# Mirum Pharmaceuticals, Inc. (MIRM) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Mirum Pharmaceuticals, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1759425/000095017023006715/mirm-20221231.htm
Accession: 0000950170-23-006715
Filing date: 2023-03-08
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/MIRM/
All MD&A years: /company/MIRM/mda/
Previous year: /company/MIRM/mda/fy2021/ (FY 2021)
Next year: /company/MIRM/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included in Item 8 “Financial Statements and Supplementary Data” and included elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements based upon our current beliefs, estimates, plans and expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those contained in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Annual Report.

Overview

We are a biopharmaceutical company focused on the identification, acquisition, development and commercialization of novel therapies for debilitating rare and orphan diseases. We focus on diseases for which the unmet medical need is high and the biology for treatment is clear.

Our product LIVMARLI (maralixibat) oral solution (“Livmarli”), a novel, orally administered, minimally-absorbed IBAT inhibitor, is approved for the treatment of cholestatic pruritus in patients with Alagille syndrome ("ALGS") one year of age and older in the United States and for the treatment of cholestatic pruritus in patients with ALGS two months and older in Europe. We believe the prevalent patient population in the United States is approximately 2,000 to 2,500 pediatric ALGS patients, which, based on our current expectations and beliefs, represents a greater than $500.0 million market opportunity. ALGS is estimated to impact one out of every 30,000 births globally. We market and commercialize Livmarli in the United States and certain countries in Europe through our specialized and focused commercial team. We have also entered into license and distribution agreements with several rare disease companies for the commercialization of Livmarli in additional countries. We are also developing Livmarli for PFIC and BA. We have submitted an sNDA to the FDA based on positive data from our Phase 3 study of Livmarli in patients with PFIC. We also expect to report topline data from our EMBARK Phase 2b clinical trial in BA in the second half of 2023.

We are advancing our second product candidate, volixibat, a novel, oral, minimally-absorbed agent designed to inhibit IBAT, for the treatment of adult patients with cholestatic liver diseases. We are developing volixibat for the treatment of PSC and PBC. Volixibat has been studied in over 400 adults for up to 48 weeks. Clinical trials of volixibat have shown significant activity on IBAT and bile acid markers such as 7αC4, fecal bile acids and cholesterol, demonstrating potent biological activity. We expect to conduct an interim analysis of our VISTAS Phase 2b clinical trial in PSC in mid-2023 and report interim data from our VANTAGE Phase 2b clinical trial in PBC in the second half of 2023.

We were incorporated in May 2018 and commenced operations in November 2018. To date, we have focused primarily on acquiring and in-licensing our product candidates, organizing and staffing our company, business planning, raising capital, advancing our product candidates through clinical development, preparing for commercialization of our product candidates, commercializing Livmarli, and conducting business development activities relating to, among other things, portfolio expansion through collaborations and acquisitions.

We have only one product approved for commercial sale and have not generated significant revenues from product sales, net as of December 31, 2022. We expect to incur significant operating losses for the foreseeable future. Since inception, we have funded our operations to date primarily through debt, equity, revenue interest financings and, to a lesser extent, cash from our product sales, net and collaboration revenue.

Financing Transactions

In August 2020, the Securities and Exchange Commission (“SEC”) declared effective a registration statement on Form S-3 (“Shelf Registration”) covering the sale of up to $300.0 million of our securities. Also, in August 2020, we entered into a sales agreement (“Sales Agreement”) with SVB Securities LLC (“SVB Securities”) pursuant to which we may elect to issue and sell, in an at the market offering, from time to time, shares of common stock having an aggregate offering price of up to $75.0 million under the Shelf Registration through SVB Securities acting as the sales agent and/or principal.

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In August 2022, we completed an underwritten public offering of our common stock pursuant to the Shelf Registration. We sold 3,478,261 shares of common stock at a price to the public of $23.00 per share. In addition, we granted the underwriters an option, exercisable for 30 days, to purchase up to 521,739 additional shares of our common stock at the public offering price, less the underwriting discounts, commissions and offering expenses, which the underwriters exercised in full. The underwritten public offering, including the underwriters’ exercise of their option, resulted in net proceeds to us of $86.1 million after deducting underwriting discounts, commissions and offering expenses.

During the year ended December 31, 2022, we issued and sold 1,160,915 shares of common stock pursuant to the Sales Agreement at a weighted-average price of $19.01 per share, resulting in aggregate gross proceeds to us of $22.1 million. The net proceeds after deducting sales commissions to SVB Securities and other issuance expenses were approximately $21.3 million. Through December 31, 2022, we have issued and sold an aggregate of 1,466,884 shares of common stock pursuant to the Sales Agreement, resulting in aggregate gross proceeds to us of $28.7 million. The remaining capacity under the Sales Agreement is approximately $46.3 million as of December 31, 2022. In January and February 2023, we sold 658,206 shares of common stock pursuant to the Sales Agreement at a weighted-average price of $22.79 per share, resulting in net proceeds of $14.5 million.

