You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and the related notes appearing elsewhere in this Annual Report on Form 10-K. In
addition to the historical financial information, this discussion contains
forward-looking statements that involve risk, assumptions and uncertainties,
such as statements of our plans, objectives, expectations, intentions, forecasts
and projections. Our actual results and the timing of selected events could
differ materially from those discussed in these forward-looking statements as a
result of several factors, including those set forth under the section of this
Annual Report on Form 10-K titled "Risk Factors," which you should carefully
read to gain an
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understanding of the important factors that could cause actual results to differ
materially from our forward-looking statements. Please also see the section
titled “Forward-Looking Statements” at the beginning of this report.
Overview
We are a clinical-stage biopharmaceutical company focused on the discovery, development, and commercialization of novel small molecule therapeutics to address chronic and progressive fibrotic diseases. Our goal is to transform the treatment paradigm for patients suffering from these potentially life-threatening conditions for which there are no approved medicines or where existing approved medicines have limitations. Our lead product candidate, ANG-3070, is a highly selective oral tyrosine kinase receptor inhibitor (TKI) in development as a treatment for fibrotic diseases, particularly in the kidney and lung. Enrollment is ongoing in a dose-finding Phase 2 trial of ANG-3070 in primary proteinuric kidney diseases (PPKD) and we expect to file an IND in idiopathic pulmonary fibrosis (IPF) by the end of 2022. We are also continuing to develop our preclinical programs. Our ROCK2 program is targeted towards the treatment of fibrotic diseases. Our CYP11B2 program is targeted towards diseases related to aldosterone synthase dysregulation. Prior toJanuary 2022 our lead product was ANG-3777, a hepatocyte growth factor (HGF) mimetic we were evaluating in multiple indications of acute organ injury, including delayed graft function (DGF) and for the treatment of AKI associated with cardiac surgery involving cardiopulmonary bypass (CSA-AKI). In 2021, we also studied ANG-3777 in patients with severe COVID-19 related pneumonia at high risk for acute respiratory distress syndrome (ARDS). OnOctober 26, 2021 , we announced the Phase 3 trial of ANG-3777 in DGF did not achieve its primary endpoint and the data were not expected to be sufficient evidence to support an indication in the studied DGF population. OnDecember 9, 2021 , we announced the Phase 2 trial of ANG-3777 in CSA-AKI did not achieve its primary endpoint. We do not intend to continue the clinical development plan for ANG-3777 set forth in the Vifor License, which had included a Phase 3 study in CSA-AKI and a Phase 4 confirmatory study in donor kidney transplant patients who were at risk for developing DGF, given we do not believe the earlier Phase 2 and Phase 3 clinical trial results in the respective indications support a regulatory approval. We have no funds budgeted for additional clinical trials for ANG-3777. We do not have any products approved for sale and have not generated any revenue from product sales since our inception and do not expect to generate revenue from product sales unless we successfully develop and we or our collaborators commercialize our product candidates, which we do not expect to occur for several years, if ever. Our net losses were$54.6 million and$80.1 million for the years endedDecember 31, 2021 and 2020, respectively. As ofDecember 31, 2021 , we had an accumulated deficit of$215.1 million . We expect to continue to incur net losses for the foreseeable future. As we seek to advance ANG-3070 in clinical trials and our other product candidates through preclinical development, our expenses and operating losses may increase over time. In addition, if we seek regulatory approval for any of our wholly-owned product candidates or those for which we retain the right to commercialize in the future, we would need to incur additional expenses as we expand our clinical, regulatory, quality, manufacturing and commercialization capabilities, incur significant commercialization expenses for marketing, sales, manufacturing and distribution if we obtain marketing approval for such product candidates. We rely on third parties in the conduct of our preclinical studies and clinical trials and for manufacturing and supply of our product candidates. We have no internal manufacturing capabilities, and we expect to continue to rely on third parties, many of whom are single-source suppliers, for our preclinical study and clinical trial materials. In addition, we do not yet have a marketing or sales organization or commercial infrastructure. Accordingly, we will incur significant expenses to develop a marketing and sales organization and commercial infrastructure in advance of generating any product sales of wholly-owned product candidates or those for which we retain the right to commercialize. Furthermore, we will need to make continued investment in development studies, registration activities and the development of commercial support functions including quality assurance and safety pharmacovigilance before we will be in a position to sell any of our product candidates, if approved.
