Mirum(MIRM) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, fair value measurements, financial instruments, accrued expenses, revenue interest purchase agreement, asset acquisitions, collaboration agreements, leases, stockholders' equity, stock-based compensation, contingencies, and subsequent events Condensed Consolidated Balance Sheets This table presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | Metric | Dec 31, 2020 | Jun 30, 2021 | Change | | :-------------------------------- | :----------- | :----------- | :------- | | Cash and cash equivalents | $142,086 | $91,938 | $(50,148) | | Short-term investments | $89,734 | $131,913 | $42,179 | | Total current assets | $236,350 | $228,366 | $(7,984) | | Total assets | $240,864 | $247,668 | $6,804 | | Total current liabilities | $18,462 | $29,028 | $10,566 | | Revenue interest liability, net | $47,651 | $120,610 | $72,959 | | Total liabilities | $68,769 | $151,931 | $83,162 | | Total stockholders' equity | $172,095 | $95,737 | $(76,358) | Condensed Consolidated Statements of Operations This table outlines the company's financial performance over specific periods, including revenue, operating expenses, and net loss Condensed Consolidated Statements of Operations (in thousands) | Metric | 3 Months Ended Jun 30, 2021 | 3 Months Ended Jun 30, 2020 | Change | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :-------------------------- | :-------------------------- | :-------------------- | | License revenue | $11,000 | $0 | $11,000 | $11,000 | $0 | $11,000 | | Research and development | $35,048 | $18,555 | $16,493 | $73,182 | $35,895 | $37,287 | | General and administrative | $13,353 | $5,042 | $8,311 | $22,832 | $9,734 | $13,098 | | Total operating expenses | $48,401 | $23,597 | $24,804 | $96,014 | $45,629 | $50,385 | | Loss from operations | $(37,401) | $(23,597) | $(13,804) | $(85,014) | $(45,629) | $(39,385) | | Interest income | $80 | $405 | $(325) | $229 | $1,154 | $(925) | | Interest expense | $(4,776) | $0 | $(4,776) | $(8,157) | $0 | $(8,157) | | Change in fair value of derivative liability | $(1,272) | $0 | $(1,272) | $(938) | $0 | $(938) | | Net loss | $(43,894) | $(23,251) | $(20,643) | $(94,426) | $(44,561) | $(49,865) | | Net loss per share, basic and diluted | $(1.45) | $(0.93) | $(0.52) | $(3.13) | $(1.79) | $(1.34) | Condensed Consolidated Statements of Comprehensive Loss This table details the company's comprehensive loss, including net loss and other comprehensive income or loss components Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 3 Months Ended Jun 30, 2021 | 3 Months Ended Jun 30, 2020 | Change | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Net loss | $(43,894) | $(23,251) | $(20,643) | $(94,426) | $(44,561) | $(49,865) | | Other comprehensive gain (loss): | | | | | | | | Unrealized gain (loss) on available-for-sale investments | $(16) | $339 | $(355) | $(90) | $190 | $(280) | | Cumulative translation adjustments | $3 | $3 | $0 | $(6) | $(1) | $(5) | | Comprehensive loss | $(43,907) | $(22,909) | $(20,998) | $(94,522) | $(44,372) | $(50,150) | Condensed Consolidated Statements of Stockholders' Equity This table summarizes changes in the company's stockholders' equity over time, reflecting net loss, stock issuances, and stock-based compensation Changes in Stockholders' Equity (in thousands) | Metric | Dec 31, 2020 | Jun 30, 2021 | | :-------------------------------- | :----------- | :----------- | | Total Stockholders' Equity | $172,095 | $95,737 | | Net loss (6 months) | N/A | $(94,426) | | Issuance of common stock in public offering, net | N/A | $7,038 | | Stock-based compensation (6 months) | N/A | $10,108 | Condensed Consolidated Statements of Cash Flows This table presents the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Net cash used in operating activities | $(65,409) | $(35,345) | $(30,064) | | Net cash (used in) provided by investing activities | $(57,239) | $61,734 | $(118,973) | | Net cash provided by financing activities | $72,506 | $44,684 | $27,822 | | Net (decrease) increase in cash and cash equivalents | $(50,148) | $71,072 | $(121,220) | | Cash and cash equivalents at end of period | $91,938 | $83,042 | $8,896 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements Note 1. Organization and Description of Business This note describes the company's core business, its focus on liver disease therapies, and its financial history of operating losses - Mirum Pharmaceuticals, Inc. is a biopharmaceutical company focused on developing and commercializing novel therapies for debilitating liver diseases, with product candidates maralixibat and volixibat[28] - The company has a limited operating