The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended
December 31, 2021and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission(SEC) on February 24, 2022. Past operating results are not necessarily indicative of results that may occur in future periods. In addition, see the discussion under the heading "Forward-Looking Statements" immediately preceding the consolidated financial statements included under Part I of this Quarterly Report on Form 10-Q.
We are a biopharmaceutical company headquartered in
Uncertainty related to the COVID-19 pandemic
While the impact of the ongoing COVID-19 pandemic did not have a material adverse effect on our financial position or results of operations for the nine months ended
September 30, 2022, we have been monitoring the developments and assessing areas where there is potential for our business to be impacted. As of September 30, 2022and as of the date of this report, the majority of our labor force is still working remotely, at least part of the time, which could, among other things, negatively impact our ability to conduct research and development activities, engage in sales-related initiatives, or efficiently conduct day-to-day operations. Remote work operations also heighten the risk of cyber-attacks and make it more difficult for companies to protect their confidential information. Circumstances arising from the pandemic have slowed and could continue to slow the pace of enrollment in our clinical trials or otherwise hinder patients' abilities to comply with the clinical trial protocols and could ultimately delay the availability of results and analysis of outcomes. Disruptions in the supply chain could negatively impact our ability to source materials or manufacture and distribute product. While to date we have not experienced a material reduction in demand for our commercialized products as a result of the pandemic, we could experience a decrease in new patient identification and increased requests for patient assistance due to increased levels of unemployment, either of which would negatively impact our revenues and hinder our cash flows. Similarly, we could face challenges with regard to healthcare programs, including access and changes in coverage. Growth in revenue could also be impeded by these factors. The financial markets have been subject to significant volatility that, together with rising interest rates, could impact our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing activities. We had $506.3 millionin cash and cash equivalents and marketable debt securities as of September 30, 2022, which we believe provides sufficient capital to fund our operations for at least the next twelve months. While we have not yet experienced a material impact to date, the full magnitude of the pandemic cannot be measured at this time, and therefore any of the aforementioned circumstances, as well as other factors, may cause our results of operations to vary substantially from year to year and quarter to quarter. 23
Our Pipeline and Approved Products
We have a diverse pipeline designed to address high unmet needs in rare kidney, liver and metabolic diseases. We invest revenues from our commercial portfolio in our pipeline with the goal of providing new treatments for diseases without approved therapies.
The following table summarizes the status of our clinical programs, preclinical programs and approved products, each of which is described in further detail below.
[[Image Removed: tvtx-20220930_g1.jpg]]*Pegtibatinase (TVT-058) is currently in a Phase 1/2 clinical study. ** CDCA is not indicated for CTX but has received a determination of medical necessity in
in the United States by the FDA for CTX.
review the safety and efficacy of CDCA (Chenodal®) for the treatment of CTX.
Clinical Programs Sparsentan Sparsentan, a Dual Endothelin Angiotensin Receptor Antagonist (DEARA), is a novel investigational product candidate. Pre-clinical data have shown that blockade of both endothelin type A and angiotensin II type 1 pathways in forms of rare chronic kidney disease, reduces proteinuria, protects podocytes and prevents glomerulosclerosis and mesangial cell proliferation. Sparsentan has been granted Orphan Drug Designation for the treatment of FSGS and IgAN in the
U.S.and Europe. Sparsentan is currently being evaluated in two pivotal Phase 3 clinical studies in rare kidney diseases, including: •Immunoglobulin A nephropathy ("IgAN") is characterized by hematuria, proteinuria, and variable rates of progressive renal failure. With an estimated prevalence of more than 100,000 people in the United Statesand greater numbers in Europeand Asia, IgAN is the most common primary glomerular disease. Most patients are diagnosed between the ages of 16 and 35, with up to 40% progressing to end stage kidney disease within 15 years. There are currently no non-immunosuppressive treatments for IgAN approved by the FDA. The current standard of care is renin-angiotensin-aldosterone system ("RAAS") blockade with immunosuppression also being commonly used for patients with significant proteinuria or rapidly progressive glomerulonephritis. In 2018, we announced that the first patient had been dosed in the PROTECT Study, a global, randomized, multicenter, double-blind, parallel-arm, active-controlled pivotal Phase 3 clinical trial evaluating the safety and efficacy of sparsentan in 404 patients with IgAN. The PROTECT Study protocol provided for an unblinded analysis of at least 280 patients to be performed after 36 weeks of treatment to evaluate the primary efficacy endpoint - the change in proteinuria (urine protein-to-creatinine ratio) at week 36 from baseline. Secondary efficacy endpoints include the rate of change in eGFR following the initiation of randomized treatment over 58-week and 110-week periods, as well as the rate of change in eGFR over 52-week and 104-week periods following the first six weeks of randomized treatment in approximately 380 patients. In August 2021, we announced positive topline interim results from the ongoing Phase 3 PROTECT Study. The PROTECT Study met its pre-specified interim primary efficacy endpoint with statistical significance. After 36 weeks of treatment, patients receiving sparsentan achieved a mean reduction in proteinuria from baseline of 49.8 percent, compared to a mean reduction in proteinuria from baseline of 15.1 percent for irbesartan-treated patients (p<0.0001). We believe that preliminary eGFR data available at the time of the interim analysis are indicative of a potential clinically meaningful treatment effect after two years of treatment. Preliminary results at the time of the interim assessment suggested that sparsentan had been generally well-tolerated in the study and consistent with its overall observed safety profile. The PROTECT Study is fully 24
enrolled and is scheduled to continue as planned on a blinded basis to assess the treatment effect on eGFR slope over 110 weeks in the confirmatory endpoint analysis. Topline results from the confirmatory endpoint analysis are expected in the second half of 2023. In
March 2022, we submitted a New Drug Application ("NDA") to the FDA under Subpart H for accelerated approval of sparsentan for the treatment of IgAN. In May 2022, we announced that the FDA had accepted and granted Priority Review of our NDA under Subpart H for accelerated approval of sparsentan for the treatment of IgAN. The FDA originally assigned a Prescription Drug User Fee Act (PDUFA) target action date of November 17, 2022. During the late cycle review interactions, the FDA requested that we expand our proposed REMS to include liver monitoring, consistent with certain other approved products in the endothelin receptor antagonist class. In October 2022, we submitted an updated REMS plan in response to the FDA'srequest and the FDA has subsequently notified us that the PDUFA target action date has been extended to February 17, 2023.
