89bio(ETNB) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part provides the unaudited condensed consolidated financial statements and related notes for 89bio, Inc., detailing financial position and performance Item 1. Financial Statements (Unaudited) This section presents 89bio, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows Condensed Consolidated Balance Sheets This table provides a snapshot of the company's assets, liabilities, and equity as of March 31, 2021, and December 31, 2020 | Metric (in thousands) | March 31, 2021 (Unaudited) | December 31, 2020 | | :-------------------- | :------------------------- | :------------------ | | Cash and cash equivalents | $68,007 | $98,183 | | Short-term available-for-sale securities | $121,618 | $106,446 | | Total current assets | $197,936 | $210,202 | | Total assets | $198,654 | $211,074 | | Total current liabilities | $8,459 | $8,113 | | Total stockholders' equity | $190,195 | $202,961 | | Accumulated deficit | $(137,877) | $(123,095) | Condensed Consolidated Statements of Operations and Comprehensive Loss This statement details the company's revenues, expenses, and net loss for the three months ended March 31, 2021, and 2020 | Metric (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Research and development | $10,131 | $7,778 | | General and administrative | $4,608 | $2,924 | | Total operating expenses | $14,739 | $10,702 | | Loss from operations | $(14,739) | $(10,702) | | Net loss | $(14,782) | $(10,544) | | Net loss per share, basic and diluted | $0.74 | $0.76 | Condensed Consolidated Statements of Stockholder's Equity This statement outlines changes in stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit | Metric (in thousands, except share amounts) | Balance as of Dec 31, 2020 | Issuance of common stock | Stock-based compensation | Net loss | Other comprehensive income | Balance as of Mar 31, 2021 | | :------------------------------------------ | :------------------------- | :----------------------- | :----------------------- | :---------- | :------------------------- | :------------------------- | | Common Shares | 19,931,660 | 103,170 | — | — | — | 20,034,830 | | Common Stock Amount | $20 | $— | $— | $— | $— | $20 | | Additional Paid-in Capital | $326,046 | $216 | $1,793 | $— | $— | $328,055 | | Accumulated Other Comprehensive Loss | $(10) | — | — | — | $7 | $(3) | | Accumulated Deficit | $(123,095) | — | — | $(14,782) | — | $(137,877) | | Total Stockholders' Equity | $202,961 | $216 | $1,793 | $(14,782) | $7 | $190,195 | Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities for the periods presented | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(14,982) | $(7,752) | | Net cash used in investing activities | $(15,410) | $(61) | | Net cash provided by financing activities | $216 | $9 | | Net decrease in cash and cash equivalents, and restricted cash | $(30,176) | $(7,804) | | Cash and cash equivalents, and restricted cash at end of period | $68,032 | $85,556 | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide additional information and details supporting the unaudited condensed consolidated financial statements 1. Organization and Basis of Presentation This note describes 89bio, Inc.'s business, its lead product candidate, and the basis for preparing the financial statements - 89bio, Inc. is a clinical-stage biopharmaceutical company focused on developing therapies for liver and cardio-metabolic diseases, with its lead product candidate, BIO89-100, targeting nonalcoholic steatohepatitis (NASH) and severe hypertriglyceridemia (SHTG)[21] - The company completed two public offerings in July and September 2020, raising net proceeds of $78.2 million and $79.5 million, respectively[23] - As of March 31, 2021, the company had $189.6 million in cash, cash equivalents, and short-term available-for-sale securities, which are expected to fund operations for at least one year[24][25] 2. Summary of Significant Accounting Policies This note outlines the key accounting principles, estimates, and policies applied in the preparation of the financial statements - The financial statements are unaudited and prepared in accordance with U.S. GAAP and SEC rules for interim reporting, reflecting normal recurring adjustments[26][27] - Significant estimates include fair value of stock options and accrued expenses, with actual results potentially differing from these estimates[30] - The COVID-19 pandemic has disrupted and may continue to disrupt the company's business and delay preclinical and clinical programs, with the full extent of impact being uncertain[32] - Investments are classified as available-for-sale and carried at estimated fair value, with unrealized gains and losses reported as a component of comprehensive loss[34][35] - The company, as an emerging growth company, has elected to delay adoption of new accounting standards ASU 2016-02 (Leases) and ASU 2016-13 (Credit Losses) until fiscal years beginning after December 15, 2021 and 2022, respectively[38][39] 3. Fair Value Measurements This note details the fair value hierarchy and measurements for the company's financial assets as of March 31, 2021 | Financial Asset (in thousands) | Valuation Hierarchy | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value (March 