etnb-10q_20200630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________to ____________

Commission File Number: 001-39122

 

89bio, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

36-4946844

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

142 Sansome Street, Second Floor

San Francisco, California 94104

94104

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (415) 500-4614

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.001 per share

 

ETNB

 

Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No   

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of August 6, 2020, the registrant had 16,853,852 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholder’s Equity (Deficit)

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

Item 4.

Controls and Procedures

21

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

22

Item 1A.

Risk Factors

22

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

63

Item 3.

Default Upon Senior Securities

63

Item 4.

Mine Safety Disclosures

63

Item 5.

Other Information

63

Item 6.

Exhibits

64

Signatures

65

 

 

i


 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

89bio, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

(Note 2)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

68,199

 

 

$

93,335

 

Restricted cash

 

 

24

 

 

 

25

 

Short-term investments

 

 

5,697

 

 

 

 

Prepaid and other current assets

 

 

1,371

 

 

 

1,966

 

Total current assets

 

 

75,291

 

 

 

95,326

 

Property and equipment, net

 

 

191

 

 

 

155

 

Other assets

 

 

1,080

 

 

 

72

 

Total assets

 

$

76,562

 

 

$

95,553

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,070

 

 

$

989

 

Accrued expenses

 

 

3,721

 

 

 

4,620

 

Total current liabilities

 

 

6,791

 

 

 

5,609

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

14

 

 

 

14

 

Additional paid-in capital

 

 

165,668

 

 

 

163,526

 

Accumulated deficit

 

 

(95,911

)

 

 

(73,596

)

Total stockholders’ equity

 

 

69,771

 

 

 

89,944

 

Total liabilities and stockholders’ equity

 

$

76,562

 

 

$

95,553

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

1


 

89bio, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

8,443

 

 

$

3,165

 

 

$

16,221

 

 

$

7,474

 

General and administrative

 

 

3,230

 

 

 

834

 

 

 

6,154

 

 

 

1,357

 

Total operating expenses

 

 

11,673

 

 

 

3,999

 

 

 

22,375

 

 

 

8,831

 

Loss from operations

 

 

11,673

 

 

 

3,999

 

 

 

22,375

 

 

 

8,831

 

Other expenses (income), net

 

 

98

 

 

 

10,968

 

 

 

(59

)

 

 

10,552

 

Net loss before tax

 

 

11,771

 

 

 

14,967

 

 

 

22,316

 

 

 

19,383

 

Income tax expense (benefit)

 

 

 

 

 

6

 

 

 

(1

)

 

 

29

 

Net loss and comprehensive loss

 

$

11,771

 

 

$

14,973

 

 

$

22,315

 

 

$

19,412

 

Net loss per share, basic and diluted

 

$

0.85

 

 

$

24.50

 

 

$

1.62

 

 

$

31.76

 

Weighted-average shares used to compute net loss per share, basic

   and diluted

 

 

13,797,356

 

 

 

611,226

 

 

 

13,793,544

 

 

 

611,226

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

2


 

89bio, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock, and Stockholders’ Equity (Deficit)

For the Three and Six Months Ended June 30, 2020 and 2019

(Unaudited)

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2019

 

 

 

 

$

 

 

 

 

13,788,982

 

 

$

14

 

 

$

163,526

 

 

$

(73,596

)

 

$

89,944

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

4,876

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

493

 

 

 

 

 

 

493

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,544

)

 

 

(10,544

)

Balance as of March 31, 2020

 

 

 

 

 

 

 

 

 

13,793,858

 

 

 

14

 

 

 

164,028

 

 

 

(84,140

)

 

 

79,902

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

6,919

 

 

 

 

 

 

21

 

 

 

 

 

 

21

 

Issuance of common stock upon ESPP purchase

 

 

 

 

 

 

 

 

 

4,427

 

 

 

 

 

 

75

 

 

 

 

 

 

75

 

Issuance of common stock warrant in connection with term loan facility

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

634

 

 

 

 

 

 

634

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

910

 

 

 

 

 

 

910

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,771

)

 

 

(11,771

)

Balance as of June 30, 2020

 

 

 

 

$

 

 

 

 

13,805,204

 

 

$

14

 

 

$

165,668

 

 