The Initial Public Offering and Concurrent Private Placement
The Initial Public Offering (IPO) and Concurrent Private Placement, which both closed onFebruary 9, 2021 , generated aggregate net proceeds of approximately$107.0 million , after deducting the underwriting discounts and commissions, private placement fee and estimated offering expenses payable by us. 66
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COVID-19 Update
The COVID-19 pandemic has placed strains on the providers of healthcare services, including the healthcare institutions where we conduct our clinical trials. These strains have resulted in institutions prohibiting the initiation of new clinical trials, enrollment in existing trials and restricting the on-site monitoring of clinical trials. We also follow FDA guidance on clinical trial conduct during the COVID-19 pandemic, including the remote monitoring of clinical data. The global pandemic of COVID-19 continues to rapidly evolve. The extent to which COVID-19 may continue impact our business, including our clinical trials, and financial condition will depend on future developments, which are highly uncertain due to the continuing emergence of new variants and cannot be predicted with confidence, such as the ultimate duration of the pandemic and the effectiveness of actions taken inthe United States and other countries to contain and treat the disease.
At this time, we do not expect any disruption in our supply chain of drugs
necessary to conduct our clinical trials, and we believe we will be able to
supply the drug needs of our clinical trials in 2022. However, we are continuing
to evaluate our clinical supply chain in light of the COVID-19 pandemic.
License, Collaboration and Grant Agreements
License Agreement with Vifor Pharma
InNovember 2020 , we granted Vifor Pharma, an exclusive, global (excludingGreater China ), royalty-bearing license, for the commercialization of ANG-3777 in all Renal Indications, beginning with DGF and CSA-AKI. The Vifor License also grants Vifor Pharma exclusive rights, with a right to sublicense subject to our consent for certain specified conditions, to develop and manufacture ANG-3777 for commercialization in Renal Indications worldwide (excludingGreater China ) in cooperation with us or independently. We retain the right to develop and commercialize combination therapy products combining ANG-3777 with our other proprietary molecules, subject to Vifor Pharma's right of first negotiation with respect to global (excludingGreater China ) rights to such combination therapy products in the Renal Indications. Pursuant to the Vifor License and specifically based upon the clinical development plan for ANG-3777 set forth in the Vifor License, we are entitled to receive$80 million in upfront and near-term clinical milestone payments, including$30 million in up-front cash that was received inNovember 2020 , and a$30 million equity investment, a$5 million convertible note that subsequently converted into common stock with the IPO and$25 million of which was received in the Concurrent Private Placement with our IPO. We are also eligible to receive post-approval milestones of up to approximately$260.0 million and sales-related milestones of up to$1.585 billion , providing a total potential deal value of up to$1.925 billion (subject to certain specified reductions and offsets), plus tiered royalties on net sales of ANG-3777 at royalty rates of up to 40%. Under the Vifor License, we are responsible for executing a pre-specified clinical development plan designed to obtain regulatory approvals of ANG-3777 for DGF and CSA-AKI. For the years endedDecember 31, 2021 and 2020, we recognized license revenue related to the Vifor License of$27.5 million and$0.2 million , respectively. As ofDecember 31, 2021 , we recorded$2.3 million as the current portion of deferred revenue on the consolidated balance sheet related to the Vifor License. As ofDecember 31, 2020 , we recorded$29.8 million as deferred revenue on the consolidated balance sheet related to the Vifor License. OnOctober 26, 2021 , we announced that the Phase 3 trial of ANG-3777 in DGF did not achieve its primary endpoint and the data were not expected to be sufficient evidence to support an indication in the studied DGF population. OnDecember 14, 2021 , we announced that the Phase 2 trial of ANG-3777 in CSA-AKI did not achieve its primary endpoint. The Vifor License includes additional milestone and royalty objectives related to the clinical development plan for ANG-3777 and we do not expect to receive any clinical, post-approval, or sales milestones, or royalties, as we do not intend to continue to pursue such clinical development plan for ANG-3777, which had included a Phase 3 study for CSA-AKI and a Phase 4 confirmatory study in DGF. In 2022, we and Vifor Pharma continue to work to complete the planned analyses of the results of the clinical trials announced in the fourth quarter of 2021 and to discuss the future of the collaboration based upon such analyses. As ofDecember 31, 2021 , we recorded the remaining performance obligation as current deferred revenue of$2.3 million which is expected to be completed by the end of 2022. 67
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Components of Results of Operations
The following discussion summarizes the key factors our management believes are
necessary for an understanding of our financial statements.
Revenue
We do not have any products approved for sale and have not generated any revenue
from product sales. Our revenue to date primarily has been derived from
government funding consisting of
revenue under our license agreements, specifically the Vifor License.