history, incurred significant operating losses since inception, and expects to continue incurring substantial losses due to research and development activities[31] Financial Position (as of June 30, 2021, in millions) | Metric | Amount | | :------------------------------- | :------------------- | | Accumulated deficit | $(267.6) | | Cash, cash equivalents and investments | $238.8 | Note 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and estimates used in preparing the financial statements, including compliance with U.S. GAAP and SEC regulations - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC regulations[32] - Significant estimates include revenue interest liability, accrued research and development expenses, derivative liability valuation, equity award compensation, and valuation allowance of deferred tax assets[33] - The company adopted ASU No. 2018-18 on January 1, 2021, with no impact, and is evaluating ASU No. 2016-13 (Credit Losses) and ASU No. 2020-06 (Convertible Instruments) for future impact[47][50][51] Note 3. Fair Value Measurements This note provides details on the fair value measurements of financial instruments, categorizing them by valuation inputs Fair Value Measurements of Financial Instruments (in thousands) | Financial Instrument | June 30, 2021 (Total) | December 31, 2020 (Total) | | :-------------------------------- | :-------------------- | :------------------------ | | Money market fund | $84,081 | $127,783 | | Commercial paper | $126,908 | $41,460 | | U.S. government bonds | $19,995 | $5,066 | | Total financial assets | $230,984 | $229,513 | | Derivative liability | $2,202 | $1,264 | Note 4. Financial Instruments This note details the company's cash equivalents and investments, including their amortized cost and estimated fair value Cash Equivalents and Investments (as of June 30, 2021, in thousands) | Financial Instrument | Amortized Cost | Estimated Fair Value | | :-------------------------------- | :------------- | :------------------- | | Money market fund | $84,081 | $84,081 | | Commercial paper | $126,908 | $126,908 | | U.S. government bonds | $20,004 | $19,995 | | Total cash equivalents and investments | $230,993 | $230,984 | - As of June 30, 2021, $131.9 million of available-for-sale debt securities are due within one year, and $15.0 million are due in one to two years[58] Note 5. Accrued Expenses This note provides a breakdown of accrued expenses, including clinical trials, milestone payments, and professional service fees Accrued Expenses (in thousands) | Accrued Expense | June 30, 2021 | December 31, 2020 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Accrued clinical trials | $5,054 | $3,673 | $1,381 | | Accrued milestone payments | $2,000 | $0 | $2,000 | | Accrued professional service fees | $3,459 | $2,157 | $1,302 | | Accrued contract manufacturing and non-clinical costs | $5,732 | $2,780 | $2,952 | | Accrued compensation and related benefits | $4,530 | $4,801 | $(271) | | Total accrued expenses | $20,775 | $13,411 | $7,364 | Note 6. Revenue Interest Purchase Agreement This note details the financing received through the RIPA, the tiered revenue interests, and the associated liability and interest expense - The company received $115.0 million in financing through the RIPA ($50.0 million upfront in Dec 2020, $65.0 million in April 2021 upon FDA NDA acceptance for maralixibat in ALGS)[60] - Purchasers have the right to receive tiered revenue interests (initially 9.75% at Tier 1, 2.0% at Tier 2/3) based on annual net sales of maralixibat, with terms for reduction or increase based on cumulative payments and a termination cap at 195.0% of cumulative payments[64][65] Revenue Interest Liability (in thousands) | Metric | December 31, 2020 | June 30, 2021 | | :-------------------------------- | :---------------- | :------------ | | Revenue interest liability | $47,651 | $120,610 | | Interest expense recognized (6 months) | N/A | $8,157 | Note 7. Asset Acquisitions This note describes the acquisition of exclusive licenses for maralixibat and volixibat from Shire and the associated milestone payment obligations - In November 2018, Mirum acquired exclusive worldwide licenses for maralixibat and volixibat from Shire, including sub-licenses from Satiogen, Pfizer, and Sanofi[73] - The company is obligated to pay Shire up to $109.5 million for maralixibat and $30.0 million for volixibat in clinical/regulatory milestones, plus $30.0 million in product sales milestones and tiered royalties[74] - Development milestones paid in 2020-2021 include $10.0 million for EMA MAA filing (PFIC2), $2.0 million for VISTAS Phase 2b (volixibat in PSC), $15.0 million for ALGS Phase 3 initiation