$

(95,911

)

 

$

69,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance as of December 31, 2018

 

 

24,000,000

 

 

$

23,073

 

 

 

 

611,226

 

 

$

1

 

 

$

118

 

 

$

(16,176

)

 

$

(16,057

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

35

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,439

)

 

 

(4,439

)

Balance as of March 31, 2019

 

 

24,000,000

 

 

 

23,073

 

 

 

 

611,226

 

 

 

1

 

 

 

153

 

 

 

(20,615

)

 

 

(20,461

)

Issuance of convertible preferred stock, net of issuance

   cost of $0 and the partial settlement of the convertible

   preferred stock liability of $6,269

 

 

18,826,389

 

 

 

25,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76

 

 

 

 

 

 

76

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,973

)

 

 

(14,973

)

Balance as of June 30, 2019

 

 

42,826,389

 

 

$

48,168

 

 

 

 

611,226

 

 

$

1

 

 

$

229

 

 

$

(35,588

)

 

$

(35,358

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3


89bio, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(22,315

)

 

$

(19,412

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

29

 

 

 

7

 

Share-based compensation

 

 

1,403

 

 

 

111

 

Deferred tax assets

 

 

 

 

 

(50

)

Revaluation of convertible preferred stock liability

 

 

 

 

 

10,511

 

Amortization of premium on available-for-sale securities

 

 

1

 

 

 

 

Amortization of debt issuance costs

 

 

77

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaids and other current assets

 

 

595

 

 

 

(36

)

Accounts payable

 

 

2,123

 

 

 

(541

)

Accrued expenses

 

 

(1,189

)

 

 

1,279

 

Net cash used in operating activities

 

 

(19,276

)

 

 

(8,131

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of available-for-sale securities

 

 

(5,698

)

 

 

 

Purchases of property and equipment

 

 

(107

)

 

 

(20

)

Net cash used in investing activities

 

 

(5,805

)

 

 

(20

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible preferred stock and convertible preferred stock liability,

    net of issuance cost

 

 

 

 

 

18,826

 

Proceeds from issuance of common stock upon stock option exercises

 

 

30

 

 

 

 

Proceeds from issuance of common stock upon ESPP purchase

 

 

75

 

 

 

 

Proceeds from issuance of common stock

 

 

 

 

 

11

 

Payment of debt issuance costs

 

 

(161

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(56

)

 

 

18,837

 

Net (decrease) increase in cash and cash equivalents, and restricted cash

 

 

(25,137

)

 

 

10,686

 

Cash and cash equivalents, and restricted cash at beginning of period

 

 

93,360

 

 

 

11,257

 

Cash and cash equivalents, and restricted cash at end of period

 

$

68,223

 

 

$

21,943

 

Components of cash and cash equivalents, and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

68,199

 

 

$

21,919

 

Restricted cash

 

 

24

 

 

 

24

 

Total cash and cash equivalents, and restricted cash

 

$

68,223

 

 

$

21,943

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock warrant in connection with term loan facility

 

$

634

 

 

$

 

Deferred offering costs included in accrued expenses

 

$

290

 

 

$

204

 

Property and equipment purchases included in accounts payable

 

$

13

 

 

$

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

4


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Organization and Basis of Presentation

Description of Business

89bio, Inc. (“89bio” or the “Company”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of liver and cardio-metabolic diseases. The Company’s lead product candidate, BIO89-100, a specifically engineered glycoPEGylated analog of fibroblast growth factor 21, is currently being developed for the treatment of nonalcoholic steatohepatitis and for the treatment of severe hypertriglyceridemia.

89bio, Inc. was formed as a Delaware corporation on June 28, 2019, for the purpose of completing an initial public offering (“IPO”) and related transactions in order to carry on the business of 89Bio Ltd., which was incorporated in Israel in January 2018.

The Company completed an internal reorganization transaction in September 2019, pursuant to which 89Bio Ltd. became a wholly owned subsidiary of 89bio, Inc. (the “Reorganization”). As part of the Reorganization, all of the equity holders of 89Bio Ltd. exchanged 100% of the equity of 89Bio Ltd. for 100% of the equity of 89bio, Inc. The Reorganization was considered a transaction between entities under common control.