In December 2020, we completed an underwritten public offering of our common stock pursuant to the Shelf Registration. We sold 3,750,000 shares of common stock at a public offering price of $20.00 per share, resulting in net proceeds of $70.0 million after deducting underwriting discounts, commissions and offering expenses. In addition, we granted the underwriters an option, exercisable for 30 days, to purchase up to 562,500 additional shares of our common stock at the public offering price, less the underwriting discounts and commissions. In January 2021, the underwriters exercised their option for 375,654 shares of our common stock, resulting in net proceeds of $7.1 million after deducting underwriting discounts.

Financial Overview

Our net loss was $135.7 million and $84.0 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $392.8 million compared to $257.2 million as of December 31, 2021. As of December 31, 2022, we had cash, cash equivalents, restricted cash equivalents and investments of $251.7 million, compared to $261.5 million as of December 31, 2021, in each case, $100.0 million of which is restricted from use under the terms of the Revenue Interest Purchase Agreement ("RIPA"), as amended September 2021, by and among us and Mulholland SA LLC, an affiliate of Oberland Capital LLC, as agent for the purchasers party thereto (the "Purchasers"), and the Purchasers.

We anticipate we will continue to generate losses for the foreseeable future as we continue commercial activities for Livmarli, conduct our ongoing and planned clinical trials, seek regulatory approvals for our product candidates and make potential milestone payments to the licensors and other third parties from whom we have in-licensed or acquired our product candidates. We expect our product sales of Livmarli will continue to increase on an annual basis, though seasonality in demand and international product ordering may result in quarterly fluctuations. We have also entered into collaboration arrangements with other companies whereby we are entitled to receive upfront and license fees, research and development funding, development and sales-based milestones, and tiered royalties based on sales of commercialized products. As a result, our net losses may fluctuate significantly from quarter-to-quarter and year-to-year.

We expect to satisfy future cash needs through existing capital balances, product revenue from Livmarli and through a combination of equity offerings, debt financings or other capital sources, collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate the development of one or more of our product candidates or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

Prior to the regulatory approval of Livmarli, the manufacturing and related costs were expensed as research and development as any future economic benefit was not considered probable; accordingly, these costs were not

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capitalized and as a result gross margins resulting from product sales will initially be higher until we deplete inventories that we had expensed prior to receiving approval. We expect we will substantially deplete such inventories within the next 12 months from the filing of the Annual Report.

Geopolitical and Macroeconomic Developments

The coronavirus (including its variants, “COVID-19”) pandemic has had a significant economic impact across the global marketplace presenting challenges to maintaining business continuity and dramatically changing the ways in which we live and interact with others. While vaccines have become widely available in certain countries, and businesses and economies have reopened, the status of global economic recovery remains uncertain and unpredictable, and will continue to be impacted by developments in the pandemic including any subsequent waves of outbreak or new variant strains of COVID-19 which may require re-closures or other preventative measures. As public health directives surrounding the pandemic have relaxed, our offices have reopened and we are permitting travel and in-person events, taking into consideration government restrictions, employee safety, and health risks. Our approach may vary among geographies depending on appropriate health protocols, and may change at any time. Additionally, our efforts to reopen our offices safely may not be successful, could expose our employees to health risks, and could involve additional costs or liability.

Due to the ongoing military conflict between Ukraine and Russia, the U.S. and global financial markets experienced volatility, which has led to disruptions to trade, commerce, pricing stability, credit availability and supply chain continuity globally. In connection with the military conflict, the United States, United Kingdom and European Union (“EU”), along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia (as well as possible future punitive measures that may be implemented), as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia and related sanctions, which could conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability and supply chain continuity in both Europe and globally, and has introduced significant uncertainty into global markets. As a result, our business and results of operations may be adversely affected by the ongoing military conflict between Ukraine and Russia and related sanctions, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict.

Although we did not see a significant financial impact to our business operations as a result of recent geopolitical and macroeconomic developments, such as the COVID-19 pandemic and the ongoing Ukraine-Russia conflict for the year ended December 31, 2022, there may be potential impacts to our business in the future that are highly uncertain and difficult to predict such as disruptions or restrictions in our supply chain, disruption or restrictions on our employees’ ability to travel, disruptions to or delays in ongoing non-clinical trials, clinical trials, third-party manufacturing supply and other operations, inability for patients to see their healthcare providers and access our product and product candidates, the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic or adverse geopolitical and macroeconomic concerns, interruptions or delays in the operations of the FDA or other regulatory authorities, continued increases in inflation and interest rates, changes in availability and cost of credit and our ability to raise capital and conduct business development activities. The ultimate impact of these geopolitical and macroeconomic developments, as well as any lasting effects on our revenue and the way we conduct our business, is highly uncertain and subject to continued change, and we recognize that they may continue to present unique challenges for us.

We continue to believe that existing cash, cash equivalents and investments, excluding restricted cash equivalents, and existing sources of and access to financing are adequate to satisfy our needs for working capital, capital expenditures, debt service requirements and other business development initiatives that we plan to strategically pursue in the 12 months from the issuance of the consolidated financial statements included in this Annual Report. However, should adverse geopolitical and macroeconomic events, such as the COVID-19 pandemic, the ongoing Ukraine-Russia conflict and related sanctions, and any associated recession or depression continue for a prolonged period, our results of operations, financial condition, liquidity and cash flows could be materially impacted as a result of a lower likelihood of effectively and efficiently developing new medicines and successfully commercializing our products.