and FDA NDA acceptance, and $2.0 million for EMBARK Phase 2b (maralixibat in BA)[74] Note 8. Collaboration and License Agreements This note details various collaboration and licensing agreements, including those with Vivet Therapeutics, CANbridge Pharmaceuticals, and GC Pharma, and their financial implications - In April 2021, Mirum entered an Option, License and Collaboration Agreement with Vivet Therapeutics SAS for two AAV gene therapy programs for PFIC (subtypes 3 and 2), paying an upfront fee of $4.2 million and recording $10.5 million in R&D expense for the six months ended June 30, 2021[80][81] - In April 2021, Mirum granted CANbridge Pharmaceuticals, Inc. exclusive rights to develop and commercialize maralixibat in Greater China, receiving an $11.0 million upfront payment recognized as license revenue[82] - In July 2021 (subsequent event), Mirum entered an exclusive licensing agreement with GC Pharma for maralixibat in South Korea, entitling Mirum to a $5.0 million upfront payment and future milestones/royalties[110] Note 9. Leases This note describes the company's operating lease for office space, including its terms and associated right-of-use asset and lease liability - The company has an operating lease for office space, amended in November 2019 to extend the term through March 2025 and expand space[83][84][85] Lease Information (as of June 30, 2021, in thousands) | Metric | Amount | | :-------------------------------- | :-------------------- | | ROU asset | $1,758 | | Lease liability | $2,942 | | Weighted-average remaining lease term | 3.6 years | Note 10. Stockholders' Equity This note details changes in stockholders' equity, including public offerings and the number of common shares outstanding and reserved for issuance - In January 2020, the company completed a public offering of 2,400,000 shares, raising $44.7 million net proceeds[87] - In December 2020/January 2021, the company completed an underwritten public offering, selling 3,750,000 shares and 375,654 shares (underwriter option), raising $70.0 million and $7.1 million net proceeds, respectively[89] Common Stock and Shares Reserved for Issuance | Metric | As of June 30, 2021 | As of December 31, 2020 | | :-------------------------------- | :------------------ | :---------------------- | | Common stock outstanding | 30,506,433 shares | 29,776,544 shares | | Total common stock reserved for issuance | 9,484,950 shares | 8,343,673 shares | Note 11. Stock-Based Compensation This note provides information on stock-based compensation expense, unrecognized compensation, and performance share unit details Total Stock-Based Compensation (in thousands) | Metric | 3 Months Ended Jun 30, 2021 | 3 Months Ended Jun 30, 2020 | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total stock-based compensation | $4,823 | $2,974 | $10,108 | $5,547 | - As of June 30, 2021, total unrecognized stock-based compensation related to unvested stock option awards was $48.1 million, expected to be recognized over approximately 2.8 years[96] - No expense was recognized for PSUs during the six months ended June 30, 2021, as the NDA Approval performance condition was not met; total unrecognized PSU compensation was $3.4 million[104] Note 12. Contingencies This note addresses potential liabilities from government regulations, claims, and legal actions, and the company's assessment of their financial impact - The company is subject to potential liabilities from government regulations and various claims and legal actions arising in the ordinary course of business[108] - No accruals for loss contingencies were recorded as of the reporting period, as no unfavorable outcomes were deemed probable or reasonably estimable[109] Note 13. Subsequent Event This note discloses a significant event occurring after the reporting period, specifically a new licensing agreement with GC Pharma for maralixibat in South Korea - In July 2021, Mirum entered an exclusive licensing agreement with GC Pharma for maralixibat in South Korea for ALGS, PFIC, and biliary atresia[110] - The agreement includes a $5.0 million upfront payment, R&D funding, up to $23.0 million in future regulatory/commercial milestones, and double-digit tiered royalties on net sales[110] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting its focus on late-stage liver disease therapies, recent financing activities, and the impact of the COVID-19 pandemic. It details the components of revenue and expenses, critical accounting policies, and a comparative analysis of financial results for the three and six months ended June 30, 2021 and 2020, along with discussions on liquidity, capital resources, contractual obligations, and