Grant Revenue
Our grants and contracts reimburse us for direct and indirect costs relating to the grant projects and also provide us with a pre-negotiated profit margin on total direct and indirect costs of the grant award, excluding subcontractor costs, after giving effect to directly attributable costs and allowable overhead costs. Funds received from grants and contracts are generally deemed to be earned and recognized as revenue as allowable costs are incurred during the grant or contract period and the right to payment is realized.
Contract Revenue
Our license agreements comprise elements of upfront license fees, milestone
payments based on development and royalties based on net product sales. The
timing of our operating cash flows may vary significantly from the recognition
of the related revenue. Income from upfront payments is recognized when we
satisfy the performance obligations in the contract, which can result in
recognition at either a point in time or over the period of continued
involvement. Other revenue, such as milestone payments, are recognized when
achieved.
Our revenue to date has been generated from payments received pursuant to the Vifor License Agreement. We recognize revenue from upfront payments over the term of our estimated period of performance using a cost-based input method under Topic 606, Revenue from Contracts with Customers. In addition to receiving an upfront payment, we may also be entitled to milestones and other contingent payments upon achieving predefined objectives. If a milestone is considered probable of being reached, and if it is probable that a significant revenue reversal would not occur, the associated milestone amount would also be included in the transaction price. We expect that any license revenue we generate from any future collaboration partners, will fluctuate in the future as a result of the timing and amount of upfront, milestones and other collaboration agreement payments and other factors. Operating Expenses Cost of Grant Revenue
Our cost of grant revenue primarily relates to personnel-related costs and
expenses for grant projects.
Research and Development Expenses
To date, our research and development expenses have primarily related to
discovery efforts and preclinical and clinical development of our product
candidates. We recognize research and development expenses as they are incurred
and payments made prior to the receipt of goods or services to be used in
research and development are capitalized until the goods or services are
received. Our research and development expenses consist primarily of:
?personnel costs, including salaries, payroll taxes, employee benefits and
stock-based compensation, for personnel in research and development functions;
?costs associated with medical affairs activities;
?fees paid to consultants, clinical testing sites and contract research organizations (CROs), including in connection with our preclinical studies and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation, analysis and reporting;
?contracted research and license agreement fees with no alternative future use;
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?costs related to acquiring, manufacturing and maintaining clinical trial
materials and laboratory supplies;
?depreciation of equipment and facilities;
?legal expenses related to clinical trial agreements and material transfer
agreements; and
?costs related to preparation of regulatory submissions and compliance with
regulatory requirements.
Other than with respect to reimbursable expenses required to be recorded under our government grants and contracts, we do not allocate our expenses by product candidates. A significant amount of our direct research and development expenses include payroll and other personnel expenses for our departments that support multiple product candidate research and development programs and, other than as specified above, we do not record research and development expenses by product. However, research and development expenses were primarily driven by expenses relating to the development of ANG-3777 and ANG-3070 in 2021 and 2020. Of our total research and development expenses for the years endedDecember 31, 2021 and 2020, 62% and 73%, respectively, of such expenses were from external third-party sources and the remaining 38% and 27%, respectively, were from internal sources. We expect our research and development expenses to be slightly lower in the near term, even though we will continue the development of our product candidates 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 successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
?the scope, rate of progress and expense of our ongoing, as well as any
additional, clinical trials and other research and development activities;
?future preclinical and clinical trial results;
?obtaining market access and reimbursement approvals; and
?the timing and receipt of any regulatory approvals.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct preclinical or clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our preclinical or clinical trials, we could be required to expend significant additional financial resources and time on the completion of our clinical development programs.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related expenses, such as salaries, payroll taxes, employee benefits and stock-based compensation, for personnel in executive, operational, finance and human resources functions. Other significant general and administrative expenses include allocation of facilities costs, accounting and legal services and expenses associated with obtaining and maintaining patents. A portion of the general and administrative expenses are reimbursed through the overhead rates contained in our grants with theU.S. Government . We expect that our general and administrative expenses to be generally consistent in the near term to support our continued research and development activities. We also expect to generally maintain our current level of expenses associated with operating as a public company, including expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with the rules and regulations of theSEC and standards applicable to companies listed on a national securities exchange, insurance expenses, investor relations activities and other administrative and professional services. 69
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Other Income (Expense)
Convertible Notes Recorded at Fair Value
We elected the fair value option for recognition of our convertible notes. Our convertible notes were subject to re-measurement each reporting period with gains and losses reported through our consolidated statements of operations. All of our convertible notes were converted into shares of our common stock upon the closing of our initial public offering.