Initial Public Offering

On November 13, 2019, 89bio, Inc. completed its IPO, pursuant to which it issued and sold an aggregate of 6,100,390 shares of common stock (inclusive of 795,703 shares pursuant to the underwriters’ option to purchase additional shares) at the IPO price of $16.00 per share, resulting in net proceeds of $87.7 million after deducting underwriting discounts and commissions of $6.8 million and other offering expenses of $3.1 million. Upon the closing of the IPO, the Company’s outstanding convertible preferred stock automatically converted into 7,077,366 shares of common stock of 89bio, Inc. based on a proportional adjustment to the conversion ratio of the convertible preferred stock on a 1-for-6.217 basis.

Liquidity

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. To date, the Company has not generated revenues from its activities and has incurred substantial operating losses. Management expects the Company to continue to generate substantial operating losses for the foreseeable future until it completes development of its products and seeks regulatory approvals to market such products. The Company had cash, cash equivalents and short-term investments of $73.9 million as of June 30, 2020. Additionally, in July 2020, the Company received approximately $78.3 million in net proceeds from an underwritten offering of its common stock (see Note 10). Management expects to continue to fund its operations primarily through utilization of its current financial resources and through additional raises of capital.

The Company intends to raise such capital through the issuance of additional equity financing and/or debt financing. However, if such financing is not available at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of its products. The Company expects that its cash, cash equivalents and short-term investments as of June 30, 2020, together with proceeds available from the Company’s term loan (see Note 6), and proceeds from its July 2020 sale of common stock, will be sufficient to fund operating expenses and capital expenditure requirements for a period of at least one year from the date these unaudited condensed consolidated financial statements are filed with the Securities and Exchange Commission (“SEC”).

2. Summary of Significant Accounting Policies

Unaudited Condensed Consolidated Financial Statements

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting.

5


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

The accompanying interim condensed consolidated financial statements are unaudited. The interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2019 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position, results of operations and comprehensive loss, and cash flows. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2019 was derived from the audited financial statements as of that date. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 18, 2020.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include but are not limited to the fair value of stock options, the convertible preferred stock liability and certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

 

Investments

Investments have been classified as available-for-sale and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its investments in debt securities at the time of purchase. Investments with original maturities beyond three months at the date of purchase and which mature at or less than twelve months from the balance sheet date are classified as current.

Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive loss. The Company periodically evaluates whether declines in fair values of its marketable securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on marketable securities are included in other expenses (income), net. The cost of investments sold is based on the specific-identification method. There were no realized gains or losses on investments for the periods presented. Interest on marketable securities is included in other expenses (income), net and was not material for all periods presented.

Fair Value Measurements

Financial assets and liabilities are recorded at fair value on a recurring basis in the balance sheets. The carrying values of the Company’s financial assets and liabilities, including cash and cash equivalents, restricted cash, short-term investments and prepaid and other current assets, accounts payable, and accrued expenses approximate their fair values due to the short-term maturity of these instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. Assets and liabilities recorded at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity with the inputs to the valuation of these assets or liabilities as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable inputs for similar assets or liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active;

6


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Convertible Preferred Stock Liability

The freestanding instruments related to the commitment by the Series A convertible preferred stockholders to purchase and by the Company to sell its Series A convertible preferred stock in subsequent closings, contingent upon the achievement of certain developmental milestones and approval by the board of directors, at a fixed price per stock, were considered a liability (or an asset), measured at fair value as the shares underlying the rights contained liquidation preferences upon certain “deemed liquidation events” that were not solely within the Company’s control and which were considered in-substance contingent redemption features. The instruments were subject to revaluation at each balance sheet date until settlement or extinguishment, with revaluations recognized as either a component of other expenses (income), net in the condensed consolidated statements of operations and comprehensive loss, or additional paid-in capital in the condensed consolidated balance sheets. Upon the completion of the Company’s IPO, the remaining shares of convertible preferred stock that were previously issuable under a subsequent closing were no longer issuable. Accordingly, the preferred stock liability was extinguished and because the transaction occurred between related parties, the resulting $25.6 million was accounted for as a capital contribution by the preferred stockholders.