JOBS Act status Overview This overview introduces Mirum Pharmaceuticals as a biopharmaceutical company focused on developing and commercializing therapies for orphan cholestatic liver diseases, highlighting its key product candidates and limited operating history - Mirum Pharmaceuticals is a biopharmaceutical company focused on developing and commercializing late-stage novel therapies for debilitating liver diseases, specifically orphan cholestatic liver diseases[115] - Key product candidates include maralixibat (for ALGS, PFIC, biliary atresia) and volixibat (for PSC, ICP, PBC), with maralixibat's NDA for ALGS accepted by the FDA for priority review and a potential US launch in H2 2021[115] - The company has a limited operating history, has incurred significant operating losses since inception in 2018, and has not generated any revenue from product sales[116][117] Financing Transactions This section summarizes the company's recent financing activities, including public offerings and the Revenue Interest Purchase Agreement, detailing the net proceeds received - In January 2020, a follow-on public offering generated $44.7 million in net proceeds[118] - In December 2020 and January 2021, an underwritten public offering and subsequent underwriter option exercise generated $70.0 million and $7.1 million in net proceeds, respectively[121] - The Revenue Interest Purchase Agreement (RIPA) provided $115.0 million ($50.0 million upfront, $65.0 million in April 2021) with potential for an additional $85.0 million, in exchange for tiered revenue interests on maralixibat net sales[122] Financial Overview This overview presents key financial metrics such as net loss, accumulated deficit, and cash position, and discusses expected increases in expenses due to ongoing development and commercialization efforts Financial Overview (in millions) | Metric | 3 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2021 | As of Jun 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------------- | | Net loss | $(43.9) | $(94.4) | N/A | | Accumulated deficit | N/A | N/A | $(267.6) | | Cash, cash equivalents and investments | N/A | N/A | $238.8 | - Expenses and operating losses are expected to increase substantially due to ongoing clinical trials, R&D, commercial preparation for maralixibat, regulatory approvals, and intellectual property protection[125] - The company does not expect to generate revenue from product sales until successful development and regulatory approval of product candidates, which could take years[126] COVID-19 This section discusses the impact of the COVID-19 pandemic on clinical trials, potential delays in operations, and the overall financial condition and liquidity of the company - The COVID-19 pandemic has impacted patient enrollment in the Phase 3 MARCH clinical trial, with some sites pausing enrollment and patients choosing not to participate, potentially delaying the trial[215] - Potential future impacts include delays in clinical trials, disruptions to manufacturing and supply chains, interruptions in FDA/regulatory operations, and challenges in raising capital[214][216][219][220] - While no significant financial impact was seen for the six months ended June 30, 2021, prolonged pandemic effects could materially impact operations, financial condition, liquidity, and cash flows[128][130] License Agreements This section outlines key license and collaboration agreements, including those with Shire, Vivet, CANbridge, and GC Pharma, detailing their terms and financial implications - The Shire License Agreement (Nov 2018) granted exclusive worldwide rights for maralixibat and volixibat, with $30.0 million in development milestones paid between July 2019 and July 2021[131][132] - The Vivet Collaboration Agreement (Apr 2021) involves funding non-clinical development for PFIC3 and PFIC2 gene therapies, with an upfront fee of $4.2 million and $6.3 million in R&D funding paid in the first six months of 2021[134][135] - The CANbridge licensing agreement (Apr 2021) granted exclusive rights for maralixibat in Greater China, including an $11.0 million upfront payment and potential future milestones/royalties[136] - The GC Pharma licensing agreement (Jul 2021) granted exclusive rights for maralixibat in South Korea, including a $5.0 million upfront payment and potential future milestones/royalties[138] Components of Results of Operations This section explains the recognition of license revenue, the expensing of research and development costs, the nature of general and administrative expenses, and other income/expense items - License revenue is recognized from upfront payments related to license grants upon satisfaction of