Liability Classified Series C Convertible Preferred Stock Recorded at Fair Value
Series C convertible preferred stock includes settlement features that result in liability classification. The initial carrying value of the Series C convertible preferred stock was accreted to the settlement value, the fair value of the securities to be issued upon the conversion of the Series C Preferred Stock. The discount to the settlement value was accreted to interest expense using the effective interest method. During 2020, certain of the convertible notes were exchanged for Series C convertible preferred stock. As the exchange was accounted for as a modification, the Series C convertible preferred stock that was exchanged for the convertible notes (the Exchanged Series C Shares) continued to be recorded at fair value. The Exchanged Series C Shares were subject to re-measurement each reporting with gains and losses reported through our consolidated statements of operations. All shares of our Series C convertible preferred stock converted into common stock in connection with the IPO. Warrant Liability We have accounted for certain of our freestanding warrants to purchase shares of our common stock as liabilities measured at fair value, in accordance with ASC 815, Derivatives and Hedging (ASC 815). The warrants are subject to re-measurement at each reporting period with gains and losses reported through our consolidated statements of operations.
Foreign Exchange Transaction Gain
Foreign currency transaction gains, primarily related to intercompany loans, are recorded as a component of other income (expense) in our consolidated statements of operations.
Earnings in
Earnings in equity method investment represents our 10% interest in NovaPark
that is accounted for under the equity method.
Interest Income
Interest income consists of interest earned on our cash and cash equivalents.
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Results of Operations
Comparison for the Years Ended
The following table summarizes our results of operations for the periods
indicated:
Year Ended December 31,
2021 2020 $ Change % Change
(In thousands, except percentages)
Revenue:
Contract revenue $ 27,506 $ 193 $ 27,313 *
Grant revenue 806 2,687 (1,881) (70.0) %
Total revenue 28,312 2,880 25,432 883.1 %
Operating expenses:
Cost of grant revenue 433 1,190 (757) (63.6) %
Research and development 48,698 38,977 9,721 24.9 %
General and administrative 18,488 17,986 502 2.8 %
Total operating expenses 67,619 58,153 9,466 16.3 %
Loss from operations (39,307) (55,273) 15,966 (28.9) %
Other income (expense), net (15,266) (24,834) 9,568 *
Net loss $ (54,573) $ (80,107) $ 25,534 (31.9) %
_______________________
*Not meaningful
Contract Revenue
Contract revenue increased by $27.3 million , from the year ended December 31,
2020 to the year ended December 31, 2021 . The increase is attributable to
revenue recognized related to the upfront payment from Vifor Pharma pursuant to
the Vifor License Agreement entered into in 2020. As of December 31, 2021 , we
have substantially satisfied the performance obligation under the Agreement
which caused an acceleration of the deferred revenue. We do not expect to
receive any further substantial revenues under the Vifor License Agreement and
we expect the remaining unearned revenue under the Vifor License Agreement to be
recognized by the end of 2022.
Grant Revenue
Grant revenue decreased by$1.9 million , or 70.0%, from the year endedDecember 31, 2020 to the year endedDecember 31, 2021 . The decrease is primarily attributable to a decrease in reimbursable costs relating to our grant from theU.S. Department of Defense for the year endedDecember 31, 2021 . We do not expect to receive any further substantial grant revenues for the foreseeable future. Cost of Grant Revenue Cost of grant revenue decreased by$0.8 million , or 63.6%, from the year endedDecember 31, 2020 to the year endedDecember 31, 2021 . The decrease is primarily attributable to a decrease in personnel-related costs and expenses applied for the year endedDecember 31, 2021 .
Research and Development Expenses
Research and development expenses increased by$9.7 million , or 24.9%, from the year endedDecember 31, 2020 to the year endedDecember 31, 2021 . The increase in research and development expenses was primarily due to an increase of$8.5 million in personnel-related expenses, including salaries, benefits and stock-based compensation expenses, as a result from increases in headcount and an increase of$1.0 million in CRO and CMO expenses from increased clinical and non-clinical trial activities, primarily related to the development of ANG-3777 and ANG-3070. These increases were partially offset by an employee retention credit of$1.2 million received in 2021 as a reduction to payroll taxes. 71
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General and Administrative Expenses
General and administrative expenses increased by$0.5 million , or 2.8%, from the year endedDecember 31, 2020 to the year endedDecember 31, 2021 . The increase in general and administrative expenses was primarily due to an increase of$2.5 million of personnel-related expenses, including salaries, benefits and stock-based compensation expenses, resulting from increases in headcount and vesting of performance-based stock units upon IPO, and an increase of$2.7 million of corporate fees mainly due to purchase of business insurance, offset by a reduction of$5.1 million of professional fees for legal, consulting, accounting, tax and other services primarily associated with preparing us for our IPO in 2020. Other Income (Expense), Net Other income (expense), net changed by a reduction in expense of$9.6 million , from the year endedDecember 31, 2020 to the year endedDecember 31, 2021 . This decrease in expense is primarily attributable to a reduction in interest expense of$7.0 million due to interest associated with convertible notes and Series C convertible preferred stock in 2020 that were converted into equity upon our IPO inFebruary 2021 and an increase of$2.6 million in fair value of our warrant liability, convertible notes, and Series C convertible preferred stock for which we have elected the fair value option. The convertible notes and warrants both require re-measurement at each balance sheet date with gains and losses reported through our consolidated statement of operations.
