Commitments

We are a smaller reporting company, as defined by Rule 12b-2 under the Securities and Exchange Act of 1934 and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements, as defined in the rules and regulations of the SEC, and do not have any holdings in variable interest entities.

Critical Accounting Polices and Estimates

There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed our Annual Report on Form 10-K for the year ended December 31, 2019, other than as provided in Note 2 to our condensed consolidated financial statements “Summary of Significant Accounting Policies.”

Recent Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements for more information.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements and our interim condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company, as defined by Rule 12b-2 under the Securities and Exchange Act of 1934 and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of March 31, 2020, our management, with the participation and supervision of our principal executive officer and our principal financial officer, evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that 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 SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on

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this evaluation, our principal executive officer and our principal financial officer concluded that solely as a result of the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of March 31, 2020 to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Remediation Efforts on Previously Reported Material Weaknesses

During the audit of our consolidated financial statements for the period from January 18, 2018 (inception) to December 31, 2018, material weaknesses were identified in our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis by the company’s internal controls. The material weaknesses that were identified related to the following:

 

We did not have an internal finance department. Consequently, we lacked sufficient personnel with an appropriate level of knowledge and requisite U.S. generally accepted accounting principles expertise to identify, evaluate and account for complex and non-routine transactions and an adequate supervisory review structure that is needed to comply with financial reporting requirements.

 

We did not have an adequate assessment of risks that could significantly impact internal controls over financial reporting and did not effectively design and monitor controls in response to the risks of material misstatement.

In 2019, we implemented plans to remedy these material weaknesses and as of March 31, 2020 our remediation efforts were ongoing. While we believe that these efforts have improved and will continue to improve our internal control over financial reporting, remediation of the material weaknesses will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles resulting in the reporting of these material weaknesses as of March 31, 2020. We have implemented and are in the process of implementing additional measures and risk assessment procedures designed to improve our disclosure controls and procedures and internal control over financial reporting to address the underlying causes of these material weaknesses, including the implementation of appropriate segregation of duties, formalization of accounting policies and controls, and implementation of accounting systems to automate manual processes. In 2019, we also hired our Chief Financial Officer, principal accounting officer and additional qualified accounting and finance personnel, formalized our hiring practices, engaged financial consultants to enable the implementation of internal controls over financial reporting and in April 2020, added a financial expert to the audit committee of the board of directors while we continue to actively recruit a new audit committee chair (following the resignation of Tomer Kariv, our audit committee chair and financial expert, from our board of directors in December 2019).

We cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required by reporting requirements under Section 404 (“Section 404”) of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”).

Changes in Internal Control over Financial Reporting

Other than the changes intended to remediate the material weaknesses noted above, no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not a party to any material legal proceedings. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors, and there can be no assurances that favorable outcomes will be obtained.

Item 1A. Risk Factors.

An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below before deciding whether to make an investment decision with respect to shares of our common stock. You should also refer to the other information contained in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated financial statements and related notes. Our business, financial condition, results of operations and prospects could be materially and adversely affected by any of these risks or uncertainties. In any such case, the trading price of our common stock could decline, and you could lose all or part of your investment. We caution you that the risks, uncertainties and other factors referred to below and elsewhere in this Quarterly Report on Form 10-Q may not contain all of the risks, uncertainties and other factors that may affect our future results and operations. Moreover, new risks will emerge from time to time. It is not possible for our management to predict all risks.

Risks Related to Our Business and Industry

We are a clinical-stage biopharmaceutical company with a limited operating history and no products approved for commercial sale. We have incurred net losses since our inception, we expect to incur significant and increasing operating losses and we may never be profitable. Our stock is a highly speculative investment.

We are a clinical-stage biopharmaceutical company with a limited operating history that may make it difficult to evaluate the success of our business to date and to assess our future viability. We commenced operations in 2018, and to date, our operations have been limited to organizing and staffing our company, business planning, raising capital, acquiring our initial product candidate, BIO89-100 and licensing certain related technology, conducting research and development activities, including preclinical studies and early clinical trials, and providing general and administrative support for these operations. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect and/ or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale, we have not generated any revenue from product sales to date and we continue to incur significant research and development and other expenses related to our ongoing operations. We have limited experience as a company conducting clinical trials and no experience as a company commercializing any products.

We are not profitable and have incurred net losses since our inception. As of March 31, 2020, we had an accumulated deficit of $84.1 million. Consequently, predictions about our future success or viability may not be as accurate as they would be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products. We have spent, and expect to continue to spend, significant resources to fund research and development of, and seek regulatory approvals for, BIO89-100 and any future product candidates. We expect to incur substantial and increasing operating losses over the next several years as our research, development, preclinical testing and clinical trial activities increase. As a result, our accumulated deficit will also increase significantly. We may encounter unforeseen expenses, difficulties, complications, delays, including delays resulting from the ongoing COVID-19 pandemic, and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital. The net losses we incur may fluctuate significantly from quarter-to-quarter such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. Even if we eventually generate product revenue, we may never be profitable and, if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

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We currently have no source of product revenue and may never become profitable.