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License Agreements

Assignment and License Agreement with Shire (Takeda)

In November 2018, we entered into the Shire License Agreement with Shire, which was subsequently acquired by Takeda, in which we were granted an exclusive, royalty bearing worldwide license to develop and commercialize our two product candidates, Livmarli and volixibat. As part of the Shire License Agreement, we were assigned license agreements held by Shire with Satiogen, Pfizer, and Sanofi (collectively, “Assigned License Agreements”).

Under the Shire License Agreement and Assigned License Agreements, to date, we have paid aggregate development regulatory and sales milestones of $66.0 million related to our Livmarli and volixibat programs.

Satiogen Acquisition

In May 2022, we completed the acquisition of Satiogen for total consideration of $24.2 million. At the closing of the acquisition, Satiogen’s assets consisted of cash and intangible assets related to developed technology. Through the transaction, we obtained all Satiogen-owned intellectual property relating to Livmarli and volixibat. The transaction resulted in a reduction of total licensing royalty obligations for Livmarli and volixibat.

The total potential consideration for the acquisition consisted of 841,792 shares of common stock and approximately $2.6 million in cash, excluding $0.2 million of stock option exercise prices deemed to have been paid immediately prior to the acquisition, in respect of an equivalent amount of cash on the books of Satiogen acquired by us at closing.

Components of Results of Operations

Revenue

Product Sales, Net

Our approved product, Livmarli, was approved for the treatment of cholestatic pruritus in patients with ALGS one year of age and older in the United States and for the treatment of cholestatic pruritus in patients with ALGS two months and older in Europe. We expect our product sales of Livmarli will continue to increase on an annual basis, though seasonality in demand and international product ordering may result in quarterly fluctuations.

Our U.S. revenue from product sales, net further depends on our prescription mix of commercial payors, Medicaid and free drugs under our patient assistance program. We expect our prescription mix and resulting gross to net adjustment in the U.S. to remain consistent; however, we cannot reliably estimate it given our limited experience in the market. Our rest of world revenue from product sales, net primarily depends on our contractual obligations with our distributors and results of pricing negotiations with governmental authorities in certain European countries where we launch Livmarli and expect to launch our product candidates, if approved. In addition, in certain countries, governments place large periodic orders. The timing of these orders can be inconsistent and can create quarter-to-quarter variation in revenue.

License Revenue

Under the exclusive licensing agreements with CANbridge and GC Biopharma, we have recognized as revenue the upfront nonrefundable payments related to the licenses granted upon satisfaction of certain performance obligations. Pursuant to the agreements, we are eligible to receive future milestone payments. These milestone payments are fully constrained and will be recognized in revenue in the period when it is probable that a significant reversal of cumulative revenue recognized for the contract would not occur. We are also eligible to receive royalty payments related to the agreements, which will be recognized as the underlying product sales occur.

Our license revenue is dependent upon our licensees’ achievement of future milestones, which are not within our control, and we are unable to reliably estimate the timing of such revenues.

Cost of Sales

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Cost of sales consist of third party manufacturing costs, personnel, facility and other costs of manufacturing commercial products, transportation and freight, amortization of finite-lived intangible assets, amortization of capitalized intangibles associated with contractual milestone payments paid to licensors upon certain regulatory approval and sales-based events and royalty payments payable on net sales of Livmarli under licensing agreements. Cost of sales may also include period costs related to certain manufacturing services and inventory adjustment charges. Prior to receiving approval from the FDA in September 2021 to market and sell Livmarli in the United States, we expensed all costs incurred related to the manufacture of Livmarli as research and development expense because of the inherent risks associated with the development of a drug candidate, the uncertainty about the regulatory approval process and the lack of history as a company of regulatory approval of drug candidates. Our inventory of Livmarli produced prior to FDA approval is available for commercial or clinical use.

Operating Expenses

Research and Development Expenses

Research and development expenses primarily relate to clinical development and manufacturing activities of our product candidates. Our research and development expenses include, among other things:

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salaries and related expenses for employee personnel, including benefits, travel and expenses related to stock-based compensation granted to personnel in development functions;

•
external expenses paid to clinical trial sites, contract research organizations and consultants that conduct our clinical trials;

•
expenses related to drug formulation development and the production of clinical trial supplies, including fees paid to contract manufacturers;

•
licensing milestone payments related to development or regulatory events;

•
research and development funding for collaboration arrangements;

•
expenses related to non-clinical studies;

•
expenses related to compliance with drug development regulatory requirements; and

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other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of equipment, and other supplies.

We expense research and development costs as incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. Upfront payments, research and development funding and milestone payments made to third parties in connection with licenses and research and development collaborations are expensed as incurred.

Our research and development expense may increase in the future as we continue to develop our current product candidates and look to acquire and develop additional product candidates.