Liquidity and Capital Resources
Sources and Uses of Liquidity
We have incurred losses and negative cash flows from operations since inception, and we anticipate that we will incur losses for at least the next several years. To date, we have not generated any revenue from product sales. We have funded our operations primarily through the receipt of grants, the sale of debt and equity securities, and proceeds from license agreements. InFebruary 2021 , we generated aggregate net proceeds of approximately$107.0 million from our IPO and Concurrent Private Placement, after deducting the underwriting discounts and commissions. As ofDecember 31, 2021 , we had$88.8 million of cash and cash equivalents and an accumulated deficit of$215.1 million . Prior to our IPO, we issued$36.2 million in aggregate principal amount of convertible notes to various investors and we also issued 34,928 shares of Series C convertible preferred stock at$642.75 per share for gross proceeds of approximately$22.3 million . Upon the closing of our IPO, all then outstanding convertible notes and shares of convertible preferred stock were converted into 5,870,829 shares of our common stock. InApril 2020 , we were approved for and received a loan of approximately$0.9 million fromHanmi Bank under the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) and the Paycheck Protection Program (PPP) offered by theU.S. Small Business Administration (SBA). The loan was evidenced by a promissory note and agreement, datedApril 21, 2020 (the PPP Note). The PPP Note proceeds were available to be used to pay for payroll costs, including salaries, commissions, and similar compensation, group health care benefits, and paid leaves; rent; utilities; and interest on certain other outstanding debt, if any. The interest rate on the PPP Note was a fixed rate of 1% per annum. The SBA approved our PPP Loan forgiveness application onMay 26, 2021 for the entire principal amount of the PPP Loan and accrued interest.
Future Cash Needs and Funding Requirements
Based on our current operating plan, we believe that our cash and cash
equivalents will be sufficient to fund our planned operations for at least 12
months, well into 2023, following the issuance date of our consolidated
financial statements. However, we have based our projections of operating
capital requirements on assumptions that may prove to be incorrect and we may
use all our available capital resources sooner than we expect. Because of the
numerous risks and uncertainties associated with research, development and
commercialization of biotechnology products, we are unable to estimate the exact
amount of our operating capital requirements. The amount and timing of our
future funding requirements will depend on many factors, including, but not
limited to:
?the scope, progress, results and costs of researching and developing ANG-3070
or any other product candidates, and conducting preclinical studies and clinical
trials;
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?the outcome of our ongoing and future clinical trials, including our Phase 2
clinical trial of ANG-3070 in patients with PPKD;
?whether we are able to take advantage of any FDA expedited development and
approval programs for any of our product candidates;
?the extent to which COVID-19 may impact our business, including our clinical
trials and financial condition;
?the willingness of the FDA and foreign regulatory authorities to accept the
results of our completed, ongoing, and planned clinical trials and preclinical
studies and other work, as the basis for review and approval of ANG-3070;
?the outcome, costs and timing of seeking and obtaining and maintaining FDA and
any foreign regulatory approvals;
?the number and characteristics of product candidates that we pursue, including
our product candidates in preclinical development;
?the ability of our product candidates to progress through clinical development
successfully;
?our need to expand our research and development activities, including to
conduct additional clinical trials;
?market acceptance of our product candidates, including physician adoption,
market access, pricing and reimbursement;
?the costs of acquiring, licensing or investing in businesses, products, product
candidates and technologies;
?our ability to maintain, expand and defend the scope of our intellectual
property portfolio, including the amount and timing of any payments we may be
required to make, or that we may receive, in connection with the licensing,
filing, prosecution, defense and enforcement of any patents or other
intellectual property rights;
?our need and ability to hire additional personnel, including management,
clinical development, medical and commercial personnel;
?the effect of competing technological, market developments and government
policy;
?the costs associated with being a public company, including our need to
implement additional internal systems and infrastructure, including financial
and reporting systems;
?the costs associated with securing and establishing commercialization and
manufacturing capabilities, as well as those associated with packaging,
warehousing and distribution;
?the costs associated with being a commercial company with approved products for
sale, including our obligation to meet applicable healthcare laws and
regulations and implement robust compliance programs;
?the economic and other terms, timing of and success of our existing licensing
arrangements and any collaboration, licensing or other arrangements into which
we may enter in the future and timing and amount of payments thereunder; and
?the timing, receipt and amount of sales and general commercial success of any
future approved products, if any.