performance obligations, with milestone and royalty payments recognized upon resolution of uncertainty or sales occurrence[139][151] - Research and development expenses are expensed as incurred, primarily covering clinical development, manufacturing, licensing milestone payments, and collaboration funding[140][141] - General and administrative expenses include salaries, facility costs, legal fees, and professional fees, expected to increase with expanded operations and commercial preparation[142][143] - Other income/expense includes interest income from cash/investments, interest expense from the RIPA, and changes in the fair value of the derivative liability[144][145][146] Critical Accounting Policies and Estimates This section identifies the critical accounting policies and estimates that require significant judgment, including accrued research and development expenditures, revenue interest liability, and stock-based compensation - Critical accounting policies and estimates include accrued research and development expenditures, revenue interest liability, and stock-based compensation[149] Results of Operations for the Three Months Ended June 30, 2021 and 2020 This section provides a comparative analysis of the company's financial performance for the three months ended June 30, 2021 and 2020, detailing changes in revenue, expenses, and net loss Results of Operations (Three Months Ended June 30, in thousands) | Metric | 2021 | 2020 | Change | | :-------------------------------- | :----------- | :----------- | :------- | | License revenue | $11,000 | $0 | $11,000 | | Research and development | $35,048 | $18,555 | $16,493 | | General and administrative | $13,353 | $5,042 | $8,311 | | Interest expense | $(4,776) | $0 | $(4,776) | | Change in fair value of derivative liability | $(1,272) | $0 | $(1,272) | | Net loss | $(43,894) | $(23,251) | $(20,643) | - R&D expense increase was primarily due to $10.5 million in Vivet Collaboration Agreement expenditures, $2.3 million in personnel costs, $2.9 million for volixibat clinical trials, and $2.0 million in development milestone payments for maralixibat in BA[157] - G&A expense increase was mainly due to $3.8 million in professional/consulting services for commercial preparation, $3.2 million in personnel costs (including stock-based compensation), and $1.0 million for legal/public relations[158] Results of Operations for the Six Months Ended June 30, 2021 and 2020 This section provides a comparative analysis of the company's financial performance for the six months ended June 30, 2021 and 2020, detailing changes in revenue, expenses, and net loss Results of Operations (Six Months Ended June 30, in thousands) | Metric | 2021 | 2020 | Change | | :-------------------------------- | :----------- | :----------- | :------- | | License revenue | $11,000 | $0 | $11,000 | | Research and development | $73,182 | $35,895 | $37,287 | | General and administrative | $22,832 | $9,734 | $13,098 | | Interest expense | $(8,157) | $0 | $(8,157) | | Change in fair value of derivative liability | $(938) | $0 | $(938) | | Net loss | $(94,426) | $(44,561) | $(49,865) | - R&D expense increase was primarily due to $19.0 million in development milestone payments, $10.5 million in Vivet Collaboration Agreement expenditures, $4.7 million in personnel costs, and $4.1 million in volixibat clinical trial expenses[164] - G&A expense increase was mainly due to $5.7 million in professional/consulting services for commercial preparation and $5.6 million in personnel costs (including stock-based compensation)[166] Liquidity and Capital Resources This section discusses the company's cash position, its ability to fund operations for the next 12 months, and future financing strategies to support product development and commercialization Liquidity and Capital Resources (in millions) | Metric | As of June 30, 2021 | As of December 31, 2020 | | :-------------------------------- | :------------------ | :---------------------- | | Cash, cash equivalents and investments | $238.8 | $231.8 | | Accumulated deficit | $267.6 | N/A | - Management believes current cash, cash equivalents, and investments are sufficient to fund operations for at least the next 12 months[176] - Future cash needs are expected to be financed through equity offerings, debt financings, revenue interest purchase agreements, and potential collaboration/license agreements, which may lead to dilution or restrictive covenants[179][180] Cash Flows This section analyzes the company's cash flows from operating, investing, and financing activities, highlighting key drivers of changes over the reporting periods Cash Flow Summary (in thousands) | Metric | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Net cash used in operating activities | $(65,409) | $(35,345) | $(30,064) | | Net cash (used in) provided by investing activities | $(57,239) | $61,734 | $(118,973) | | Net cash provided by financing activities | $72,506 | $44,684 | $27,822 | - Net cash used in operating activities increased due to a higher net loss and changes in operating assets and liabilities, including a $9.9 million increase in accounts payable and accrued expenses[182] - Net cash used in investing activities was primarily due to $129.3 million in purchases of investments, partially offset by $70.1 million from maturities and $2.0 million from paydowns of investments[185] - Net cash provided by financing activities was driven by $64.6 million from the RIPA and $6.9 million from common stock issuance in a public offering[187] Contractual Obligations and Commitments This section outlines the company's contractual obligations and commitments, including funding under the Vivet Collaboration Agreement and contingent payment obligations under license agreements - No material changes in contractual obligations were reported, except for a commitment to fund up to an additional €10.7 million under the Vivet Collaboration Agreement for six months[190][191] - The company has contingent payment obligations under license agreements for future development, regulatory, and commercial milestones, which are not estimable in timing or likelihood[194] JOBS Act This section clarifies the company's status as an emerging growth company and smaller reporting company under the JOBS Act, and its election regarding accounting standards - Mirum is an emerging growth company (EGC) and a smaller reporting company, benefiting from reduced reporting requirements under the JOBS Act[196][452][455] - The company has irrevocably elected not to use the extended transition period for complying with new or revised financial accounting standards[196][453] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate risk and foreign currency rate risk. It notes that while interest income is sensitive to rate changes, the short-term nature of investments mitigates material impact. However, the revenue interest liability's interest rate is sensitive to forecasted net sales. Foreign currency risk arises from international operations and vendor contracts, which the company mitigates with hedging arrangements Interest Rate Risk This section addresses the company's exposure to interest rate fluctuations, particularly concerning its cash, investments, and the revenue interest liability - Primary market risk exposure is interest income sensitivity from cash, cash equivalents, and investments, but due to short-term instruments, a sudden change in interest rates is not expected to have a material impact[199] - The interest rate on the revenue interest liability (RIPA) may vary based on forecasted net sales, which could materially impact the liability, interest expense, and repayment period[200] Foreign Currency Rate Risk This section discusses the company's exposure to foreign currency exchange rate risk from international operations and vendor contracts, and its use of hedging to mitigate this risk - Operations in the U.S. and Switzerland, and contracts with foreign vendors, expose the company to foreign currency exchange rate risk, mainly with the Swiss Franc and Euro[201] - The company does not currently believe foreign currency risk has a significant impact and uses hedging arrangements to mitigate it[201] Effects of Inflation This section assesses the impact of inflation on the company's costs, noting its primary effect on labor and clinical trial expenses - Inflation primarily affects labor and clinical trial costs, but has not had a significant impact on results of operations for the periods presented[202] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter. Management, with CEO and CFO oversight, concluded that controls were effective in ensuring timely and accurate financial reporting Evaluation of Disclosure Controls and Procedures This section details management's conclusion, with CEO and CFO oversight, that disclosure controls and procedures were effective as of June 30, 2021 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of June 30, 2021[203] - These controls provide reasonable assurance that required information is recorded, processed, summarized, and reported within specified time periods and communicated to management for timely decisions[203] Changes in Internal Control over Financial Reporting This section reports that no material changes in internal control over financial reporting occurred during the three months