31, 2021) | | :----------------------------- | :------------------ | :------------- | :--------------- | :---------------- | :-------------------------- | | Money market funds | Level 1 | $53,011 | $— | $— | $53,011 | | Commercial paper | Level 2 | $74,420 | $— | $(6) | $74,414 | | Agency bonds | Level 2 | $21,367 | $14 | $— | $21,381 | | Corporate debt securities | Level 2 | $18,794 | $1 | $(9) | $18,786 | | Municipal bonds | Level 2 | $6,241 | $2 | $— | $6,243 | | U.S. government bonds | Level 2 | $5,554 | $2 | $— | $5,556 | | Non-U.S. debt securities | Level 2 | $2,537 | $— | $— | $2,537 | | Total | | $181,924 | $19 | $(15) | $181,928 | | Contractual Maturity (in thousands) | March 31, 2021 | | :---------------------------------- | :------------- | | Within one year | $173,388 | | After one year through two years | $8,540 | | Total | $181,928 | 4. Accrued Expenses This note provides a breakdown of accrued expenses, including research and development, employee, and professional fees | Accrued Expense (in thousands) | March 31, 2021 | December 31, 2020 | | :----------------------------- | :------------- | :---------------- | | Accrued research and development expense | $2,121 | $2,884 | | Accrued employee and related expenses | $1,067 | $2,552 | | Accrued professional and legal fees | $543 | $453 | | Accrued other expenses | $207 | $159 | | Total accrued expenses | $3,938 | $6,048 | 5. Commitments and Contingencies This note describes the company's lease obligations and potential milestone payments related to intellectual property acquisitions | Lease Payments (in thousands) | March 31, 2021 | | :---------------------------- | :------------- | | Remainder of 2021 | $166 | | 2022 | $8 | | Total future minimum annual payments | $174 | - The company acquired patents and intellectual property for its FGF21 program (BIO89-100) and Fatty Acid Synthase program from Teva Pharmaceutical Industries Ltd. in April 2018, with potential milestone payments up to $135.0 million and tiered royalties on net sales[46] 6. Term Loan This note details the company's loan and security agreement, including the available facilities and associated warrant issuance - In April 2020, the company entered into a Loan and Security Agreement for up to $15.0 million (Term A and Term B facilities), maturing in November 2022 or September 2023 if Term B is funded, with no amount drawn as of March 31, 2021[49] - In connection with the loan, a warrant to purchase 25,000 shares of common stock was issued to Silicon Valley Bank, valued at $0.6 million and recorded as debt issuance cost[50] 7. Stockholders' Equity This note provides information on common stock, stock option activity, and stock-based compensation expense - As of March 31, 2021, 1,633,644 shares of common stock were available for future option grants under the 2019 Equity Incentive Plan[55] - Total stock-based compensation expense increased significantly to $1,793 thousand for the three months ended March 31, 2021, from $493 thousand in the prior year[58] | Stock Option Activity (Three Months Ended March 31, 2021) | Number of Options | Weighted Average Exercise Price | | :---------------------------------------- | :---------------- | :------------------------------ | | Balance outstanding as of Dec 31, 2020 | 1,898,395 | $12.79 | | Granted | 538,613 | $23.04 | | Exercised | (103,170) | $2.09 | | Cancelled | (52,728) | $16.42 | | Balance outstanding as of Mar 31, 2021 | 2,281,110 | $15.61 | | Exercisable as of Mar 31, 2021 | 627,372 | $8.06 | - The company granted 56,545 service-based RSUs and 61,500 performance-based RSUs in February 2021, recognizing $0.1 million in compensation expense for each type[60][61] 8. Net Loss Per Share This note explains the calculation of basic and diluted net loss per share and lists potentially dilutive common stock equivalents - Basic and diluted net loss per share are the same due to the company being in a loss position, making all potential common stock equivalents anti-dilutive[62] | Potentially Dilutive Common Stock Equivalents | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Stock options to purchase common stock | 2,281,110 | 1,714,685 | | Shares available for future option grants | 1,633,644 | 1,676,191 | | Unvested restricted stock units | 111,728 | — | | Employee stock purchase plan | 2,357 | 1,735 | | Total | 4,028,839 | 3,392,611 | 9. Subsequent Event This note discloses a post-period event regarding the amendment of the company's Loan and Security Agreement - In April 2021, the company amended its Loan and Security Agreement to extend the draw period for both Term Loan A and Term Loan B Facilities to May 31, 2021[63] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes 89bio's financial condition and operational results, focusing on its clinical-stage progress, funding, and the impact of the COVID-19 pandemic Overview This overview introduces 89bio's clinical-stage progress with BIO89-100 for NASH and SHTG, and its current financial position - 89bio is a clinical-stage biopharmaceutical company developing BIO89-100 for NASH and SHTG, with positive topline data for NASH Phase 1b/2a announced in September 2020 and a Phase 2b (ENLIVEN) trial planned for Q2 2021[67] - The company initiated its Phase 2 trial (ENTRIGUE) for