We are currently developing our organization in preparation for the potential launch of sparsentan in
August 2022, we and Vifor (International) Ltd.("CSL Vifor"), with whom we entered into a license and collaboration agreement ("License Agreement") in September 2021, announced that the European Medicines Agency("EMA") had accepted for review the conditional marketing authorization application of sparsentan for the treatment of IgAN in Europe. A review decision is expected in the second half of 2023. •Focal segmental glomerulosclerosis ("FSGS") is a leading cause of end-stage kidney disease (ESKD) and nephrotic syndrome. There are currently no FDA-approved pharmacologic treatments for FSGS and there remains a high unmet need for patients living with FSGS as off-label treatments such as ACE/ARBs, steroids, and immunosuppressant agents are effective in only a subset of patients and use of some of these off-label treatments may be further inhibited by their safety profiles. Every year approximately 5,400 patients are diagnosed with FSGS and we estimate that there are more than 40,000 FSGS patients in the United Statesand a similar number in Europewith approximately half of them being candidates for sparsentan. In 2016, we generated positive data from our Phase 2 DUET study in FSGS. In 2018, we announced the initiation of the Phase 3 DUPLEX study of sparsentan in FSGS. The DUPLEX Study is a global, randomized, multicenter, double-blind, parallel-arm, active-controlled clinical trial evaluating the safety and efficacy of sparsentan in 371 patients. The DUPLEX Study protocol provided for an unblinded analysis of at least 190 patients to be performed after 36 weeks of treatment to evaluate the interim efficacy endpoint - the proportion of patients achieving a FSGS partial remission of proteinuria endpoint (FPRE), which is defined as urine protein-to-creatinine ratio (Up/C) ?1.5 g/g and a >40% reduction in Up/C from baseline, at week 36. In February 2021, we announced that the ongoing Phase 3 DUPLEX Study achieved its pre-specified interim FSGS partial remission of proteinuria endpoint following the 36-week interim period. After 36 weeks of treatment, 42.0 percent of patients receiving sparsentan achieved FPRE, compared to 26.0 percent of irbesartan-treated patients (p=0.0094). A preliminary review of the results from the interim analysis suggest that, as of the data cut-off, sparsentan has been generally well-tolerated and the overall safety results have been generally comparable between treatment groups. The confirmatory primary endpoint of the DUPLEX Study to support full regulatory approval is the rate of change in eGFR over 108 weeks of treatment. As of the time of the interim analyses, available long-term eGFR data for the confirmatory endpoint were limited. Consistent with the DUPLEX Study protocol, patients will continue in a blinded manner to assess the treatment effect on eGFR slope over 108 weeks in the confirmatory endpoint analysis. The DUPLEX Study is fully enrolled and topline results from the confirmatory endpoint are expected in the first half of 2023. In May 2021, we provided a regulatory update regarding the sparsentan FSGS program, including feedback from the FDA that additional data would be needed to potentially support a submission for accelerated approval under subpart H. We and the FDA subsequently aligned on a plan for us to provide the FDA with additional eGFR data from a 2022 data-cut to potentially support a submission for accelerated approval for FSGS. We provided the FDA with such additional eGFR data from the ongoing DUPLEX Study in the first half of 2022 and held a subsequent Type A meeting with the FDA to discuss the data and the potential for a submission for accelerated approval. Following review of the data, the FDA has communicated that it does not deem such data sufficiently supportive for an accelerated approval submission, but indicated that the DUPLEX Study as designed maintains the potential for full approval pending completion of the study. We are planning to continue the study to completion which is expected to occur in the first half of 2023, and file for traditional approval thereafter. Pending completion of the DUPLEX Study and data supportive of approval, we and CSL Vifor are targeting to submit by the end of 2023 a subsequent variation of sparsentan for the treatment of FSGS in Europe. If sparsentan receives marketing authorization in any of the licensed territories, CSL Vifor will be responsible for all commercialization activities in such licensed territories. We remain responsible for the clinical development of sparsentan and will retain all rights to sparsentan in the United Statesand rest of world outside of the licensed territories, provided that CSL Vifor has a right of negotiation to expand the licensed territories into Canada, China, Braziland/or Mexico.