BIO89-100 is in the early stages of development. To date, we have not generated any revenue from the licensing or commercialization of BIO89-100. We will not be able to generate product revenue unless and until BIO89-100 or any future product candidate, alone or with future partners, successfully completes clinical trials, receives regulatory approval and is successfully commercialized. As BIO89-100 is in the early stages of development, we do not expect to receive revenue from it for a number of years, if ever. Although we may seek to obtain revenue from collaboration or licensing agreements with third parties, we currently have no such agreements that could provide us with material, ongoing future revenue and we may never enter into any such agreements. Our ability to generate future product revenue from BIO89-100 or any future product candidates also depends on a number of additional factors, including our or our future partners’ ability to:

 

successfully complete research and clinical development of BIO89-100 and any future product candidates;

 

establish and maintain supply and manufacturing relationships with third parties, and ensure adequate and legally compliant manufacturing of bulk drug substances and drug products to maintain that supply;

 

launch and commercialize future product candidates for which we obtain marketing approval, if any, and, if launched independently, successfully establish a sales force, marketing and distribution infrastructure;

 

demonstrate the necessary safety data post-approval to ensure continued regulatory approval;

 

obtain coverage and adequate product reimbursement from third-party payors, including government payors;

 

achieve market acceptance for our or our future partners’ products, if any;

 

establish, maintain, protect and enforce our intellectual property rights; and

 

attract, hire and retain qualified personnel.

In addition, because of the numerous risks and uncertainties associated with pharmaceutical product development, including that our product candidates may not advance through development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or if or when we will achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we decide, or are required by the FDA or comparable foreign regulatory authorities, to perform studies or trials in addition to those that we currently anticipate. Even if we complete the development and regulatory processes described above, we anticipate incurring significant costs associated with launching and commercializing these products.

Even if we generate revenue from the sale of any of our product candidates that may be approved, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or do not sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.

The ongoing COVID-19 pandemic may result in significant disruptions to our clinical trials or other business operations, which could have a material adverse effect on our business.

Our business and its operations, including but not limited to our research and development activities, could be adversely affected by health epidemics in regions where we have business operations, and such health epidemics could cause significant disruption in the operations of third parties upon whom we rely. In December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to other countries, including the United States and has been declared a pandemic by the World Health Organization. In response to public health directives and orders related to COVID-19 and based on guidance from public health officials, we are implementing work-from-home policies for our employees on an office-by-office basis. We currently have work-from-home policies in place for our employees in California and have reopened our offices in Israel. The effects of executive and similar government orders, shelter-in-place orders and our work-from-home policies may negatively impact our growth, including our ability to recruit and onboard new employees, and productivity, disrupt our business and delay our preclinical and clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.

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Quarantines, shelter-in-place, executive and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases, have impacted and may continue to impact personnel at third-party manufacturing facilities in the United States, Europe and other countries, or the availability or cost of materials we use or require to conduct our business, including product development, which would disrupt our supply chain. Furthermore, some of our manufacturers and suppliers are in Europe and may be impacted by port closures and other restrictions resulting from the COVID-19 pandemic, which may disrupt our supply chain or limit our ability to obtain sufficient materials for our drug products. In particular, Northway Biotechpharma (“BTPH”), our sole source supplier for BIO89-100, has notified us that they expect to miss certain project deadlines for our manufacturing scale-up due to quarantine orders and have forecasted other delays due to COVID-19-related impacts on their suppliers; however, we do not expect delays to the overall timeline for the delivery of clinical supplies.

In addition, our clinical trials have been and may continue to be affected by the COVID-19 pandemic. For example, while we originally intended to commence our Phase 2 trial of BIO89-100 for the treatment of SHTG in the first half of 2020, we have delayed the initiation of this trial until the external environment is conducive to executing the trial safely and effectively. Although we completed enrollment in our Phase 1a/2b trial of BIO89-100 for the treatment of NASH in April 2020, the participants in the trial may drop out if they are impacted by COVID-19 or the related government restrictions and we may not be able to collect all of the data that we currently plan to receive from the trial.

If COVID-19 continues to spread in the United States and elsewhere, we may experience additional disruptions that could severely impact our business, preclinical studies and clinical trials, including:

 

delays in receiving authorization from local regulatory authorities to initiate our planned clinical trials;

 

delays or difficulties in enrolling patients in our clinical trials;

 

delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

 

delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials, including interruption in global shipping that may affect the transport of clinical trial materials;

 

changes in local regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

 

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

 

interruption of key clinical trial activities, such as clinical trial site monitoring and data entry and verification, due to limitations on travel imposed or recommended by federal or state governments, employers and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which could affect the completeness and integrity of clinical trial data and, as a result, determine the outcomes of the trial;

 

risk that participants enrolled in our clinical trials will acquire COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events;

 

risk that participants enrolled in our clinical trials will not be able to travel to our clinical trial sites as a result of quarantines or other restrictions resulting from COVID-19;

 

risk that participants enrolled in our clinical trials will not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services;

 

interruptions or delays in preclinical studies due to restricted or limited operations at our research and development laboratory facilities;

 

delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;

 

limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;

 

refusal of the FDA to accept data from clinical trials in affected geographies; and

 

interruption or delays to our clinical activities.