Until such time as we or our collaborators can generate significant revenue from
sales of ANG-3070 or any other product candidate, if ever, we expect to finance
our operations through public or private equity offerings or debt financings or
other sources of capital, including collaborations, licenses, credit or loan
facilities, receipt of research contributions or grants, tax credit revenue or a
combination of one or more of these funding sources. Adequate funding may not be
available to us on acceptable terms, or at all. To the extent that we raise
additional capital through the sale of equity or convertible debt securities,
the ownership interest of our stockholders will be or could be diluted, and the
terms of these securities may include liquidation or other preferences that
adversely affect the rights of our common stockholders. Debt financing and
equity financing, if available, may involve agreements that include covenants
limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we raise
funds through additional collaborations, or other similar arrangements with
third parties, we may have to relinquish valuable rights to our technologies,
future revenue streams, research programs or product candidates or grant
licenses on terms that may not be favorable to us and/or may reduce the value of
our common stock. If we are unable to raise additional funds through equity or
debt financings when needed, we may be required to delay, limit, reduce or
terminate our product development or commercialization efforts or grant rights
to develop and market our product candidates even if we would otherwise prefer
to develop and market such product candidates ourselves.
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Summary Statement of Cash Flows
The following table sets forth a summary of our net cash flow activity for the
years ended
Year Ended December 31,
2021 2020
Net cash provided by (used in)
Operating activities $ (52,643) $ (22,888)
Investing activities (382) (41)
Financing activities 107,171 52,409
Effect of foreign currency on cash 3 (444)
Net increase in cash $ 54,149 $ 29,036
Operating activities
For the year ended December 31, 2021 , net cash used in operating activities was
$52.6 million , which primarily consisted of a net loss of $54.6 million and a
change in net operating assets and liabilities of $26.0 million , partially
offset by net non-cash charges of $27.8 million . The net non-cash charges were
primarily related to a $14.0 million change in fair value of convertible notes,
Series C convertible preferred stock and warrant liabilities, amortization of
debt issuance costs of $1.9 million , and stock-based compensation expense of
$12.0 million , partially offset by a gain of $0.9 million from the forgiveness
of our PPP loan. The change in net operating assets and liabilities was due to a
decrease of $27.5 million in deferred revenue due to substantial satisfaction of
our performance obligation under the Vifor License Agreement, a decrease of
$0.9 million in accounts payable and accrued expenses due to timing of invoices
and an increase of $0.8 million in grants receivable due to the recognition of
the qualified Australian tax credit, partially offset by a decrease of
$4.0 million in prepaid expenses and other current assets, primarily due to the
subsequent receipt of $5.0 million convertible note receivable under Vifor
License Agreement in 2021.
For the year ended December 31, 2020 , net cash used in operating activities was
$22.9 million , which primarily consisted of a net loss of $80.1 million ,
partially offset by net non-cash charges of $31.5 million and a change in net
operating assets and liabilities of $25.8 million . The net non-cash charges were
primarily related to a $16.5 million change in fair value of convertible notes,
Series C convertible preferred stock and warrant liabilities, amortization of
debt issuance costs of $7.7 million , stock-based compensation expense of $4.7
million and placement agent fees of $1.7 million . The change in net operating
assets and liabilities was due to an increase of $29.8 million in deferred
revenue due to the upfront fee from the Vifor License Agreement and $3.7 million
in accrued expenses due to increased clinical-related activities, partially
offset by an increase of $2.0 million in prepaid expenses and other current
assets and a decrease of $5.6 million in accounts payable due to our overall
growth, increased research and development spending and timing of payments.
Investing activities
For the years ended
activities of
purchase of fixed assets for research activities.
Financing activities
For the year endedDecember 31, 2021 , net cash provided by financing activities was$107.2 million , primarily due to net proceeds of$107.5 million from the IPO and Concurrent Private Placement,$1.8 million from the exercise of warrants and stock options, and$0.3 million from a sale and leaseback arrangement, partially offset by taxes paid related to net share settlement upon vesting of restricted stock awards of$2.5 million . For the year endedDecember 31, 2020 , net cash provided by financing activities was$52.4 million , primarily due to net proceeds of$31.2 million from the issuance of convertible notes and warrants,$20.0 million from the issuance of liability classified Series C convertible preferred stock net of issuance costs and$0.9 million in proceeds from our PPP loan. 74
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Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations as of
2021
For
the Year Ended Payments due by period
Less than 1
(in thousands) year 1 to 3 years 3 to 5 years More than 5 years Total
Operating lease obligations $ 1,289 $ 3,618 $ 516 $ - $ 5,423
Financing obligations $ 94 $ 219 $ - $ - $ 313
Critical Accounting Policies and Significant Judgments and Estimates
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report. The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below.