Pegtibatinase (TVT-058) is a novel investigational human enzyme replacement candidate being evaluated for the treatment of classical homocystinuria (HCU). Classical HCU is a rare metabolic disorder characterized by elevated levels of plasma homocysteine that can lead to vision, skeletal, circulatory and central nervous system complications. It is estimated that there are at least 3,500 people living with HCU in
the United Stateswith similar numbers in Europe. Pegtibatinase has been granted Rare Pediatric Disease, Fast Track and Breakthrough Therapy designations by the FDA, as well as orphan drug designation in the United Statesand European Union. Pegtibatinase is currently being evaluated in the Phase 1/2 COMPOSE Study, a double blind, randomized, placebo-controlled dose escalation study to assess its safety, tolerability, pharmacokinetics, pharmacodynamics and clinical effects in patients with classical HCU. In December 2021, we announced positive topline results from the Phase 1/2 COMPOSE Study. Pegtibatinase demonstrated dose-dependent reductions in total homocysteine (tHcy) during the 12 weeks of treatment, and in the highest dose cohort to date evaluating 1.5mg/kg of pegtibatinase twice weekly (BIW), treatment with pegtibatinase resulted in rapid and sustained reductions in total homocysteine (tHcy) through 12 weeks of treatment, including a 55.1% mean relative reduction in tHcy from baseline as well as maintenance of tHcy below a clinically meaningful threshold of 100 ?mol. Additionally, in a dose-dependent manner in the study to date, methionine levels were substantially reduced and cystathionine levels were substantially elevated following treatment with pegtibatinase, suggesting that pegtibatinase acts in a manner similar to the native CBSenzyme. To date in the study, pegtibatinase has been generally well-tolerated, with no discontinuations due to treatment-related adverse events. 25
Based on these results, we are in the process of engaging with regulators to establish next steps for a pivotal development program to ultimately support potential approval of pegtibatinase for the treatment of HCU. In parallel, we have initiated one additional cohort in the COMPOSE Study to inform and refine formulation work for future development and commercial purposes and to further evaluate the dose response curve for pegtibatinase.
We acquired pegtibatinase as part of the
Chenodal Chenodal (chenodeoxycholic acid or CDCA) is a naturally occurring bile acid that is approved for the treatment of people with radiolucent stones in the gallbladder. While indicated for radiolucent stones in the gallbladder, Chenodal has been recognized as the standard of care for cerebrotendinous xanthomatosis (CTX) for more than three decades, although it is not currently labeled for this indication. CTX is a rare, progressive and underdiagnosed bile acid synthesis disorder affecting many parts of the body. In
September 2022, we were granted Fast Track designation by the FDA for the investigation of Chenodal for CTX. In January 2020, we randomized the first patients in our Phase 3 RESTORE Study to evaluate the effects of Chenodal in adult and pediatric patients with CTX, and the study enrollment remains open. The pivotal study is intended to support an NDA submission for marketing authorization of Chenodal for CTX in the United States. Preclinical Programs We are a participant in a Cooperative Researchand Development Agreement ("CRADA"), which forms a multi-stakeholder approach to pool resources with leading experts, and incorporate the patient perspective early in the therapeutic identification and development process. We are partnering with the National Institutes of Health's National Center for Advancing Translational Sciences("NCATS") and a leading patient advocacy organization, Alagille Syndrome Alliance, aimed at the identification of potential small molecule therapeutics for Alagille syndrome ("ALGS"). There are no treatment options currently approved for ALGS. We are no longer pursuing the identification of potential small molecule therapeutics for NGLY1 deficiency.
Thiola and Thiola EC (tiopronin)
Thiola and Thiola EC are approved by the FDA for the treatment of cystinuria, a rare genetic cystine transport disorder that causes high cystine levels in the urine and the formation of recurring kidney stones. Due to the larger stone size, cystine stones may be more difficult to pass, often requiring surgical procedures to remove. More than 80 percent of people with cystinuria develop their first stone by the age of 20. More than 25 percent will develop cystine stones by the age of 10. Recurring stone formation can cause loss of kidney function in addition to substantial pain and loss of productivity associated with renal colic and stone passage. While a portion of people living with the disease are able to manage symptoms through diet and fluid intake, the prevalence of cystinuria in the US is estimated to be 10,000 to 12,000, indicating that there may be as many as 4,000 to 5,000 affected individuals with cystinuria in the US that would be candidates for Thiola or Thiola EC. In
June 2019we announced that the FDA approved 100 mg and 300 mg tablets of Thiola EC, an enteric-coated formulation of Thiola, to be used for the treatment of cystinuria. Thiola EC offers the potential for administration with or without food, and the ability to reduce the number of tablets necessary to manage cystinuria. Thiola EC became available to patients in July 2019. In May 2021, a generic option for the 100 mg version of the original formulation of Thiola (tiopronin tablets) became available. While the impact to our business has been minimal to date, we are not able to estimate any future impact, including the impact of additional generic entrants, if any.