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The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by COVID-19, and the duration of such impact, may be difficult to assess or predict, the widespread pandemic has resulted in significant disruption of global financial markets, which could reduce our ability to access capital and negatively affect our future liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 and related government orders and restrictions could materially affect our business and the value of our common stock.

The COVID-19 pandemic continues to evolve rapidly. The ultimate impact of the COVID-19 pandemic or a similar public health emergency is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems, or the global economy as a whole. However, any one or a combination of these events could have an adverse effect on the operation of and results from our clinical trials and on our other business operations, which could prevent or delay us from obtaining approval for BIO89-100.

We will require substantial additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. As a result, we may not complete the development and commercialization of BIO89-100 or develop new product candidates.

As a clinical-stage biopharmaceutical company, our operations have consumed significant amounts of cash since our inception. We expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we conduct our Phase 1b/2a clinical trial and future clinical trials of BIO89-100 and seek regulatory approvals for BIO89-100.

We believe that the net proceeds from our IPO, proceeds available from our line of credit pursuant to our Loan Agreement (as defined below), together with our existing cash and cash equivalents will fund our projected operating requirements into the second half of 2021. Our forecast of the period of time through which our financial resources will adequately support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both short and long-term, will depend on many factors, including:

 

the initiation, progress, timing, costs and results of preclinical and clinical studies for BIO89-100 and any future product candidates we may develop;

 

the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more studies than those that we currently expect or change their requirements on studies that had previously been agreed to;

 

the cost to establish, maintain, expand, enforce 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 licensing, preparing, filing, prosecuting, defending and enforcing of any patents or other intellectual property rights;

 

the effect of competing technological and market developments;

 

market acceptance of any approved product candidates, including product pricing and product coverage and adequate reimbursement by third-party payors;

 

the cost of acquiring, licensing or investing in additional businesses, products, product candidates and technologies;

 

the cost and timing of selecting, auditing and potentially validating a manufacturing site for commercial-scale manufacturing of BIO89-100; and

 

the cost of establishing sales, marketing and distribution capabilities for BIO89-100 and any future product candidates for which we may receive regulatory approval and that we determine to commercialize ourselves or in collaboration with our future partners.

We will require additional capital to discover, develop, obtain regulatory approval for and commercialize BIO89-100 and any future product candidates. We do not have any committed external source of funds other than the unused portion of the line of credit available to us pursuant to the Loan Agreement. We expect to finance future cash needs through public or private equity or debt offerings or product collaborations. Additional capital may not be available in sufficient amounts or on reasonable terms, if at all. If we do not raise additional capital, we may not be able to expand our operations or otherwise capitalize on our business opportunities, our business and financial condition will be negatively impacted and we may need to:

 

significantly delay, scale back or discontinue research and discovery efforts and the development or commercialization of any product candidates or cease operations altogether;

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seek strategic alliances for research and development programs when we otherwise would not, or at an earlier stage than we would otherwise desire or on terms less favorable than might otherwise be available; or

 

relinquish, or license on unfavorable terms, our rights to technologies or any product candidates that we otherwise would seek to develop or commercialize ourselves.

 

In addition, if BIO89-100 receives approval and is commercialized, we will be required to make milestone and royalty payments to Teva Pharmaceutical Industries Ltd (“Teva”), from whom we acquired certain patents and intellectual property relating to BIO89-100, and from whom we licensed patents and know-how related to glycoPEGylation technology that is used in the manufacture of BIO89-100. For additional information regarding this license agreement, please see Note 5 to of our accompanying unaudited condensed consolidated financial statements.

Unstable market and economic conditions may have serious adverse consequences on our business and financial condition.

Global credit and financial markets have experienced extreme disruptions at various points over the last few decades, characterized by diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If another such disruption in credit and financial markets and deterioration of confidence in economic conditions occurs, our business may be adversely affected. If the equity and credit markets were to deteriorate significantly in the future, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and share price and could require us to delay or abandon development or commercialization plans. In addition, there is a risk that one or more of our service providers, manufacturers or other partners would not survive or be able to meet their commitments to us under such circumstances, which could directly affect our ability to attain our operating goals on schedule and on budget.

Our Loan and Security Agreement with Silicon Valley Bank (the “Loan Agreement”) contains certain covenants that could adversely affect our operations and, if an event of default were to occur, we could be forced to repay the outstanding indebtedness sooner than planned and possibly at a time when we do not have sufficient capital to meet this obligation. The occurrence of any of these events could cause a significant adverse impact on our business, prospects and share price.

Pursuant to the Loan Agreement, we have pledged substantially all of our assets, other than our intellectual property rights, and have agreed that we may not sell or assign rights to our patents and other intellectual property without the prior consent of Silicon Valley Bank. Additionally, the Loan Agreement contains affirmative and negative covenants that, among other things, restrict our ability to:

 

incur additional indebtedness;

 

grant liens;

 

make distributions, including dividends;

 

enter into a merger or consolidation;

 

alter the business of the Company;