Risk and Uncertainties

If the ongoing COVID-19 pandemic continues to spread in the United States and worldwide, the Company may experience disruptions that could negatively impact the Company’s growth, employee productivity and its ability to recruit and onboard new employees. The pandemic may also disrupt the Company’s business and delay its preclinical and clinical programs and timelines. At this point, the extent to which the COVID-19 pandemic may impact the Company’s operating results and financial condition is uncertain.

Comprehensive Loss

The Company’s comprehensive loss is comprised of changes in unrealized gains (losses) on available-for-sale securities and foreign currency transaction adjustments, which were not material for all periods presented. Accordingly, the Company has not presented comprehensive loss separately from net loss on the condensed consolidated statements of operations and comprehensive loss.

 

Recently Adopted Accounting Pronouncement

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The Company adopted this standard effective from January 1, 2020, with the removed and modified disclosures adopted on a retrospective basis and the new disclosures adopted on a prospective basis. The standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02—Leases (“ASU 2016-02”), requiring the recognition of lease assets and liabilities on the balance sheet. The standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. The standard is effective for public entities for fiscal years beginning after December 15, 2018 and for nonpublic entities for fiscal years beginning after December 15, 2021. As an emerging growth company, ASU 2016-02 is effective for the Company for the year ending December 31, 2022 and interim periods within the year ending December 31, 2023. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new standard is effective for public entities for fiscal years beginning after December 15, 2020 and for nonpublic entities for fiscal years beginning after December 15, 2021. As an emerging growth company, ASU 2019-12 is effective for the Company for the year ending December 31, 2022 and interim periods within the year ending December 31, 2023. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

7


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

3. Fair Value Measurements

The following table presents the Company’s financial assets measured at fair value on a recurring basis by level within the fair value hierarchy as of June 30, 2020 (in thousands):

 

 

 

 

 

June 30, 2020

 

 

 

Valuation

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

 

 

Hierarchy

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds

 

Level 1

 

$

30,397

 

 

$

 

 

$

 

 

$

30,397

 

Commercial paper

 

Level 2

 

 

4,792

 

 

 

 

 

 

 

 

 

4,792

 

Corporate debt securities

 

Level 2

 

 

905

 

 

 

 

 

 

 

 

 

905

 

Total cash equivalents and available-for-sale securities

 

 

 

$

36,094

 

 

$

 

 

$

 

 

$

36,094

 

 

The Company did not hold any financial assets as of December 31, 2019.

The Company’s convertible preferred stock liability represented a Level 3 financial liability measured at fair value on a recurring basis prior to its extinguishment as of December 31, 2019. Accordingly, there was no Level 3 financial liability outstanding during the six months ended and as of June 30, 2020.

For the six months ended June 30, 2019, changes in the fair value of the Company’s Level 3 financial liability were measured on a recurring basis as follows (in thousands):

 

 

 

Six Months Ended

 

 

 

June 30, 2019

 

Beginning balance

 

$

1,671

 

Revaluation of convertible preferred stock liability recorded in other

   expenses, net

 

 

10,511

 

Partial settlement of convertible preferred stock liability in subsequent

   closings

 

 

(6,269

)

Ending balance

 

$

5,913

 

 

The Company’s convertible preferred stock liability resulted from the initial sale of Series A convertible preferred stock where the investors committed to purchase additional shares of Series A convertible preferred stock in subsequent closings, contingent upon the achievement by the Company of certain development milestones and approval by the board of directors. The investors’ commitment to purchase and the Company’s commitment to sell shares of Series A convertible preferred stock represented a freestanding instrument accounted for at fair value and revalued at each reporting date. The Company estimated the fair value of this commitment using the Black-Scholes option-pricing model using the following assumptions:

 

 

 

Six Months Ended

 

 

 

 

June 30, 2019

 

 

Stock price

$

0.99 - 1.31

 

 

Exercise price

$

 

1.00

 

 

Expected term (years)

 

0.00 - 2.25

 

 

Expected volatility

 

 

72.0

 

%

Risk-free interest rate

 

0.0 - 2.4

 

%

 

8


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

4. Consolidated Balance Sheet Components

 

Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued research and development expense

 

$

1,671

 

 

$

2,326

 

Accrued employee and related expenses

 

 

1,142

 

 

 

1,396

 