Cholbam (cholic acid)
The FDA approved Cholbam (cholic acid capsules) in
March 2015, the first FDA-approved treatment for pediatric and adult patients with bile acid synthesis disorders due to single enzyme defects, and for adjunctive treatment of patients with peroxisome biogenesis disorder-Zellweger spectrum disorder. The effectiveness of Cholbam has been demonstrated in clinical trials for bile acid synthesis disorders and the adjunctive treatment of peroxisomal disorders. An estimated 200 to 300 patients are current candidates for therapy.
Chenodal is a synthetic oral form of chenodeoxycholic acid ("CDCA"), a naturally occurring primary bile acid synthesized from cholesterol in the liver. The FDA approved Chenodal for the treatment of people with radiolucent stones in the gallbladder. In 2010, Chenodal was granted orphan drug designation for the treatment of cerebrotendinous xanthomatosis ("CTX"), a rare autosomal recessive lipid storage disease. We acquired Chenodal in
March 2014. While Chenodal is not labeled for CTX, it received a medical necessity determination in the US by the FDA and has been used as the standard of care for more than three decades. We are working to obtain FDA approval of Chenodal for the treatment of CTX and initiated a Phase 3 clinical trial for this indication in January 2020. The prevalence of CTX is estimated in the literature to be as high as 1 in 70,000 in the overall population. Pathogenesis of CTX involves deficiency of the enzyme 27-hydroxylase (encoded by the gene CYP27A1), a rate-limiting enzyme in the synthesis of primary bile acids, including CDCA, from cholesterol. The disruption of primary bile acid synthesis in CTX leads to toxic accumulation of cholesterol and cholestanol in most tissues. Patients may present with intractable diarrhea, premature cataracts, tendon xanthomas, atherosclerosis, and cardiovascular disease in childhood and adolescence. Neurological manifestations of the disease, including dementia and cognitive and cerebellar deficiencies, emerge during late adolescence and adulthood. The types, combinations and severity of symptoms can be different from person to person, and making diagnosis challenging and often delayed. Oral administration of CDCA has been shown to normalize primary bile acid synthesis in patients with CTX. 26
Results of operations for the three and nine months ended
compared to the three and nine month periods ended
The following table provides information regarding net product sales (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 Change 2022 2021 Change Net product revenues by product: Bile acid products
$ 25,420 $ 24,353 $ 1,067 $ 76,029 $ 71,291 $ 4,738Tiopronin products 25,370 29,821 (4,451) 72,154 84,907 (12,753) Total net product revenues 50,790 54,174 (3,384) 148,183 156,198 (8,015) License and collaboration revenue 2,706 14,043 (11,337) 7,967 14,043 (6,076) Total revenue $ 53,496 $ 68,217 $ (14,721) $ 156,150 $ 170,241 $ (14,091)The decrease in total net product revenues for the three and nine months ended September 30, 2022compared to the three and nine months ended September 30, 2021was primarily due to a decrease in Thiola net sales as a result of generic competition, partially offset by an increase in organic sales of our bile acid products. The decrease in license and collaboration revenue for the three and nine months ended September 30, 2022compared to the three and nine months ended September 30, 2021was primarily due to the recognition of $12.0 millionin license revenue upon entering into the CSL Vifor License Agreement in September 2021. Operating Expenses The following table provides information regarding operating expenses (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 Change 2022 2021 Change Cost of goods sold $ 1,675 $ 1,592 $ 83 $ 5,864 $ 4,888 $ 976Research and development 59,256 48,407 10,849 175,548 148,160 27,388 Selling, general and administrative 57,519 36,065 21,454 157,286 107,808
Change in fair value of contingent consideration 3,180 13,864 (10,684) 17,167 23,960 (6,793)
$ 121,630 $ 99,928 $ 21,702 $ 355,865 $ 284,816 $ 71,049
Research and development costs
We make significant investments in research and development in support of our development programs. Research and development costs are expensed as incurred and include salaries and bonuses, benefits, non-cash share-based compensation, license fees, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials, and associated overhead expenses and facility costs. For the three and nine months ended
September 30, 2022as compared to the three and nine months ended September 30, 2021, our research and development expenses increased by $10.8 millionand $27.4 million, respectively, due to increased headcount and medical affairs activities to support the continued advancement of the sparsentan and pegtibatinase programs, including a net increase in external service provider costs of $6.6 millionand $11.7 million, respectively, across all programs. Internal personnel costs in combination with increased headcount to support these programs also increased by $4.3 millionand $15.7 million, respectively.
Selling, general and administrative expenses
Selling, general and administrative expenses include salaries and bonuses, employee benefits, non-cash stock-based compensation, professional fees, rent, depreciation and amortization, travel, insurance, business, sales and marketing programs and other operating expenses.