Selling, General and Administrative Expense

Sales and marketing expense, which is a component of selling, general and administrative expense, primarily consisted of employee-related expenses for our sales group, brand marketing, patient support groups and pre-commercialization expenses related to our product candidates. General and administrative expense, which is a component of selling, general and administrative expense, primarily consisted of corporate support and other administrative expenses, including employee-related expenses.

We anticipate that our selling, general and administrative expenses will increase in the future to support our continued commercialization efforts of Livmarli in the United States and internationally as well as increased costs of operating as a global commercial stage biopharmaceutical public company. These increases will likely include increased costs related to hiring of additional personnel and fees to outside consultants to support further marketing, legal, tax and accounting activities.

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Interest Income

Interest income consists of interest earned on our cash equivalents and investments.

Interest Expense

Interest expense is related to the RIPA. Costs during the year consist primarily of costs associated with our liability and non-cash interest costs associated with the amortization of the related debt discount and deferred issuance costs. We impute interest expense associated with this liability using the effective interest rate method which is calculated based on the rate that would enable the debt to be repaid in full over the anticipated life of the arrangement.

Change in Fair Value of Derivative Liability

Change in fair value of derivative liability consists of the gain or loss from remeasurement of the compound derivative liability related to the revenue interest liability during the period.

Gain from Sale of Priority Review Voucher, Net

Gain from the sale of priority review voucher ("PRV") represents the sale of the PRV that was granted to us by the FDA in September 2021 along with the approval of Livmarli for the treatment of cholestatic pruritus in patients with ALGS one year of age and older.

Other Income (Expense), Net

Other income (expense), net consists of gain or loss from remeasurement of the liabilities associated with the common stock to be issued in connection with the acquisition of Satiogen after the satisfaction of certain purchase price adjustments and indemnification obligations that may arise during the 12 month period following the asset acquisition date (“Indemnification Holdback”) and the liability associated with the common stock to be issued in connection with the acquisition of Satiogen as contingent consideration upon achievement of a certain milestone (“Contingent Milestone”) both of which were recorded in connection with our acquisition of Satiogen and transactional currency exchange gain or loss.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported, including the amount of assets, liabilities, expenses and the disclosure of contingent assets and liabilities. Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. Management bases its estimates on historical experience, known trends and events, and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.

Intangible Assets, Net

Intangible assets, net are measured at their fair values as of the acquisition date or, in the case of commercial milestone payments, the date they become due. Intangible assets are generally amortized on a straight-line basis over their estimated useful lives. We base the useful lives and related amortization expense on the period of time we estimate the assets will generate net product sales or otherwise be used. We also periodically review the lives assigned to our intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from

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which we expect to realize cash flows from the technologies. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase.

We evaluate our intangible assets with finite lives for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business or significant negative industry or economic trends. If this evaluation indicates that the value of the intangible asset may be impaired, we make an assessment of the recoverability of the net carrying value of the asset over its remaining useful life. If this assessment indicates that the intangible asset is not recoverable, based on the estimated undiscounted future cash flows of the technology over the remaining amortization period, we reduce the net carrying value of the related intangible asset to fair value and may adjust the remaining amortization period.

We make significant judgments in relation to the valuation of intangible assets resulting from asset acquisitions, particularly in the forecasts of future operating results that are used in the discounted cash flow valuation models. It is possible that plans may change and estimates used may prove to be inaccurate. If our actual results, or the plans and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges.

Product Sales, Net

Revenues from direct product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, including amounts from payors and other third parties on behalf of our customers. For revenues from partner markets, we record net product sales based on the estimated variable consideration to be received when the product is sold. The transaction price, which may include fixed or variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the product sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenue recognized will not occur in a future period. We recognize our best estimate of the consideration that we expect to receive when control of the inventory is transferred to our customer and revenue is recognized. Estimates are reviewed and updated quarterly as additional information becomes known. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.

Government Rebates

We are obligated to pay rebates for mandated discounts under the Medicaid Drug Rebate Program. Our rebate calculations may require estimates, including estimates of customer mix, to determine which sales will be subject to rebates and the amount of such rebates. We update estimates and assumptions on a quarterly basis and record any necessary adjustments to revenue in the period identified. Estimated rebates are recorded as a reduction of revenue in the period the related sale is recognized. To date, actual government rebates have not differed materially from our estimates.

Revenue Interest Liability, Net

We impute interest expense associated with this liability using the effective interest rate method. The effective interest rate is calculated based on the rate that would enable the debt to be repaid in full over the anticipated life of the arrangement. The effective interest rate on the liability may vary during the term of the agreement depending on a number of factors, including the level of actual and forecasted product sales, net. We evaluate the interest rate quarterly based on actual product sales, net and on our current product sales, net forecasts utilizing the prospective method. A significant increase or decrease in product sales, net will materially impact the revenue interest liability, interest expense and the time period for repayment.

At December 31, 2022, the revenue interest liability is calculated using our current estimate of global forecasted net sales of Livmarli and impacted by a debt discount comprising the estimated value of a bifurcated derivative liability and issuance costs incurred.