Accrued professional and legal fees

 

 

634

 

 

 

573

 

Accrued other

 

 

274

 

 

 

325

 

Total accrued expenses

 

$

3,721

 

 

$

4,620

 

 

5. Commitments and Contingencies

Leases

Future minimum lease payments under the Company’s non-cancellable operating lease obligations as of June 30, 2020, are as follows (in thousands):

 

 

 

June 30, 2020

 

Remainder of 2020

 

$

129

 

2021

 

 

232

 

2022

 

 

8

 

Total future minimum annual payments

 

$

369

 

 

Rent expense was $87,000 and $33,000 for the three months ended June 30, 2020 and 2019, respectively. Rent expense was $147,000 and $60,000 for the six months ended June 30, 2020 and 2019, respectively.

Asset Transfer and License Agreement with Teva Pharmaceutical Industries Ltd

In April 2018, the Company concurrently entered into two Asset Transfer and License Agreements (the “Teva Agreements”) with Teva Pharmaceutical Industries Ltd (“Teva”) under which it acquired certain patents and intellectual property relating to two programs: (1) Teva’s glycoPEGylated FGF21 program, including the compound TEV-47948 (BIO89-100), a glycoPEGylated long-acting FGF21 and (2) Teva’s development program of small molecule inhibitors of Fatty Acid Synthase. Pursuant to the Teva Agreements, the Company paid Teva an initial nonrefundable upfront payment of $6.0 million and the Company could be obligated to pay Teva up to $67.5 million under each program, for a total of $135.0 million, upon the achievement of certain clinical development and commercial milestones. In addition, the Company is obligated to pay Teva tiered royalties at percentages in the low-to-mid single-digits on worldwide net sales on all products containing the Teva compounds.

The Teva Agreements can be terminated (i) by the Company without cause, after the first anniversary of the effective date, upon 120 days’ written notice to Teva, (ii) by either party, if the other party materially breaches any of its obligations under the Agreements and fails to cure such breach within 60 days after receiving notice thereof, or (iii) by either party, if a bankruptcy petition is filed against the other party and is not dismissed within 60 days. In addition, Teva can also terminate the agreement related to the Company’s glycoPEGylated FGF21 program in the event the Company, or any of its affiliates or sublicensees, challenges any of the Teva patents licensed to the Company, and the challenge is not withdrawn within 30 days of written notice from Teva.

During the three and six months ended June 30, 2020 and 2019, there were no license payment expenses related to the Teva Agreements.

9


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

6. Term Loan

Loan and Security Agreement

On April 7, 2020, the Company and certain of its subsidiaries entered into a Loan and Security Agreement (the “Loan Agreement”) with the lenders referred to therein (the “Lenders”), and Silicon Valley Bank, as collateral agent. The Loan Agreement provides for (i) a secured term A loan facility (the “Term A Loan Facility”) of up to $10.0 million and (ii) a secured term B loan facility (the “Term B Loan Facility”) of up to $5.0 million that is available upon the Company satisfying certain milestones. The Term A Loan Facility matures on November 1, 2022, provided, that if the Term B Loan Facility is funded, the facilities instead mature on September 1, 2023. The loans will bear interest at the greater of (i) 4.50% and (ii) the sum of (a) the Prime Rate as reported in The Wall Street Journal plus (b) 1.25%. As of June 30, 2020, the Company had not drawn any amount under the Loan Agreement.

In connection with the execution of the Loan Agreement, the Company agreed to issue the Lenders warrants to purchase shares of the Company’s common stock. On April 7, 2020, the Company issued Silicon Valley Bank a warrant to purchase 25,000 shares of the Company’s common stock with a warrant exercise price of $22.06 per share that were immediately exercisable and expire on April 7, 2030. The Company determined the fair value of the warrant at the issuance date by using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 0.75%, no dividends, expected volatility of 92.30% and expected term of 10.0 years. Upon issuance, the fair value allocated to the warrant of $0.6 million was recorded as a debt issuance cost and classified within other assets, and met the requirements for equity classification within additional paid-in capital on the consolidated condensed balance sheets. An additional warrant to purchase 8,333 shares of the Company’s common stock will be issued in connection with the Term B Loan Facility, if funded, with the exercise price determined on the Company’s stock price at the time of issuance.