SHTG in Q3 2020, with topline data expected in H2 2021[67] - As of March 31, 2021, cash, cash equivalents, and short-term available-for-sale securities totaled $189.6 million, expected to fund operations for at least one year[71] - Net losses for the three months ended March 31, 2021 and 2020 were $14.8 million and $10.5 million, respectively, with an accumulated deficit of $137.9 million as of March 31, 2021[72] Impact of COVID-19 Pandemic This section discusses the adverse effects of the COVID-19 pandemic on clinical trial enrollment and potential future delays - The COVID-19 pandemic has adversely impacted enrollment in the SHTG Phase 2 (ENTRIGUE) trial and the NASH Phase 1b/2a paired-biopsy cohort, particularly due to surges in late Q4 2020 and Q1 2021[75] - Potential delays in the planned Phase 2b (ENLIVEN) trial for NASH in Q2 2021 are possible due to COVID-19[76] Components of Results of Operations This section defines the primary components of the company's operating expenses and other income/expenses - Research and development expenses primarily consist of external costs for preclinical and clinical development, including manufacturing, regulatory submissions, and personnel costs[77] - R&D expenses are expected to increase substantially as BIO89-100 advances through clinical trials[80] - General and administrative expenses include personnel costs, professional services (legal, HR, audit, accounting), consulting, and facilities costs, and are expected to increase to support business growth[81][82] - Other (expenses) income, net, primarily includes interest on available-for-sale securities and amortization of deferred debt issuance costs[83] Results of Operations This section provides a comparative analysis of the company's operating expenses and net loss for the periods presented | Metric (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Research and development | $10,131 | $7,778 | $2,353 | 30% | | General and administrative | $4,608 | $2,924 | $1,684 | 58% | | Total operating expenses | $14,739 | $10,702 | $4,037 | 38% | | Net loss | $(14,782) | $(10,544) | $(4,238) | 40% | - The increase in R&D expenses was primarily driven by a $2.2 million increase in contract manufacturing costs for clinical trial supplies and a $1.2 million increase in personnel-related costs[85] - The increase in G&A expenses was mainly due to a $1.1 million increase in personnel-related costs, a $0.5 million increase in insurance costs, and a $0.1 million increase in professional services fees[86] - Other (expenses) income, net, shifted from a net income of $0.2 million in 2020 to a net expense of $43 thousand in 2021, primarily due to amortization of deferred debt issuance costs[88] Liquidity and Capital Resources This section details the company's cash position, available financing, and future funding requirements and risks - As of March 31, 2021, the company had $189.6 million in cash, cash equivalents, and short-term available-for-sale securities, and an accumulated deficit of $137.9 million[89] - The company has a secured term loan facility of up to $15.0 million, with the draw period extended to May 31, 2021, but no amount has been drawn as of March 31, 2021[90] - Future funding requirements are dependent on the progress of clinical trials, manufacturing costs, regulatory approvals, milestone payments, and the ability to attract and retain personnel[95][97] - Failure to raise additional capital could lead to delays, reductions in scope, or suspension of clinical trials, research programs, or commercialization efforts, and may result in dilution for existing stockholders or restrictive debt covenants[98][99] Cash Flows This section analyzes the changes in cash flows from operating, investing, and financing activities | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(14,982) | $(7,752) | | Net cash used in investing activities | $(15,410) | $(61) | | Net cash provided by financing activities | $216 | $9 | - Net cash used in operating activities increased to $15.0 million in Q1 2021 from $7.8 million in Q1 2020, primarily due to a higher net loss and changes in operating assets and liabilities[101][102] - Net cash used in investing activities significantly increased to $15.4 million in Q1 2021, mainly due to $45.3 million in purchases of available-for-sale securities, partially offset by $29.9 million from maturities[103] - Net cash provided by financing activities was $0.2 million in Q1 2021, primarily from stock option exercises[106] Contractual Obligations and Other Commitments This section notes that as a smaller reporting company, detailed contractual obligations are not required - As a smaller reporting company, 89bio is not required to provide detailed information on contractual obligations[107] Off-Balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements or variable interest entities - The company has not entered into any off-balance sheet arrangements or holdings in variable interest entities[108] Critical Accounting Polices and Estimates This section states that there have been no significant changes to critical accounting policies and estimates - There have been no significant changes in critical accounting policies and estimates compared to the Annual Report on Form 10-K for