For the three and nine months ended
September 30, 2022as compared to the three and nine months ended September 30, 2021, our selling, general and administrative expenses increased by $21.5 millionand $49.5 million, respectively. The overall increases were primarily due to increased headcount as a result of operational growth, and commercial launch preparations in anticipation of the potential U.S.launch of sparsentan, including increases in employee-related costs of $10.4 millionand $23.9 million, respectively, and increases in commercial support expenses of $5.3 millionand $10.1 million, respectively.
Change in valuation of contingent consideration
For the three and nine months ended
September 30, 2022as compared to the three and nine months ended September 30, 2021, the change in fair value of contingent consideration is due to the passage of time, updated revenue projections and changes in market driven discount rates. 27
Other income (expenses)
The following table provides information regarding other income (expenses), net (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 Change 2022 2021 Change Interest income
$ 2,101 $ 360 $ 1,741 $ 3,161 $ 1,757 $ 1,404Interest expense (2,892) (4,899) 2,007 (8,379) (15,072) 6,693 Loss on extinguishment of debt - - - (7,578) -
Other income (expense), net (586) 654
$ (1,240)102 (223) 325 $ (1,377) $ (3,885) $ 2,508 $ (12,694) $ (13,538) $ 844The change in our total other expense for the three months ended September 30, 2022as compared to the three months ended September 30, 2021of $2.5 millionis primarily due to reduced interest expense, which resulted from the adoption of ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06") as debt discount is no longer amortized. The change in our total other expense for the nine months ended September 30, 2022as compared to the nine months ended September 30, 2021of $0.8 millionis primarily due to loss on extinguishment of debt in connection with the partial repurchase of the Convertible Senior Notes due 2025, offset by reduced interest expense due to adoption of ASU 2020-06.
Tax benefit (provision)
For the nine months ended
September 30, 2022, we had $7.8 millionof unrecognized tax benefits. We did not recognize any interest or penalties related to unrecognized tax benefits during the nine months ended September 30, 2022.
Cash and capital resources
We have financed our operations through a combination of borrowings, sales of our equity securities, and revenues generated from our commercialized products and license and collaboration agreements. Research and development activities have required significant capital investment and are expected to continue to require significant cash expenditure in the future, particularly as our pipeline of drug candidates has expanded and our employee headcount has increased to support those activities. In addition, we continue to evaluate potential opportunities to expand our pipeline and approved products through licenses and acquisitions of products in areas that we believe offer attractive growth characteristics, which may require considerable upfront capital to pursue as well as possible contingent payments upon the future achievement of certain milestones. We believe that our available cash and short-term investments as of the date of this filing will be sufficient to fund our anticipated level of operations beyond the next 12 months. Management believes that our operating results will vary from quarter to quarter and year to year depending upon various factors including revenues, general and administrative expenses, and research and development expenses. We had the following balances at
September 30, 2022and December 31, 2021(in thousands): September 30, December 31, 2022 2021 Cash and Cash Equivalents $ 151,337 $ 165,753Marketable debt securities 354,989 387,129 Accumulated Deficit (948,400) (765,966) Stockholders' Equity 100,676 302,112 Net Working Capital* $ 403,810 $ 458,739Net Working Capital Ratio** 4.08 4.70 * Current assets less current liabilities. **Current assets divided by current liabilities.
Product of collaboration and license
License and collaboration agreement with CSL Vifor
September 15, 2021, we entered into a License Agreement with CSL Vifor, pursuant to which we granted an exclusive license to CSL Vifor for the commercialization of sparsentan in the Licensed Territories. Under the terms of the License Agreement, we received an upfront payment of $55.0 millionin September 2021, and will be eligible for up to $135.0 millionin aggregate regulatory and market access related milestone payments and up to $655.0 millionin aggregate sales-based milestone payments for a total potential value of up to $845.0 million. We are also entitled to receive tiered double-digit royalties of up to 40 percent of annual net sales of sparsentan in the Licensed Territories. 28
The Agreement includes a sublicense to CSL Vifor under our license agreement with Ligand Pharmaceuticals, Inc. ("Ligand"). We remain obligated to make payments to Ligand upon achievement of certain regulatory and sales milestones, as well as an escalating annual royalty between 15 percent and 17 percent of global net sales of licensed products.
Tender Offer for Common Shares 2021
February 2021, the Company sold an aggregate of 7.5 million shares of its common stock in an underwritten public offering, at a price of $26.75per share. The net proceeds to the Company from the offering, after deducting the underwriting discounts and offering expenses, were $189.3 million.
Offer of shares on the market
February 2020, the Company entered into an Open Market Sale Agreement ("ATM Agreement") with Jefferies LLC, as agent ("Jefferies"), pursuant to which the Company may offer and sell, from time to time through Jefferies, shares of its common stock having an aggregate offering price of up to $100.0 million. Of the $100.0 millionoriginally authorized for sale under the ATM Agreement, approximately $28.6 millionwere sold under the Company's prior registration statement on Form S-3 (Registration No. 333-227182). An additional $51.9 millionwere sold under the Company's effective registration statement on Form S-3 (Registration Statement No. 333-259311), which included gross proceeds of $20.1 millionfrom the settlement of 701,600 shares sold under the ATM Agreement in the nine months ended September 30, 2022. As of September 30, 2022, an aggregate of $19.5 millionremained eligible for sale under the ATM Agreement.