Additionally, the Company incurred $0.2 million in closing costs that were recorded as debt issuance costs and classified within other assets on the consolidated condensed balance sheets.

The deferred assets related to the debt issuance cost and warrant are recognized as interest expense over the duration of the Loan Agreement and are recorded within other expenses (income), net on the condensed consolidated statements of operations and comprehensive loss. As of June 30, 2020, the remaining unamortized debt issuance costs classified within other assets on the consolidated condensed balance sheet is $0.7 million.

7. Stockholders’ Equity

Equity Incentive Plans

In 2018, the Company’s board of directors adopted the 89Bio Ltd. 2018 Equity Incentive Plan (the “2018 Plan”). In connection with the Reorganization, in September 2019, the Company’s board of directors approved the 2019 Equity Incentive Plan (the “2019 Plan”), which became effective on September 17, 2019. From and after the effective date of the 2019 Plan, the Company will no longer be making any future awards under the 2018 Plan.

The Company initially reserved 2,844,193 shares of common stock for issuance under the 2019 Plan. In addition, the number of shares of common stock reserved for issuance under the 2019 Plan will automatically increase on the first day of January for a period of up to ten years, commencing on January 1, 2020, in an amount equal to 4% of the total number of shares of the Company’s capital stock outstanding on the immediately preceding December 31, or a lesser number of shares determined by the Company’s board of directors. As of June 30, 2020, there were 1,566,991 shares of common stock available for issuance as future option grants under the 2019 Plan.

Employee Stock Purchase Plan (ESPP)

In October 2019, the Company adopted the 2019 Employee Stock Purchase Plan (“ESPP”), which became effective following the date of the IPO. The Company initially reserved 225,188 shares of common stock for purchase under the ESPP. The number of shares of common stock reserved for issuance under the ESPP will automatically increase on the first day of January for a period of up to ten years, in an amount equal to 1% of the total number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or a lesser number of shares determined by the Company’s board of directors. Purchases will be accomplished through the participation of discrete offering periods and each offering is expected to be 6 months long. For each offering period, ESPP participants will purchase shares of common stock at a price per share equal to 85% of the lesser of the fair market value of the Company’s common stock on (1) the first trading day of the applicable offering period or (2) the last trading day of each purchase period the applicable offering period.

10


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

The first six month offering period pursuant to the ESPP commenced on January 1, 2020 and a total of 4,427 shares of common stock were purchased in accordance with the ESPP during the six months ended June 30, 2020 for total proceeds of $75,000. As of June 30, 2020, there were 358,651 shares of common stock available for issuance under the ESPP.

The Company recorded share-based compensation for the periods indicated as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Research and development

 

$

297

 

 

$

13

 

 

$

489

 

 

$

20

 

General and administrative

 

 

613

 

 

 

63

 

 

 

914

 

 

 

91

 

Total share-based compensation

 

$

910

 

 

$

76

 

 

$

1,403

 

 

$

111

 

 

The fair value of option awards granted for the periods indicated was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

 

 

 

Six Months Ended

 

 

 

 

June 30

 

 

 

 

2020

 

 

2019

 

 

Stock Options

 

 

 

 

 

 

 

 

 

Expected term (years)

 

5.50 - 6.11

 

 

 

6.11

 

 

Expected volatility

 

86.4 - 91.3

 

%

 

61.8

 

%

Risk-free interest rate

 

0.4 - 1.5

 

%

2.5 - 2.6

 

%

Expected dividend

 

 

 

 

 

 

 

 

The following table summarizes stock option activity for the six months ended June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

Options

 

 

Price

 

 

Term

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

(In years)

 

 

(In thousands)

 

Balance outstanding as of December 31, 2019

 

 

1,320,243

 

 

$

3.34

 

 

 

9.23

 

 

$

30,353

 

Granted

 

 

549,000

 

 

 

30.19

 

 

 

 

 

 

 

 

 

Exercised

 

 

(11,795

)

 

 

2.62

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(40,482

)

 

 

2.87

 

 

 

 

 

 

 

 

 

Balance outstanding as of June 30, 2020

 

 

1,816,966

 

 

 

11.44

 

 

 

9.01

 

 

$

21,218

 