Accrued Research and Development Expenses

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As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We accrue and expense clinical trial activities performed by third parties based upon estimates of the proportion of work completed over the life of the individual study and patient enrollment rates in accordance with agreements established with clinical research organizations, clinical trial sites and other vendors associated with the clinical trials. We determine the estimates by reviewing contracts, vendor agreements and purchase orders and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.

We make estimates of accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments, if necessary. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.

Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Uncertain Tax Positions

We are subject to income taxes in the United States and certain foreign jurisdictions. The evaluation of uncertain tax positions involves significant judgment in the interpretation and application of GAAP and complex tax laws. Although management believes our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our reserves. Reserves are adjusted considering changing facts and circumstances, such as the closing of a tax examination or the refinement of an estimate. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results.

Recent Accounting Pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our consolidated financial statements included elsewhere in this Annual Report.

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Results of Operations for the Years Ended December 31, 2022 and 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021 (in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","","2021","","","Change"],["Revenue:"],["Product sales, net","","$","75,062","","","$","3,138","","","$","71,924"],["License revenue","","","2,000","","","","16,000","","","$","(14,000",")"],["Total revenue","","","77,062","","","","19,138","","","","57,924"],["Operating expenses:"],["Cost of sales","","$","12,374","","","$","1,903","","","$","10,471"],["Research and development","","","106,842","","","","131,428","","","","(24,586",")"],["Selling, general and administrative","","","89,066","","","","59,220","","","","29,846"],["Total operating expenses","","","208,282","","","","192,551","","","","15,731"],["Loss from operations","","","(131,220",")","","","(173,413",")","","","42,193"],["Other income (expense):"],["Interest income","","","3,857","","","","366","","","","3,491"],["Interest expense","","","(15,979",")","","","(17,590",")","","","1,611"],["Change in fair value of derivative liability","","","906","","","","(732",")","","","1,638"],["Other income (expense), net","","","365","","","","(582",")","","","947"],["Gain from sale of priority review voucher, net","","","\u2014","","","","108,000","","","","(108,000",")"],["Net loss before provision for income taxes","","","(142,071",")","","","(83,951",")","","","(58,120",")"],["(Benefit from) provision for income taxes","","","(6,406",")","","","37","","","","(6,443",")"],["Net Loss","","$","(135,665",")","","$","(83,988",")","","$","(51,677",")"]]
[[/GREPCENT_TABLE]]

Product Sales, Net

Product sales, net was $75.1 million for the year ended December 31, 2022, compared to $3.1 million for the year ended December 31, 2021. The increase in product sales, net was a result of our continued commercialization of Livmarli in the United States, and, to a lesser extent, from international sales through partner market supply orders.

License Revenue

License revenue was $2.0 million for the year ended December 31, 2022, compared to $16.0 million for the year ended December 31, 2021. The decrease in license revenue was primarily due to the satisfaction of certain performance obligations associated with the licenses granted under the license agreements with CANbridge and GC Biopharma in 2021. We did not have any comparable performance obligations in 2022.

Cost of Sales

For the year ended December 31, 2022, cost of sales was $12.4 million, compared to $1.9 million for the year ended December 31, 2021, and primarily consisted of royalties payable on net sales of Livmarli under licensing agreements, amortization of capitalized commercial milestone payments and acquired intangibles associated with our acquisition of Satiogen and indirect overhead costs associated with the manufacturing and distribution of Livmarli. There were minimal inventory costs reflected in cost of sales as inventory related to current product sold were expensed as research and development costs prior to Livmarli approval in the United States in September 2021.

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Research and Development Expenses

The following table summarizes the period-over-period changes in research and development expenses relating to our product candidates in development for the periods indicated (in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","","2021","","","Change"],["Product-specific costs:"],["Livmarli","","$","40,228","","","$","35,525","","","$","4,703"],["Volixibat","","","21,159","","","","15,691","","","","5,468"],["Non product-specific costs:"],["Personnel","","","25,298","","","","21,999","","","","3,299"],["Stock-based compensation","","","10,051","","","","9,888","","","","163"],["Other","","","10,106","","","","6,309","","","","3,797"],["License fees (milestone payments)","","","\u2014","","","","23,161","","","","(23,161",")"],["Collaboration funding","","","\u2014","","","","18,855","","","","(18,855",")"],["Total research and development expenses","","$","106,842","","","$","131,428","","","$","(24,586",")"]]
[[/GREPCENT_TABLE]]

Research and development expenses were $106.8 million for the year ended December 31, 2022, a decrease of $24.6 million compared to the year ended December 31, 2021. The decrease was primarily due to:

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for Livmarli programs, an increase of $4.7 million, primarily due to an increase of $6.6 million in clinical trial expenses primarily for the EMBARK Phase 2b clinical trial for BA, a long term rollover study from the MARCH Phase 3 clinical trial for PFIC and an infant safety study offset by $1.4 million in clinical trial expenses for the MARCH Phase 3 clinical trial, which was completed during 2022 and $0.7 million in manufacturing activities as a result of prior year completion of an NDA registrational production;

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for volixibat programs, an increase of $5.5 million, primarily due to an increase of $4.8 million in clinical trial expenses for PSC, PBC and ICP and non-clinical studies of $0.5 million;