Authorized shares of common stock
May 14, 2021, in connection with the Company's 2021 Annual Meeting of Stockholders, the Company's stockholders approved, among other matters, a Certificate of Amendment ("Certificate of Amendment") to the Company's Certificate of Incorporation to increase the number of shares of common stock authorized for issuance thereunder from 100,000,000 to 200,000,000. Effective May 18, 2021, the Certificate of Amendment was filed with the Secretary of State of the State of Delaware. Operating Leases
Future minimum rent commitments
We have minimum future lease commitments totaling
Contingent Cash Payments Ligand License Agreement In 2012, we entered into an agreement with Ligand Pharmaceuticals, Inc. ("Ligand") for a worldwide sublicense to develop, manufacture and commercialize a drug technology compound including sparsentan (the "Ligand License Agreement"). The cost of the Ligand License Agreement, which is presented net of amortization in the accompanying Condensed Consolidated Balance Sheets in intangible assets, net, is being amortized to research and development on a straight-line basis through
September 30, 2023. As consideration for the license, we are required to make substantial payments upon the achievement of certain milestones, totaling up to $114.1 million. Through September 30, 2022, we have capitalized $18.4 millionfor contractual milestone payments under the Ligand License Agreement. Should we commercialize sparsentan or any products containing related compounds, we will be obligated to pay to Ligand an escalating annual royalty between 15% and 17% of net sales of all such products.
The acquisition of
November 2020, we completed the acquisition of Orphan Technologies Limited("Orphan"), including Orphan's rare metabolic disorder drug pegtibatinase (TVT-058). We acquired Orphan by purchasing all of the outstanding shares. In exchange for the shares, we made an upfront cash payment at closing of $90.0 millionplus closing adjustments, net liabilities assumed, and transaction expenses of $1.2 million, $1.8 million, and $4.2 million, respectively. Under the Stock Purchase Agreement ("the Agreement"), we also agreed to make contingent cash payments up to an aggregate of $427.0 millionbased on the achievement of certain development, regulatory and commercialization events as set forth in the Agreement, as well as additional tiered mid-single digit royalty payments based upon future net sales of any pegtibatinase products in the US and Europe, subject to certain reductions as set forth in the Agreement, and a contingent payment in the event a pediatric rare disease voucher for any pegtibatinase product is granted.
Share purchase and collaboration agreement with PharmaKrysto
March 8, 2022, we entered into a Collaboration Agreement with PharmaKrysto Limited("PharmaKrysto"), a privately held pre-clinical stage company related to PharmaKrysto's early-stage cystinuria discovery program, and concurrently therewith entered into a Stock Purchase Agreement with PharmaKrysto (together, the "Agreements"). Pursuant to the terms of the Agreements, we paid PharmaKrysto's shareholders $0.6 millionin cash to purchase 5% of the outstanding common shares of PharmaKrysto and $0.4 millionto PharmaKrysto as a one-time signing fee. Under the Collaboration Agreement, we will fund all research and development expenses for the pre-clinical activities associated with the cystinuria program, which are estimated to be approximately $5.0 million. The Agreements require us to purchase an additional 5% of the outstanding common shares for $1.0 millionupon the occurrence of a specified pre-clinical milestone, and grant an option to us to purchase the remaining outstanding shares of PharmaKrysto for $5.0 millionupon the occurrence of a subsequent pre-clinical milestone prior to expiration of the option on March 8, 2025. If we elect to exercise the option, we would be required to perform commercially reasonable clinical diligence obligations. In addition, we would be required to make cash milestone payments totaling up to an aggregate $16.0 millionupon the achievement of certain development and regulatory milestones, plus tiered royalty payments of less than 4% on future net sales of a product, if approved. We have the right to terminate the Agreements and return the shares for a nominal price at any time upon 60 days' notice, subject to survival of contingent obligations, if any. 29
The composition of our convertible senior notes are as follows (in thousands): September 30, December 31, 2022 2021 2.25% convertible senior notes due 2029
$ 316,250$ - 2.50% convertible senior notes due 2025 68,904 276,000 Unamortized debt discount - (46,045)
Unamortized debt issuance costs – 2.25% senior convertible bonds due 2029
Unamortized Debt Issuance Costs – 2.50% Convertible Senior Bonds Due 2025
Total Convertible Senior Notes, Net of Unamortized Debt Discount and Debt Issuance Costs
Senior convertible bonds due 2029
March 11, 2022, we completed a registered underwritten public offering of $316.3 millionaggregate principal amount of 2.25% Convertible Senior Notes due 2029 ("2029 Notes"), which includes $41.3 millionaggregate principal amount of 2029 Notes sold pursuant to the full exercise of the underwriters' option to purchase additional 2029 Notes. We issued the 2029 Notes under an indenture, dated as of September 10, 2018, as supplemented by the second supplemental indenture, dated as of March 11, 2022(collectively, the "2029 Indenture"). The 2029 Notes will mature on March 1, 2029, unless earlier repurchased, redeemed, or converted. The 2029 Notes are senior unsecured obligations of ours and bear interest at an annual rate of 2.25%, payable semi-annually in arrears on March 1and September 1of each year, beginning on September 1, 2022. We received net proceeds from the issuance of the 2029 Notes of $306.4 million, after deducting the commissions and offering expenses of $9.9 million. At September 30, 2022, accrued interest on the 2029 Notes of $0.6 millionis included in accrued expenses in the accompany Condensed Consolidated Balance Sheets. The 2029 Notes comprise our senior, unsecured obligations and are (i) equal in right of payment with our existing and future senior, unsecured indebtedness; (ii) senior in right of payment to our existing and future indebtedness that is