Exercisable as of June 30, 2020

 

 

348,601

 

 

$

2.03

 

 

 

8.45

 

 

$

6,241

 

 

 

Convertible Preferred Stock

 

In April 2018, the Company entered into the Series A Share Purchase Agreement (the “Series A SPA”), pursuant to which the investors committed to invest an aggregate amount of up to $60.0 million for the issuance of shares of Series A convertible preferred stock at a price of $1.00 per share in subsequent closings. Upon the completion of the Company’s IPO on November 13, 2019, there were 16,000,000 remaining shares of convertible preferred stock that were previously issuable that were no longer issuable. Accordingly, the preferred stock liability was extinguished and because the transaction occurred between related parties, the resulting $25.6 million was accounted for as a capital contribution by the preferred stockholders Additionally, immediately prior to the completion of the Company’s IPO, all outstanding shares of convertible preferred stock automatically converted into 7,077,366 shares of common stock and the related carrying value was reclassified to common stock and additional paid-in capital.

 

11


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

8. Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.

The following outstanding potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Stock options to purchase common stock

 

 

1,816,966

 

 

 

721,079

 

Convertible preferred stock, as converted

 

 

 

 

 

6,888,592

 

Total

 

 

1,816,966

 

 

 

7,609,671

 

 

9. Related Party Transactions

The Company and the Series A preferred stockholders amended the Series A SPA on October 25, 2019, and the parties agreed that the Series A SPA would terminate upon consummation of the Company’s IPO. Upon the completion of the Company’s IPO on November 13, 2019, the 16,000,000 shares of convertible preferred stock that were issuable were no longer issuable. Accordingly, the preferred stock liability was extinguished and because the transaction occurred between related parties, the resulting $25.6 million was accounted for as a capital contribution by the preferred stockholders and recorded as part of additional paid-in capital in the condensed consolidated balance sheets (see Note 7).

10. Subsequent Event

On July 10, 2020, the Company completed an underwritten public offering of 3,047,040 shares of its common stock, including 397,440 shares sold pursuant to the underwriters’ exercise of their option to purchase additional shares, at a public offering price of $27.50 per share. The Company raised a total of $83.8 million in gross proceeds from the offering, or approximately $78.3 million in net proceeds after deducting underwriters’ discounts and commissions of $5.0 million and estimated offering cost of $0.5 million.  

 

 

12


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward Looking Statements

 

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2019. Our actual results could differ materially from those described in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-Q.

Overview

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of liver and cardio-metabolic diseases. Our lead product candidate, BIO89-100, a specifically engineered glycoPEGylated analog of fibroblast growth factor 21 (“FGF21”), is currently being developed for the treatment of nonalcoholic steatohepatitis (“NASH”) and for the treatment of severe hypertriglyceridemia (“SHTG”). NASH is a severe form of nonalcoholic fatty liver disease (“NAFLD”), characterized by inflammation and fibrosis in the liver that can progress to cirrhosis, liver failure, hepatocellular carcinoma and death. There are currently no approved products for the treatment of NASH. FGF21 is a clinically-validated mechanism that has been shown in humans to reduce steatosis, improve the histological features of NASH and address cardio-metabolic dysregulation. We believe BIO89-100 may be a differentiated FGF21 therapy based on its robust and durable biological effects and a favorable tolerability profile, as well as its potential for a longer dosing interval. Combining these characteristics with the ability to address the key liver pathologies in NASH, as well as the underlying metabolic dysregulation in NASH patients, BIO89-100 has the potential to become a mainstay of NASH therapy. We successfully completed a Phase 1a, first-in-human, single ascending dose (“SAD”) clinical trial with 58 healthy volunteers. The magnitude and significance of BIO89-100’s biological effects after a single dose on lipid parameters were robust and durable. In April 2020, we closed enrollment of our proof of concept (“POC”) Phase 1b/2a clinical trial in patients with NASH or patients with NAFLD and a high risk of NASH with 81 patients enrolled. We expect to report topline data in the late third quarter to the early fourth quarter of 2020. We expect to initiate our Phase 2b/3 clinical trial in patients with NASH in the first half of 2021.