ended June 30, 2021 - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2021[205] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety disclosures, other information, exhibits, and signatures Item 1. Legal Proceedings The company is subject to potential legal proceedings in the ordinary course of business but currently believes there are no claims or actions pending that could have a material adverse effect on its results of operations, financial condition, or cash flows - The company may be involved in legal proceedings from the ordinary course of business[207] - Management believes no current claims or actions could have a material adverse effect on results of operations, financial condition, or cash flows[207] Item 1A. Risk Factors An investment in the company's common stock involves a high degree of risk, encompassing challenges related to its limited operating history, dependence on product candidates, clinical trial delays, extensive regulation, market acceptance, competition, and substantial financing needs. Additional risks include reliance on third parties, intellectual property protection, and factors affecting stock ownership and trading - Investment in the company's common stock involves a high degree of risk, as detailed in the report[208] Risks Related to Our Business and Industry This section outlines risks inherent to the company's business, including its limited operating history, dependence on product candidates, potential clinical trial delays, regulatory challenges, and market acceptance issues - The company has a very limited operating history, has incurred significant losses since inception, and anticipates continued substantial losses, with no products approved for commercial sale or revenue from product sales to date[209][210][211] - Business success is dependent on the success of product candidates (maralixibat and volixibat), which require significant clinical testing, regulatory approval, and market acceptance, with inherent risks of failure or delays in trials[223][232] - Clinical trials face risks of delays and difficulties in patient enrollment (exacerbated by COVID-19), potential failure to demonstrate safety and efficacy, and extensive, costly regulatory compliance that may cause unanticipated delays or prevent approvals[215][229][233][243] - Even if approved, product candidates may not gain market acceptance, and market opportunities for rare diseases may be smaller than estimated, impacting profitability[267][249] Risks Related to Our Reliance on Third Parties This section details risks associated with the company's dependence on third parties for intellectual property licensing, clinical trial execution, and manufacturing of drug supplies - The company depends on intellectual property licensed from third parties (Shire, Satiogen, Pfizer, Sanofi), and termination of these licenses would result in the loss of significant rights and harm the business[342] - Reliance on third-party CROs for clinical trials means the company is responsible for compliance with GCPs, and CRO failures or non-compliance could lead to unreliable data, trial delays, or termination[344][345] - The company relies completely on third-party contract manufacturers for preclinical, clinical, and future commercial drug supplies, facing risks of regulatory non-approval of facilities, production difficulties, and supply disruptions[348][349][350] Risks Related to Our Financial Position and Capital Requirements This section addresses the company's need for substantial additional financing, the potential for dilution or restrictive covenants from capital raising, and the payment obligations under the Revenue Interest Purchase Agreement - The company needs substantial additional financing for product development and commercialization, with current capital sufficient for at least the next 12 months, but changing circumstances could accelerate capital consumption[353][354] - Failure to obtain additional financing on acceptable terms could force delays, reductions, or termination of product development programs or commercialization efforts[355] - Raising additional capital through equity or convertible debt will dilute existing stockholders, while debt financing may involve restrictive covenants[357] - Payment obligations under the RIPA increase cash outflows and could lead to default, foreclosure on assets, or increased vulnerability to adverse conditions if not met[359][430] Risks Related to Our Intellectual Property This section discusses the challenges of obtaining and maintaining intellectual property protection, the uncertainties of the patent process, reliance on weaker patent types, and the risks of global