expressly subordinated to the 2029 Notes; (iii) effectively subordinated to our existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables. Holders may convert their 2029 Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2022(and only during such calendar quarter), if the last reported sale price per share of our common stock for each of at least 20 trading days, whether or not consecutive, during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price on the applicable trading day; (2) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the "measurement period") if the trading price per $1,000principal amount of 2029 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on our common stock; (4) if we call the 2029 Notes for redemption; and (5) at any time from, and including, December 1, 2028until the close of business on the scheduled trading day immediately before the maturity date. We will settle conversions by paying or delivering, as applicable, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election, based on the applicable conversion rate. The initial conversion rate for the 2029 Notes is 31.3740 shares of our common stock per $1,000principal amount of 2029 Notes, which represents an initial conversion price of approximately $31.87per share. If a "make-whole fundamental change" (as defined in the 2029 Indenture) occurs, then we will in certain circumstances increase the conversion rate for a specified period of time. The 2029 Notes will be redeemable, in whole or in part at our option at any time, and from time to time, on or after March 2, 2026and, in the case of any partial redemption, on or before the 40th scheduled trading day before the maturity date, at a cash redemption price equal to the principal amount of the 2029 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price on (1) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (2) the trading day immediately before the date we send such notice. However, we may not redeem less than all of the outstanding 2029 Notes unless at least $100.0 millionaggregate principal amount of 2029 Notes are outstanding and not called for redemption as of the time we send the related redemption notice. In addition, calling any 2029 Note for redemption will constitute a make-whole fundamental change with respect to that 2029 Note, in which case the conversion rate applicable to the conversion of that 2029 Note will be increased in certain circumstances if it is converted after it is called for redemption. If a fundamental change (as defined in the 2029 Indentures) occurs, then, except as described in the 2029 Indentures, holders may require us to repurchase their 2029 Notes at a cash repurchase price equal to the principal amount of the 2029 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of further stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2029 Notes will be paid pursuant to the terms of the 2029 Indenture. In the event that all of the 2029 Notes are converted, we would be required to repay the $316.3 millionprincipal amount and any conversion premium in any combination of cash and shares of its common stock at our option. In addition, calling the 2029 Notes for redemption will constitute a "make-whole fundamental change." We incurred approximately $9.9 millionof debt issuance costs relating to the issuance of the 2029 Notes, which were recorded as a reduction to the 2029 Notes on the Condensed Consolidated Balance Sheets. The debt issuance costs are being amortized and recognized as additional interest expense over the expected life of the 2029 Notes using the effective interest method. 30
Senior convertible bonds due 2025
September 10, 2018, we completed a registered underwritten public offering of $276.0 millionaggregate principal amount of 2.50% Convertible Senior Notes due 2025 ("2025 Notes"), and entered into a base indenture and supplemental indenture agreement ("2025 Indenture") with respect to the 2025 Notes. The 2025 Notes will mature on September 15, 2025, unless earlier repurchased, redeemed, or converted. The 2025 Notes are senior unsecured obligations of the Company and bear interest at an annual rate of 2.50%, payable semi-annually in arrears on March 15and September 15of each year, beginning on March 15, 2019. The net proceeds from the issuance of the 2025 Notes were approximately $267.2 million, after deducting commissions and the offering expenses of $8.8 millionpayable by us. At September 30, 2022, accrued interest on the 2025 Notes of $0.1 millionis included in accrued expenses in the accompany Condensed Consolidated Balance Sheets. The 2025 Notes comprise our senior, unsecured obligations and are (i) equal in right of payment with our existing and future senior, unsecured indebtedness; (ii) senior in right of payment to our existing and future indebtedness that is expressly subordinated to the 2025 Notes; (iii) effectively subordinated to our existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables. Holders may convert their 2025 Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2018(and only during such calendar quarter), if the last reported sale price per share of our common stock for each of at least 20 trading days, whether or not consecutive, during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price on the applicable trading day; (2) during the five consecutive business days immediately after any 10 consecutive trading day period ("measurement period") if the trading price per $1,000principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on our common stock; (4) if we call the 2025 Notes for redemption; and (5) at any time from, and including, May 15, 2025until the close of business on the scheduled trading day immediately before the maturity date. We will settle conversions by paying or delivering, as applicable, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election, based on the applicable conversion rate. The initial conversion rate for the 2025 Notes is 25.7739 shares of our common stock per $1,000principal amount of 2025 Notes, which represents an initial conversion price of approximately $38.80per share. If a "make-whole fundamental change" (as defined in the 2025 Indenture) occurs, then we will, in certain circumstances, increase the conversion rate for a specified period of time. The 2025 Notes will be redeemable, in whole or