the year ended December 31, 2020[109] Recent Accounting Pronouncements This section refers to Note 2 for information on recent accounting pronouncements - Refer to Note 2 of the condensed consolidated financial statements for information on recent accounting pronouncements[110] JOBS Act Accounting Election This section explains the company's election as an emerging growth company to use an extended transition period for new accounting standards - As an emerging growth company, 89bio has elected to use the extended transition period for complying with new or revised accounting standards, which may result in non-comparable financial statements[111][112] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, 89bio, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[113] Item 4. Controls and Procedures Management, with the participation of the principal executive and financial officers, evaluated the company's disclosure controls and procedures as effective as of March 31, 2021, with no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021 - Management concluded that disclosure controls and procedures were effective as of March 31, 2021, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[115] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2021 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2021[116] PART II. OTHER INFORMATION This part contains other required information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[119] Item 1A. Risk Factors This section outlines significant risks associated with investing in 89bio's common stock, covering its limited operating history, dependence on BIO89-100, and need for additional capital Risk Factor Summary This summary highlights the key risks, including the company's clinical-stage status, dependence on BIO89-100, and need for additional capital - Key risks include the company's clinical-stage status with no approved products, expected significant operating losses, dependence on BIO89-100, lengthy and uncertain clinical development, potential delays due to COVID-19, reliance on third-party manufacturers, need for substantial additional capital, and intense competition[121][123] Risks Related to Our Business and Industry This section details risks concerning the company's limited operating history, COVID-19 impact, reliance on BIO89-100, and competition - The company has a limited operating history, no commercial products, and has incurred net losses since inception, expecting continued significant losses, making it a highly speculative investment[124][126] - The COVID-19 pandemic has caused and may continue to cause significant disruptions to clinical trials, including enrollment challenges, and supply chain, potentially delaying regulatory approval for BIO89-100[129][130][131][134] - The business heavily relies on the success of BIO89-100, its only product candidate in clinical development, and failure to obtain regulatory approval or commercialize it would materially harm the business[135] - Clinical drug development is lengthy, expensive, and uncertain, with high failure rates, and early-stage results are not predictive of later-stage outcomes[136][137] - Delays in clinical testing, difficulties in patient enrollment, or undesirable side effects could adversely affect commercial prospects, increase costs, and harm the business[138][140][141] - Developing BIO89-100 for NASH, an indication with no approved products, makes predicting timing and costs difficult due to an evolving regulatory approval process[142][144] - Negative results from third-party FGF product candidate trials could adversely affect 89bio's stock price and development program[146] - The company relies on a sole third-party manufacturer (BTPH) for BIO89-100, and any failure or disruption could delay clinical trials, regulatory approvals, or commercialization[148][154] - Manufacturing biologic products is complex and subject to risks like production difficulties, quality control issues, and compliance with cGMP, which could increase costs and limit supply[155] - Substantial additional capital is required to finance operations, and if unavailable on acceptable terms, it could force delays or abandonment of development and commercialization plans[156][157] - The biopharmaceutical industry is highly competitive, with numerous companies developing therapies for liver and cardio-metabolic diseases, posing risks to market acceptance and commercial success[161][164] - Unstable market and economic conditions could make financing difficult and impact the ability of service providers to meet commitments[165] - The Loan Agreement with Silicon Valley Bank contains covenants that could restrict operations, and an event of default could force early repayment of indebtedness[167] - Difficulties in managing growth, attracting and retaining skilled employees, and developing new drug product formulations could adversely affect operations and business strategy[168][169][170] - Reliance on third parties for product development, failure to develop additional product candidates, and resource allocation decisions pose risks to business growth and opportunities[172][173][174] - International operations expose the company to various business, regulatory, political, and financial