Contract Revenue
We account for revenue earned from contracts with customers under Accounting
Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers
(Topic 606) ("ASC 606"). Under ASC 606, we recognize revenue when a customer
obtains control of promised goods or services, in an amount that reflects the
consideration we expect to receive in exchange for those goods or services. To
determine revenue recognition for arrangements within the scope of ASC 606, we
perform the following five steps:
(1) Identify the contract(s) with a customer;
(2) Identify the performance obligations in the contract;
(3) Determine the transaction price;
(4) Allocate the transaction price to the performance obligations in the
contract; and
(5) Recognize revenue when (or as) we satisfy a performance obligation.
At contract inception, we assess the goods or services promised within each
contract, whether each promised good or service is distinct, and determine those
that are performance obligations. We then recognize as revenue the amount of the
transaction price that is allocated to the respective performance obligation
when or as the performance obligation is satisfied.
We enter into agreements under which it may obtain upfront payments, milestone
payments, royalty payments and other fees. Promises under these arrangements may
include licenses of intellectual property, research services, including
selection campaign research services for certain replacement targets, the
obligation to share information during the research and the participation of
alliance managers and in joint research committees, joint patent committees and
joint steering committees. We assess these promises within the context of the
agreements to determine the performance obligations.
Licenses of Intellectual Property: If a license to our intellectual property is
determined to be distinct from the other promises or performance obligations
identified in the arrangement, we recognize revenue from non-refundable, upfront
fees allocated to the license when the license is transferred to the customer
and the customer is able to use and benefit from the license. For licenses that
are bundled with other promises, we utilize judgment to assess the nature of the
combined performance obligation to determine whether the combined performance
obligation is satisfied over time or at a point in time and, if over time, the
appropriate method of measuring proportional performance for purposes of
recognizing revenue from non-refundable, upfront payments. We evaluate the
measure of proportional performance each reporting period and, if necessary,
adjust the measure of performance and related revenue recognition.
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Milestone payments: We evaluate whether the regulatory and development milestones are considered probable of being reached and estimate the amounts to be included in the transaction price using the most likely amount method. We evaluate factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the particular milestone in making this assessment. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. At the end of each reporting period, we re-evaluate the probability of achievement of milestones and any related constraint, and if necessary, adjusts the estimate of the overall transaction price. Sales-based milestones and royalties: For sales-based royalties, including milestone payments based on the level of sales, we determine whether the sole or predominant item to which the royalties relate is a license. When the license is the sole or predominant item to which the sales-based royalty relates, we recognize revenue at the later of: (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any sales-based royalty revenue resulting from any license agreement. Deferred revenue, which is a contract liability, represents amounts received by us for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met. The current portion of deferred revenue represents the amount expected to be recognized within one year from the consolidated balance sheet date based on the estimated performance period of the underlying performance obligation. The noncurrent portion of deferred revenue represents amounts expected to be recognized after one year through the end of the performance period of the performance obligation. Using the cost-based input method, we recognize revenue based on actual costs incurred as a percentage of total estimated costs as we complete each performance obligation. As such, we use significant assumptions to determine the total estimated costs for us to complete the performance obligation identified under the Vifor License Agreement as well as the performance period. We reassess the total estimated costs and performance period at each reporting period. We changed the estimated costs significantly from$231.5 million at inception (November 2020 ) to$26.0 million as ofDecember 31, 2021 and revised the performance period from 9.5 years to 2.2 years due to new information available at each reporting period. As ofDecember 31, 2021 , we determined we have substantially completed our performance obligation under the Vifor License Agreement. The effect of this change in estimate was an increase in contract revenue by$24.2 million , a reduction in net loss by$24.2 million and an increase in basic and diluted earnings per share by$0.86 for the year endedDecember 31, 2021 . See Note 3 in this Annual Report on Form 10-K for more information.
Grant Revenue
We concluded that our government grants are not within the scope of ASC 606 as they do not meet the definition of a contract with a customer. We have concluded that the grants meet the definition of a contribution and are non-reciprocal transactions, and have also concluded that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition, does not apply, as we are a business entity and the grants are with governmental agencies. In the absence of applicable guidance under GAAP, we developed a policy for the recognition of grant revenue when the allowable costs are incurred and the right to payment is realized. We believe this policy is consistent with the overarching premise in ASC 606, to ensure that revenue recognition reflects the transfer of promised goods or services to customers in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods or services, even though there is no exchange as defined in ASC 606. We believe the recognition of revenue as costs are incurred and amounts become realizable is analogous to the concept of transfer of control of a service over time under ASC 606.