enforcement and third-party infringement claims - Commercial success depends on obtaining and maintaining sufficient intellectual property protection, primarily through patents, trade secret protection, and confidentiality agreements[362] - The patent application process is uncertain, expensive, and time-consuming, with risks that patents may not issue, be challenged, or provide sufficient competitive advantage[364][365][366] - The company relies on method-of-use and formulation patents for maralixibat, which are generally considered weaker than composition-of-matter patents, making it difficult to prevent off-label use or competition[376][377] - Protecting intellectual property globally is expensive and challenging due to varying laws and enforcement strengths, potentially limiting the ability to prevent infringement in foreign countries[381][382] - Third-party claims alleging intellectual property infringement could prevent or delay drug development, incur substantial expenses, and divert management attention[393][395][397] Risks Related to Ownership of Our Common Stock This section addresses the high volatility of the common stock price, the significant control exerted by principal stockholders, potential dilution from future stock issuances, the absence of dividends, and anti-takeover provisions - The trading price of common stock is highly volatile, influenced by clinical trial results, regulatory decisions, competition, and broader market factors[421][423][424] - Principal stockholders and management own a significant percentage of stock, enabling them to exert substantial control over matters requiring stockholder approval[426] - Future sales and issuances of common stock or rights to purchase common stock, including through equity incentive plans, could result in additional dilution and cause the stock price to fall[427][428][433][435] - The company does not intend to pay dividends, so stockholder returns are limited to stock appreciation[425] - Anti-takeover provisions in charter documents and Delaware law could delay or prevent a change of control, potentially limiting the market price of common stock[439][440] General Risk Factors This section covers general risks including cybersecurity vulnerabilities, compliance with complex privacy and data protection laws, potential impacts of Brexit, product liability lawsuits, and the implications of being an emerging growth company - Computer systems, including those of third parties, are vulnerable to cybersecurity incidents and disruptions, which could lead to theft of intellectual property, operational delays, and significant liabilities[444][447] - The company is subject to complex and evolving U.S. and foreign laws and regulations related to privacy and data protection (e.g., GDPR, CCPA), with non-compliance potentially resulting in substantial fines, regulatory actions, and reputational damage[325][332][333][335] - Brexit may adversely impact regulatory approvals in the EU, impose restrictions or taxes on imports, and require additional expenses for developing, manufacturing, and commercializing products in the region[337][339] - Product liability lawsuits, even if successfully defended, could result in substantial liabilities, limit commercialization, and divert resources[340] - As an emerging growth company and smaller reporting company, the company benefits from reduced reporting requirements, which may make its common stock less attractive to some investors[452] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds were reported[464] Item 3. Defaults Upon Senior Securities This item is not applicable for the reporting period - This item is not applicable[465] Item 4. Mine Safety Disclosures This item is not applicable for the reporting period - This item is not applicable[466] Item 5. Other Information There is no other information to report for the period - No other information to report[467] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Amended and Restated Certificate of Incorporation, Bylaws, Common Stock Certificate, Investors' Rights Agreement, and various certifications (31.1, 31.2, 32.1, 32.2) and XBRL documents - The exhibits include corporate governance documents (Certificate of Incorporation, Bylaws), stock-related agreements (Common Stock Certificate, Investors' Rights Agreement), and required certifications (31.1, 31.2, 32.1, 32.2) and XBRL documents[469] Signatures The report is duly signed on August 5, 2021, by Christopher Peetz, President and Chief Executive Officer, and Ian Clements, Ph.D., Chief Financial Officer - The report was signed on August 5, 2021, by Christopher Peetz (President and CEO) and Ian Clements, Ph.D. (CFO)[473]