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for personnel related expenses, an increase of $3.3 million, related to an increase in employee headcount to support our development pipeline;

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for other expense, an increase of $3.8 million, primarily due to outside consulting expenses, travel expenses and general overhead expenses;

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for license fees, a decrease of $23.2 million, related to developmental milestone payments for the year ended December 31, 2021 consisting of $15.0 million associated with the acceptance of our NDA for filing of Livmarli for the treatment of cholestatic pruritus in patients with ALGS one year of age and older, $4.0 million associated with the initiation of the VISTAS Phase 2b clinical trial of volixibat in PSC and the EMBARK Phase 2 clinical trial of maralixibat for BA, and $4.2 million in an upfront fee in connection with the Vivet Collaboration Agreement; and

•
for collaboration funding, a decrease of $18.9 million due to a collaboration agreement with Vivet Therapeutics SAS ("Vivet"), which we terminated in 2021.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $89.1 million for the year ended December 31, 2022, an increase of $29.8 million compared to the year ended December 31, 2021. The increase was primarily due to an increase of $15.8 million in personnel and other compensation related expenses, including an increase of $3.9 million in stock-based compensation, reflecting an increase in the number of our selling, marketing and administrative employees to support commercial activities for Livmarli and increased requirements of operating as a public company, an increase of $10.9 million in advertising, promotion and patient support expenses associated with commercial activities for Livmarli, and an increase of $2.6 million in expenses primarily related to general legal and public relations, international expansion activities and other general administrative expenses.

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Interest Income

Interest income was $3.9 million for the year ended December 31, 2022, an increase of $3.5 million compared to the year ended December 31, 2021. The increase was primarily due to higher interest earned on our cash equivalents and investment balances largely due to higher treasury yields.

Interest Expense

Interest expense was $16.0 million for the year ended December 31, 2022, a decrease of $1.6 million compared to the year ended December 31, 2021. Interest expense is related to the accreted interest recognized on the revenue interest liability in connection with the RIPA, with the decrease due to lower effective interest rate resulting from changes in estimates that enable the debt to be repaid in full over the anticipated life of the arrangement.

Change in Fair Value of Derivative Liability

Change in fair value of derivative liability was $0.9 million gain for the year ended December 31, 2022, compared to a $0.7 million loss for the year ended December 31, 2021. For the year ended December 31, 2022, the gain was related to the remeasurement of the derivative liability at December 31, 2022 and reflects a decrease in value of the put option associated with the RIPA resulting from the reduction in time for the put option to occur. For the year ended December 31, 2021, the loss was related to the remeasurement of the derivative liability at December 31, 2021 and reflects the net increase in the value of the underlying put option associated with the RIPA primarily resulting from changes in forecast product sales, net.

Other income (expense), net

Other income (expense), net was income of $0.4 million for the year ended December 31, 2022, compared to expense of $0.6 million for the year ended December 31, 2021. The change is primarily due to a gain resulting from the fair value remeasurement in the Satiogen Indemnification Holdback and Contingent Milestone liabilities since the acquisition date, which was primarily driven by a decrease in price of our common stock as of December 31, 2022.

Gain from Sale of Priority Review Voucher, Net

We did not have, and therefore did not sell, a PRV in the year ended December 31, 2022. Gain from the sale of the PRV, net of transaction costs, totaled $108.0 million for the year ended December 31, 2021.

Liquidity and Capital Resources

Overview

Since inception, we have funded our operations primarily through debt, equity, revenue interest financings and, to a lesser extent, cash from our product sales and license and collaboration revenue. We had $251.7 million of cash, cash equivalents, restricted cash equivalents and investments as of December 31, 2022, compared to $261.5 million as of December 31, 2021, in each case, inclusive of $100.0 million restricted cash equivalents. Since inception, we have incurred operating losses and negative cash flows from operations. As of December 31, 2022, we had an accumulated deficit of $392.8 million, compared to $257.2 million as of December 31, 2021.

In August 2020, the SEC declared effective the Shelf Registration covering the sale of up to $300.0 million of our securities. Also, in August 2020, we entered into the Sales Agreement with SVB Securities pursuant to which we may elect to issue and sell, in an at the market offering, from time to time, shares of common stock having an aggregate offering price of up to $75.0 million under the Shelf Registration through SVB Securities acting as the sales agent and/or principal. During the year ended December 31, 2022, we issued and sold 1,160,915 shares of common stock pursuant to the Sales Agreement at a weighted-average price of $19.01 per share, resulting in aggregate gross proceeds to us of $22.1 million. The net proceeds after deducting sales commissions to SVB Securities and other issuance expenses were approximately $21.3 million. Through December 31, 2022, we have issued and sold an aggregate of 1,466,884 shares of common stock pursuant to the Sales Agreement, resulting in aggregate gross proceeds to us of $28.7 million. The remaining capacity under the Sales Agreement is

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approximately $46.3 million as of December 31, 2022. In January and February 2023, we sold 658,206 shares of common stock pursuant to the Sales Agreement at a weighted-average price of $22.79 per share, resulting in net proceeds of $14.5 million.