risks[177] - Product liability lawsuits and misconduct by employees or third parties could lead to substantial liabilities, reputational harm, and disruptions[179][180] - Information technology system failures or security breaches could disrupt development programs, lead to data loss, and harm reputation and financial condition[181][182] Risks Related to Regulatory Approvals This section addresses the challenges and uncertainties associated with obtaining and maintaining regulatory approval for BIO89-100 - BIO89-100 has not received regulatory approval, and the lengthy, unpredictable approval process by the FDA and foreign authorities may prevent or delay commercialization[183][187] - If approved, BIO89-100 could still face revocation of approval or costly product liability claims if harmful side effects emerge post-marketing[186] - Ongoing regulatory requirements post-approval, including manufacturing compliance and safety surveillance, could lead to restrictions, recalls, or withdrawal of the product if not met[189] Risks Relating to Intellectual Property This section covers risks related to obtaining, maintaining, and enforcing intellectual property protection for the company's products - Success depends on obtaining and maintaining intellectual property protection for products and technologies, but there's no assurance that patent applications will issue or effectively prevent competition[190][196] - Patent terms may expire before or shortly after commercialization, limiting exclusive rights[197] - Protecting intellectual property rights globally is challenging, as legal protections vary by country, potentially allowing competitors to operate freely in some jurisdictions[198][199] - Reliance on licenses from Teva and ratiopharm for glycoPEGylation technology means termination or loss of rights under these agreements would materially affect BIO89-100's development and commercialization[200][203] - Inability to obtain necessary intellectual property rights or technology could hinder development and commercialization of product candidates[204] - Involvement in lawsuits to protect or enforce IP, or defending against infringement allegations, could be expensive, time-consuming, and unsuccessful, materially harming the business[205][209] Risks Related to Ownership of Our Common Stock This section discusses risks concerning the volatility of common stock price, potential dilution, and market perception - The market price of common stock may be volatile due to various factors, potentially leading to significant fluctuations and investor losses[211][212] - Sales of a substantial number of common stock shares, or the perception of such sales, could depress the market price[213] - Raising additional capital through equity or debt could dilute existing stockholders' ownership or impose restrictive covenants on operations[214] General Risk Factors This section outlines general risks including control by major stockholders, internal control weaknesses, and anti-takeover provisions - Directors, executive officers, and major stockholders have substantial control, potentially limiting other stockholders' influence on key matters like change of control[215] - Previous material weaknesses in internal control over financial reporting have been remediated, but future weaknesses could impact financial statements and stock price[217] - Anti-takeover provisions in corporate documents and Delaware law could prevent or delay third-party acquisitions, potentially limiting the price investors might pay for common stock[218] - Exclusive forum provisions in the certificate of incorporation may limit stockholders' ability to choose a favorable judicial forum for disputes[219] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the use of net proceeds from the company's Initial Public Offering (IPO) in November 2019, totaling $87.7 million - The company completed its IPO on November 13, 2019, issuing 6,100,390 shares at $16.00 per share, generating net proceeds of $87.7 million[220] - IPO proceeds are being used to fund the ongoing Phase 1b/2a and subsequent Phase 2b clinical trials for BIO89-100 in NASH, the Phase 2 trial in SHTG, manufacturing and scale-up of BIO89-100, and general corporate purposes[222] - There has been no material change in the intended use of IPO proceeds[223] Item 3. Default Upon Senior Securities There were no defaults upon senior securities - There were no defaults upon senior securities[224] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable - Mine safety disclosures are not applicable[225] Item 5. Other Information No other information is reported in this section - No other information is reported in this section[226] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements, corporate documents, certifications, and XBRL taxonomy documents - The exhibits include the First and Second Amendments to the Loan and Security Agreement, certifications of principal executive and financial officers, and XBRL instance and taxonomy documents[228] Signatures The report was signed by Rohan Palekar, Chief Executive Officer, and Ryan Martins, Chief Financial Officer, on May 13, 2021 - The report was signed by Rohan Palekar, Chief Executive Officer, and Ryan Martins, Chief Financial Officer, on May 13, 2021[233]