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 endedDecember 31, 2021 and 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 endedDecember 31, 2021 , filed with theSecurities and Exchange Commission (SEC) onFebruary 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.
Insight
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 endedSeptember 30, 2022 , we have been monitoring the developments and assessing areas where there is potential for our business to be impacted. As ofSeptember 30, 2022 and 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 million in cash and cash equivalents and marketable debt securities as ofSeptember 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
————————————————– ——————————
Contents
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 theU.S. andEurope . 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 inthe United States and greater numbers inEurope andAsia , 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. InAugust 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
————————————————– ——————————
Contents
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. InMarch 2022 , we submitted a New Drug Application ("NDA") to the FDA under Subpart H for accelerated approval of sparsentan for the treatment of IgAN. InMay 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 ofNovember 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. InOctober 2022 , we submitted an updated REMS plan in response to theFDA's request and the FDA has subsequently notified us that the PDUFA target action date has been extended toFebruary 17, 2023 .
We are currently developing our organization in preparation for the potential launch of sparsentan in
InAugust 2022 , we andVifor (International) Ltd. ("CSL Vifor"), with whom we entered into a license and collaboration agreement ("License Agreement") inSeptember 2021 , announced that theEuropean Medicines Agency ("EMA") had accepted for review the conditional marketing authorization application of sparsentan for the treatment of IgAN inEurope . 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 inthe United States and a similar number inEurope with 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. InFebruary 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. InMay 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 inEurope . 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 inthe United States and rest of world outside of the licensed territories, provided that CSL Vifor has a right of negotiation to expand the licensed territories intoCanada ,China ,Brazil and/orMexico .
Pegtibatinase (TVT-058)
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 inthe United States with similar numbers inEurope . Pegtibatinase has been granted Rare Pediatric Disease, Fast Track and Breakthrough Therapy designations by the FDA, as well as orphan drug designation in theUnited States andEuropean 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. InDecember 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 nativeCBS enzyme. To date in the study, pegtibatinase has been generally well-tolerated, with no discontinuations due to treatment-related adverse events. 25
————————————————– ——————————
Contents
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. InSeptember 2022 , we were granted Fast Track designation by the FDA for the investigation of Chenodal for CTX. InJanuary 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 inthe United States . Preclinical Programs We are a participant in aCooperative Research and 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 ofHealth'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.
Approved products
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. InJune 2019 we 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 inJuly 2019 . InMay 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) inMarch 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 (chenodiol)
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
————————————————– ——————————
Contents
Operating results
Results of operations for the three and nine months ended
compared to the three and nine month periods ended
Revenue
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 $ 4,738
Tiopronin 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, 2022 compared to the three and nine months ended September 30,
2021 was 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, 2022 compared to the three and nine months ended
September 30, 2021 was primarily due to the recognition of $12.0 million in
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 $ 976
Research 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
49,478
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 endedSeptember 30, 2022 as compared to the three and nine months endedSeptember 30, 2021 , our research and development expenses increased by$10.8 million and$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 million and$11.7 million , respectively, across all programs. Internal personnel costs in combination with increased headcount to support these programs also increased by$4.3 million and$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 endedSeptember 30, 2022 as compared to the three and nine months endedSeptember 30, 2021 , our selling, general and administrative expenses increased by$21.5 million and$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 potentialU.S. launch of sparsentan, including increases in employee-related costs of$10.4 million and$23.9 million , respectively, and increases in commercial support expenses of$5.3 million and$10.1 million , respectively.
Change in valuation of contingent consideration
For the three and nine months endedSeptember 30, 2022 as compared to the three and nine months endedSeptember 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
————————————————– ——————————
Contents
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 $ 1,404
Interest expense (2,892) (4,899) 2,007 (8,379) (15,072) 6,693
Loss on extinguishment of debt - - - (7,578) -
(7,578)
Other income (expense), net (586) 654$ (1,240) 102 (223) 325$ (1,377) $ (3,885) $ 2,508 $ (12,694) $ (13,538) $ 844 The change in our total other expense for the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 of$2.5 million is 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 endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 of$0.8 million is 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
AtSeptember 30, 2022 , we had$7.8 million of unrecognized tax benefits. We did not recognize any interest or penalties related to unrecognized tax benefits during the nine months endedSeptember 30, 2022 .
Cash and capital resources
We have financed our operations through a combination of borrowings, sales of our equity securities, and revenues generated from our commercialized products and license and collaboration agreements. Research and development activities have required significant capital investment and are expected to continue to require significant cash expenditure in the future, particularly as our pipeline of drug candidates has expanded and our employee headcount has increased to support those activities. In addition, we continue to evaluate potential opportunities to expand our pipeline and approved products through licenses and acquisitions of products in areas that we believe offer attractive growth characteristics, which may require considerable upfront capital to pursue as well as possible contingent payments upon the future achievement of certain milestones. We believe that our available cash and short-term investments as of the date of this filing will be sufficient to fund our anticipated level of operations beyond the next 12 months. Management believes that our operating results will vary from quarter to quarter and year to year depending upon various factors including revenues, general and administrative expenses, and research and development expenses. We had the following balances atSeptember 30, 2022 andDecember 31, 2021 (in thousands): September 30, December 31, 2022 2021 Cash and Cash Equivalents$ 151,337 $ 165,753 Marketable debt securities 354,989 387,129 Accumulated Deficit (948,400) (765,966) Stockholders' Equity 100,676 302,112 Net Working Capital*$ 403,810 $ 458,739 Net 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
OnSeptember 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 million inSeptember 2021 , and will be eligible for up to$135.0 million in aggregate regulatory and market access related milestone payments and up to$655.0 million in 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
————————————————– ——————————
Contents
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.