In December 2020, we completed an underwritten public offering of our common stock pursuant to the Shelf Registration. We sold 3,750,000 shares of common stock at a public offering price of $20.00 per share, resulting in net proceeds of $70.0 million after deducting underwriting discounts, commissions and offering expenses. In addition, we granted the underwriters an option, exercisable for 30 days, to purchase up to 562,500 additional shares of our common stock at the public offering price, less the underwriting discounts and commissions. In January 2021, the underwriters partially exercised their option and purchased 375,654 shares of our common stock at a price of $20.0 per share, resulting in net proceeds of $7.1 million after deducting underwriting discounts.

In August 2022, we completed an underwritten public offering of our common stock pursuant to the Shelf Registration. We sold 3,478,261 shares of common stock at a price to the public of $23.00 per share. In addition, we granted the underwriters an option, exercisable for 30 days, to purchase up to 521,739 additional shares of our common stock at the public offering price, less the underwriting discounts, commissions and offering expenses, which the underwriters exercised in full. The underwritten public offering, including the underwriters’ exercise of their option, resulted in net proceeds to us of $86.1 million after deducting underwriting discounts, commissions and offering expenses.

On September 9, 2022, we filed an automatic shelf registration statement on Form S-3 with the SEC, which became effective upon filing, pursuant to which we registered for sale from time to time in one or more offerings an unlimited amount of any combination of our common stock, preferred stock, debt securities and warrants, so long as we continue to satisfy the requirements of a “well-known seasoned issuer” under SEC rules. This automatic shelf registration statement will remain in effect for up to three years from the date it became effective. As of December 31, 2022, we have not issued any securities pursuant to the automatic shelf registration statement. We may lose well-known seasoned issuer status in the future upon the occurrence of certain events prescribed by the Securities Act or the rules and regulations of the SEC occurring after we file this Annual Report if, at the time of those certain events, the worldwide market value of our voting and non-voting common equity held by our non-affiliates does not equal $700.0 million or more, calculated as of a date within 60 days prior to such events. If that were to occur and we were no longer considered a well-known seasoned issuer, we anticipate needing to amend our automatic shelf registration statement on Form S-3 prior to the occurrence of such events in order to sell securities under that Form S-3 on an ongoing basis.

Based on our current and anticipated level of operations, including cash generated from sales of Livmarli, we believe our cash, cash equivalents and investments, excluding restricted cash equivalents, will be sufficient to fund current operations through at least the next 12 months and beyond from the filing of this Annual Report. Our cash, cash equivalents and investments include money market funds, government agency securities and commercial paper. We maintain established guidelines relating to diversification and maturities of our investments to preserve principal and maintain liquidity.

We anticipate that we will continue to incur net losses for the foreseeable future as we continue research efforts and the development of our product candidates, continue commercialization activities for Livmarli and potentially expand into additional markets, hire additional staff, including clinical, scientific, operational, financial and management personnel and pay potential development and commercial milestones in connection with our license agreements.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, selling, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Although Livmarli has been approved for the treatment of cholestatic pruritus in patients with ALGS in patients one year of age and older in the United States and for the treatment of cholestatic pruritus in patients two months of age and older in Europe, and we expect product revenues to increase as we continue commercial activities, Livmarli may not achieve commercial success. Our principal sources of liquidity are cash from the sale of

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our equity securities, product revenue from sales of Livmarli, and, to a lesser extent, from our collaboration agreements. Until such time, if ever, as we can generate sufficient product revenue from sales of Livmarli, our current product candidates or any future product candidates, if approved, to fund operations, we expect to finance our cash needs through a combination of equity offerings, debt financings, revenue interest purchase agreements and potential collaboration, license or development agreements. Our primary cash needs are for day-to-day operations, to pay our debt obligations under the RIPA and to fund our working capital requirements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect rights as a stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. As a result of adverse geopolitical and macroeconomic developments, such as the COVID-19 pandemic, actions taken to slow its spread, the ongoing military conflict between Ukraine and Russia and related sanctions, actual and anticipated changes in interest rates, economic inflation and the responses by central banking authorities to control such inflation, the global credit and financial markets have experienced volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations

In addition to ongoing capital needs to fund our ongoing operations, our material cash requirements include the following contractual and other obligations.

Pursuant to the RIPA, the Purchasers have a right to receive the Revenue Interests based on product sales, net of Livmarli. The amounts of quarterly Revenue Interest Payments will change each reporting period based upon the underlying product sales, net of Livmarli and will initially be 9.75% of product sales, net. Under the RIPA, every $100.0 million of net sales generated, less than or equal to $350 million in an annual aggregate, would result in a repayment obligation of approximately $9.8 million. Additionally, every $100.0 million of net sales generated in excess of $350.0 million in an annual aggregate would result in a repayment obligation of approximately $2.0 million. In the future, as net sales thresholds set forth in the agreement are met and the repayment percentage rate changes, the amount of the obligation and timing of payment is likely to change. A significant increase or decrease in actual and forecast net sales will materially impact the revenue interest liability, interest expense and the time period for repayment.