Research and Development
Research and development costs include, but are not limited to, payroll and
personnel expenses, laboratory supplies, preclinical studies, compound
manufacturing costs, consulting costs and allocated overhead, including rent,
equipment, depreciation and utilities. Research and development cost may be
offset by research and development refundable tax rebates received by our
wholly-owned Australian subsidiary.
We have agreements with various Contract Research Organizations ("CROs") and
third-party vendors. We estimate research and development accruals of amounts
due to the CRO based on the level of services performed, progress of the
studies, including the phase or completion of events, and contracted costs. We
include the
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estimated costs of research and development provided, but not yet invoiced, in accrued liabilities on the consolidated balance sheet. We record payments made to CROs under this arrangement in advance of the performance of the related services as prepaid expenses and other current assets until the services are rendered. We make judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, we adjust our accrued liabilities. For the years endedDecember 31, 2021 and 2020, we have not experienced any material differences between accrued costs and actual costs incurred.
Stock-Based Compensation
We account for all stock-based payments to employees and non-employees,
including grants of stock options, restricted stock awards ("RSAs"), restricted
stock units ("RSUs"), including restricted stock units with non-market
performance and service conditions ("PSUs") to be recognized in the financial
statements, based on their respective grant date fair values. We estimate the
fair value of stock option grants using the Black-Scholes option pricing model.
We value the RSAs, RSUs and PSUs based on the fair value of our common stock on
the date of grant. The assumptions used in calculating the fair value of
stock-based awards represent management's best estimates and involve inherent
uncertainties and the application of management's judgment. We record expense
for stock-based compensation related to stock options, RSAs and RSUs over the
requisite service period. As the PSUs have a performance condition, we recognize
compensation expense for each vesting tranche over the respective requisite
service period of each tranche if and when our management deems probable that
the performance conditions will be satisfied. We may recognize a cumulative
true-up adjustment related to PSUs once a condition becomes probable of being
satisfied if the related service period had commenced in a prior period. We
record all stock-based compensation costs in general and administrative or
research and development costs in the consolidated statements of operations
based upon the respective employee or non-employee's roles within our company.
We record forfeitures as they occur.
See Note 9 in this Annual Report on Form 10-K for more information concerning
certain of the specific assumptions we used in applying the Black-Scholes option
pricing model to determine the estimated fair value of our stock options.
Certain of such assumptions involve inherent uncertainties and the application
of significant judgment. As a result, if factors or expected outcomes change and
we use significantly different assumptions or estimates, our stock-based
compensation could be materially different.
Warrant Liability
We account for certain common stock warrants outstanding as a liability, in accordance with ASC 815, at fair value and adjust the instruments to fair value at each reporting period. This liability is subject to re-measurement at each reporting period until exercised, and we recognize any change in fair value in the consolidated statements of operations as a component of other income (expense). We have estimated the fair value of the warrants issued by us using a variant of the Black Scholes option pricing model. We valued the underlying equity included in the Black Scholes option pricing model based on the equity value implied from sales of preferred and common stock.
Income Taxes
We record income taxes in accordance with ASC 740, Income Taxes (ASC 740), which provides for deferred taxes using an asset and liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. We determine deferred tax assets and liabilities based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which we expect the differences to reverse. We provide valuation allowances if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We account for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, we recognize the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.
Recent Accounting Pronouncements
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See Note 2, "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for a full description of recent accounting standards.
Emerging Growth Company and Smaller Reporting Company Status
We are a smaller reporting company and an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years of audited financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor's report on internal controls over financial reporting pursuant to Sarbanes-Oxley Act of 2002, as amended (Sarbanes-Oxley) an exemption from any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting standards as of public company effective dates. We will remain an emerging growth company until the earliest of (i)December 31, 2026 , (ii) the last day of our first fiscal year in which we have total annual gross revenue of$1.07 billion or more, (iii) the date on which we are deemed to be a "large accelerated filer," as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (Exchange Act), which means the market value of equity securities that is held by non-affiliates exceeds$700 million as of the last business day of our most recently completed second fiscal quarter and (iv) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period. Even after we no longer qualify as an emerging growth company, we may still qualify as a "smaller reporting company" and/or "non-accelerated filer" which may allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply for a period of time with the auditor attestation requirements of Section 404 of Sarbanes-Oxley, and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
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