Equity offerings
Tender Offer for Common Shares 2021
InFebruary 2021 , the Company sold an aggregate of 7.5 million shares of its common stock in an underwritten public offering, at a price of$26.75 per 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
InFebruary 2020 , the Company entered into an Open Market Sale Agreement ("ATM Agreement") withJefferies 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 million originally authorized for sale under the ATM Agreement, approximately$28.6 million were sold under the Company's prior registration statement on Form S-3 (Registration No. 333-227182). An additional$51.9 million were sold under the Company's effective registration statement on Form S-3 (Registration Statement No. 333-259311), which included gross proceeds of$20.1 million from the settlement of 701,600 shares sold under the ATM Agreement in the nine months endedSeptember 30, 2022 . As ofSeptember 30, 2022 , an aggregate of$19.5 million remained eligible for sale under the ATM Agreement.
Authorized shares of common stock
OnMay 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. EffectiveMay 18, 2021 , the Certificate of Amendment was filed with the Secretary of State of theState 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 million for 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
InNovember 2020 , we completed the acquisition ofOrphan 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 million plus 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 million based 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 andEurope , 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
OnMarch 8, 2022 , we entered into a Collaboration Agreement withPharmaKrysto 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 million in cash to purchase 5% of the outstanding common shares of PharmaKrysto and$0.4 million to 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 million upon 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 million upon the occurrence of a subsequent pre-clinical milestone prior to expiration of the option onMarch 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 million upon 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
————————————————– ——————————
Contents
Loans
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
(9,099) -
Unamortized Debt Issuance Costs – 2.50% Convertible Senior Bonds Due 2025
(938) (3,374)
Total Convertible Senior Notes, Net of Unamortized Debt Discount and Debt Issuance Costs
$
375 117
Senior convertible bonds due 2029
OnMarch 11, 2022 , we completed a registered underwritten public offering of$316.3 million aggregate principal amount of 2.25% Convertible Senior Notes due 2029 ("2029 Notes"), which includes$41.3 million aggregate 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 ofSeptember 10, 2018 , as supplemented by the second supplemental indenture, dated as ofMarch 11, 2022 (collectively, the "2029 Indenture"). The 2029 Notes will mature onMarch 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 onMarch 1 andSeptember 1 of each year, beginning onSeptember 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 . AtSeptember 30, 2022 , accrued interest on the 2029 Notes of$0.6 million is 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 onJune 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$1,000 principal 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, 2028 until 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$1,000 principal amount of 2029 Notes, which represents an initial conversion price of approximately$31.87 per 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 afterMarch 2, 2026 and, 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 million aggregate 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 million principal 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 million of 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
————————————————– ——————————
Contents
Senior convertible bonds due 2025
OnSeptember 10, 2018 , we completed a registered underwritten public offering of$276.0 million aggregate 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 onSeptember 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 onMarch 15 andSeptember 15 of each year, beginning onMarch 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 million payable by us. AtSeptember 30, 2022 , accrued interest on the 2025 Notes of$0.1 million is 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 onDecember 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$1,000 principal 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, 2025 until 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$1,000 principal amount of 2025 Notes, which represents an initial conversion price of approximately$38.80 per 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 afterSeptember 15, 2022 and, 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 million principal 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 million of 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. OnMarch 11, 2022 , we repurchased$207.1 million of 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 million loss on extinguishment of debt on its Condensed Consolidated Statements of Operations for the nine months endingSeptember 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 ofSeptember 30, 2022 was$68.9 million . Interest Expense
Total interest expense recorded for the three and nine months ended
Financing needs
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;
31
————————————————– ——————————
Contents
• 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
Cash flow from operating activities
Cash used in operating activities for the nine months endedSeptember 30, 2022 was$131.7 million compared to cash provided of$12.1 million for the nine months endedSeptember 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 million upfront payment inSeptember 2021 in 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 endedSeptember 30, 2022 was$4.1 million compared to cash used of$145.0 million for the nine months endedSeptember 30, 2021 . The change was due to the decrease in net purchases of marketable debt securities in which funds received in theFebruary 2021 underwritten 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 endedSeptember 30, 2022 was$117.0 million compared to cash provided of$198.5 million for the nine months endedSeptember 30, 2021 . The decrease in cash provided was due to theFebruary 2021 issuance of stock through an underwritten public offering that provided$189.3 million , offset by net proceeds of$95.4 million from theMarch 2022 issuance of the 2029 Notes and repurchase of the 2025 Notes.
Other topics
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 inthe 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 endedDecember 31, 2021 for information about critical accounting estimates as well as a description of our other significant accounting policies. 32
————————————————– ——————————
Contents
© Edgar Online, source