Under the Shire License Agreement, as well as our other license and acquisition agreements, we have payment obligations that are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones and are required to make royalty payments in connection with the sale of products developed under those agreements. The amount and timing of milestone obligations are unknown or uncertain as we are unable to estimate the timing or likelihood of achieving the milestone events. Additionally, the amount of royalty payments are based upon future product sales, which we are unable to predict with certainty. These potential obligations are further described in Note 7 to our consolidated financial statements.

We additionally have contractual obligations for our operating leases for our corporate headquarters. These obligations are further described in Note 9 to our consolidated financial statements.

We are party to certain license and collaboration agreements, which contain a number of contractual obligations. Those contractual obligations may entitle us to receive, or may obligate us to make, certain payments.

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The amount and timing of those payments are unknown or uncertain as we are unable to estimate the timing or likelihood of the events that will obligate those payments.

We enter into contracts in the normal course of business with clinical research organizations and clinical sites for the conduct of clinical trials, non-clinical research studies, professional consultants for expert advice and other vendors for clinical supply manufacturing or other services. These contracts generally provide for termination on notice, and therefore are cancelable contracts.

Cash Flows

The following table provides a summary of the net cash flow activity for the periods indicated (in thousands):

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Net Cash Used in Operating Activities

Net cash used in operating activities was $120.1 million for the year ended December 31, 2022, reflecting our net loss of $135.7 million partially offset by non-cash items of $36.6 million. Non-cash items consisted primarily of $27.0 million of stock-based compensation, $16.0 million of effective interest expense in connection with the RIPA, $3.7 million of depreciation and amortization of our intangible assets, fixed assets and operating lease right-of use assets, $6.6 million related to deferred tax liability recognized as a result of intangible assets acquired as part of the Satiogen acquisition, $1.7 million accretion of discounts on our investments, $0.9 million gain related to the change in fair value of Indemnification Holdback and Contingent Milestone liabilities and $0.9 million gain related to the change in fair value of the derivative liability. Additionally, cash used in operating activities reflected changes in net operating assets of $21.0 million, consisting primarily of a $20.7 million increase in accounts receivable related to sales of Livmarli, a $3.4 million increase in inventory, a $3.7 million increase in prepaid expenses and other current assets, a $0.1 million increase in other long term assets, and a $0.7 million decrease in operating lease liability, partially offset by a $7.6 million increase in accounts payable, accrued expenses and other liabilities.

Net cash used in operating activities was $132.8 million for the year ended December 31, 2021, reflecting our net loss of $84.0 million partially offset by non-cash items of $42.2 million and a non-cash gain of $108.0 million from the sale of the PRV. Non-cash items consisted primarily of $23.1 million of stock-based compensation, $17.6 million of effective interest expense in connection with the RIPA, $0.7 million related to the change in fair value of the derivative liability, and $1.0 million of depreciation and amortization of our fixed assets and operating lease right-of use assets. Additionally, cash used in operating activities reflected changes in net operating assets of $17.0 million, consisting primarily of a $22.7 million increase in accounts payable, accrued expenses and other liabilities primarily associated with clinical, manufacturing and commercial planning activities and collaboration funding pursuant to the collaboration agreement with Vivet and $5.0 million increase in prepaid expenses, inventory and other assets, partially offset by a $0.6 million decrease in our operating lease liability.

Net Cash Provided by Investing Activities

Net cash provided by investing activities was $7.7 million for the year ended December 31, 2022, primarily due to proceeds of $140.3 million from maturities of investments, partially offset by $132.3 million used in purchases of investments and $0.3 million used in purchases of property and equipment.

Net cash provided by investing activities was $48.5 million for the year ended December 31, 2021, primarily due to $108.0 million of net proceeds received from the sale of the PRV, proceeds of $155.6 million from maturities of investments, and proceeds of $2.0 million from paydowns of investments partially offset by $198.0 million used in purchases of investments and $19.0 million in milestone payments triggered under license agreements.

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Net Cash Provided by Financing Activities

Net cash provided by financing activities was $109.1 million for the year ended December 31, 2022, due to net proceeds of $86.1 million from completion of an underwritten public offering of 4,000,000 shares of common stock at a price of $23.00 per share, net proceeds of $21.3 million from the issuance and sale of common stock under the Sales Agreement with SVB Securities, pursuant to which we issued and sold an aggregate of 1,160,915 shares of common stock at a weighted-average price of $19.01 per share, and proceeds of $7.3 million from employee equity award exercises, partially offset by $5.6 million of revenue interest payments made under the RIPA.

Net cash provided by financing activities was $73.5 million for the year ended December 31, 2021, due to net proceeds of $64.6 million pursuant to the RIPA, net proceeds of $6.9 million received from the underwriters when they exercised their option to purchase 375,654 shares of our common stock in January 2021 following the follow-on underwritten public offering of our common stock in December 2020, and proceeds of $2.1 million from employee equity award exercises, partially offset by $0.1 million of revenue interest payments made under the RIPA.

JOBS Act

As an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley Act”).

We will remain an emerging growth company until the earliest of (i) December 31, 2024, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

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