in part, at our option at any time, and from time to time, on or after September 15, 2022and, in the case of any partial redemption, on or before the 40th scheduled trading day before the maturity date, at a cash redemption price equal to the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice. If a fundamental change (as defined in the 2025 Indenture) occurs, then, subject to certain exceptions, holders may require us to repurchase their 2025 Notes at a cash repurchase price equal to the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of further stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2025 Notes will be paid pursuant to the terms of the 2025 Indenture. In the event that all of the 2025 Notes are converted, we would be required to repay the $68.9 millionprincipal amount and any conversion premium in any combination of cash and shares of its common stock at our option. In addition, calling the 2025 Notes for redemption will constitute a "make-whole fundamental change." We incurred approximately $8.8 millionof debt issuance costs relating to the issuance of the 2025 Notes, which were recorded as a reduction to the 2025 Notes on the consolidated balance sheet. The debt issuance costs are being amortized and recognized as additional interest expense over the expected life of the 2025 Notes using the effective interest method. On March 11, 2022, we repurchased $207.1 millionof aggregate principal amount of the 2025 Notes for cash, including accrued and unpaid interest, for a total of $213.8 million. This transaction involved a contemporaneous exchange of cash between us and holders of the 2025 Notes participating in the issuance of the 2029 Notes. We recorded a $7.6 millionloss on extinguishment of debt on its Condensed Consolidated Statements of Operations for the nine months ending September 30, 2022, which includes the write-off of related deferred financing costs of $3.4 million. After giving effect to the repurchase, the total remaining principal amount outstanding under the 2025 Notes as of September 30, 2022was $68.9 million. Interest Expense
Total interest expense recorded for the three and nine months ended
We believe that our available cash and short-term investments as of the date of this filing will be sufficient to fund our anticipated level of operations beyond the next 12 months. This belief is based on many factors, some of which are beyond our control. Factors that may affect financing requirements include, but are not limited to: •the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities, including any delays resulting from the COVID-19 pandemic;
•the timing and costs involved in seeking and obtaining marketing approvals for our products, and maintaining quality system standards for our products;
•the timing and costs involved in business activities, including marketing, sales and product distribution;
• our ability to obtain regulatory approval and successfully commercialize sparsentan for one or both of the indications we are currently pursuing;
• increases or decreases in revenue from our marketed products, including decreases in revenue resulting from the COVID-19 pandemic and generic entrants, if any;
•the debt service obligations on the 2025 Bonds and the 2029 Bonds;
•our ability to manufacture sufficient quantities of our products to meet expected demand;
•the costs of preparing, filing, prosecuting, maintaining and enforcing any patent claims and other intellectual property rights, litigation costs and the results of litigation;
• our ability to enter into collaboration, license or distribution agreements and the terms and timing of such agreements;
•the potential need to expand our business, resulting in increased payroll and other overhead costs;
•the potential acquisition of licenses for other products or technologies;
•the emergence of competing technologies or other adverse market or technology developments; and
•the impacts of inflation and the resulting cost increases.
Future capital requirements will also depend on the extent to which we acquire or invest in other complementary businesses, products and technologies.
Cash flow from operating activities
Cash used in operating activities for the nine months ended
September 30, 2022was $131.7 millioncompared to cash provided of $12.1 millionfor the nine months ended September 30, 2021. The increase in cash used was primarily attributable to increased research and development and sales, general and administrative expenses. The receipt of the $55.0 millionupfront payment in September 2021in connection with the CSL Vifor License Agreement also contributed to the change.
Cash flow from investing activities
Cash provided by investing activities for the nine months ended
September 30, 2022was $4.1 millioncompared to cash used of $145.0 millionfor the nine months ended September 30, 2021. The change was due to the decrease in net purchases of marketable debt securities in which funds received in the February 2021underwritten public offering of common stock contributed to a more significant investment in those securities.
Cash flow from financing activities
Cash provided by financing activities for the nine months ended
September 30, 2022was $117.0 millioncompared to cash provided of $198.5 millionfor the nine months ended September 30, 2021. The decrease in cash provided was due to the February 2021issuance of stock through an underwritten public offering that provided $189.3 million, offset by net proceeds of $95.4 millionfrom the March 2022issuance of the 2029 Notes and repurchase of the 2025 Notes.
Adoption of new accounting standards
See Note 2 of our unaudited condensed consolidated financial statements in this report for a discussion of the adoption of the new accounting standards.
Recently issued accounting pronouncements
See Note 2 to our unaudited condensed consolidated financial statements in this report for a discussion of recently issued accounting pronouncements.
Critical accounting estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States of America. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. See our Annual Report on Form 10-K for the fiscal year ended December 31, 2021for information about critical accounting estimates as well as a description of our other significant accounting policies. 32
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