We are also developing BIO89-100 for the treatment of SHTG, a condition identified by severely elevated levels of triglycerides (greater than or equal to 500 mg/dL), which is associated with an increased risk of NASH, cardiovascular events and acute pancreatitis. We expect to initiate our Phase 2 trial in SHTG patients in the third quarter of 2020, subject to the external environment with respect to COVID-19 remaining conducive to executing the trial safely and effectively, and to report topline data in the second half of 2021. The Phase 2 trial in SHTG patients will evaluate the ability of BIO89-100 to reduce fasting plasma triglyceride levels compared to baseline levels. In May 2020, the U.S. Food and Drug Administration (“FDA”) cleared our Investigational New Drug application for SHTG. We have adequate clinical supplies for our ongoing Phase 1b/2a clinical trial in NASH patients and our planned Phase 2 trial in SHTG patients.

Based on FDA guidance for the development of SHTG treatments, as well as the regulatory path followed by other companies that have successfully developed SHTG therapies, we believe that a combination of smaller clinical trials and shorter development timelines could mean that SHTG potentially represents a quicker path to market for BIO89-100. We believe BIO89-100 has the potential to address multiple drivers underlying metabolic dysregulation, which would make it an ideal candidate for selected liver and cardio-metabolic diseases.

We commenced operations in 2018 and have devoted substantially all of our resources to raising capital, acquiring our initial product candidate, identifying and developing BIO89-100, licensing certain related technology, conducting research and development activities, including preclinical studies and early clinical trials, and providing general and administrative support for these operations. Prior to our initial public offering (“IPO”), we had funded our operations primarily from the issuance and sale of capital stock. In November 2019, we completed our IPO pursuant to which we issued 6,100,390 shares of our common stock at a price of $16.00 per share. We received net proceeds of $87.7 million from the IPO.

On July 10, 2020, we completed an underwritten public offering of 3,047,040 shares of our common stock, including 397,440 shares sold pursuant to the underwriters’ exercise of their option to purchase additional shares, at a public offering price of $27.50 per share. We raised a total of $83.8 million in gross proceeds from the offering, or approximately $78.3 million in net proceeds after deducting underwriters’ discounts and commissions of $5.0 million and estimated offering cost of $0.5 million.

As of June 30, 2020, our cash, cash equivalents and short-term investments totaled $73.9 million. Based on our current operating plan, we believe that our cash, cash equivalents and short-term investments together with the net proceeds from the offering completed in July 2020 and proceeds available under our term loan facility will be sufficient to meet our anticipated cash requirements through the second quarter of 2022.

13


 

We have incurred net losses since our inception. Our net losses for the three months ended June 30, 2020 and 2019 were $11.8 million $15.0 million, respectively. Our net losses for the six months ended June 30, 2020 and 2019 were $22.3 million and $19.4 million, respectively. As of June 30, 2020, we had an accumulated deficit of $95.9 million. We expect to continue to incur significant expenses and increasing operating losses as we advance BIO89-100 and any future product candidates through clinical trials, seek regulatory approval for BIO89-100 and any future product candidates, expand our clinical, regulatory, quality, manufacturing and commercialization capabilities, protect our intellectual property, prepare for and, if approved, proceed to commercialization of BIO89-100 and any future product candidates, expand our general and administrative support functions, including hiring additional personnel, and incur additional costs associated with operating as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

We have never generated revenue and do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for BIO89-100, which we expect will not be for at least several years, if ever. Accordingly, until such time as we can generate significant revenue from sales of BIO89-100, if ever, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings or other capital sources, including potential 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 would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Impact of COVID-19 Pandemic

The ongoing COVID-19 pandemic has resulted and may continue to result in significant disruptions to our clinical trials, including adverse effects on our development timelines, or other business operations. In April 2020, we closed enrollment of our POC Phase 1b/2a clinical trial in patients with NASH or patients with NAFLD and a high risk of NASH with 81 patients (or 98% of patients) enrolled. We expect to initiate our Phase 2 trial in SHTG patients, in the third quarter of 2020, subject to the external environment with respect to COVID-19 remaining conducive to executing the trial safely and effectively. We do not yet know the full extent of other potential delays, which could prevent or delay us from obtaining approval for BIO89-100. For more information regarding risks related to the ongoing COVID-19 pandemic, please see the risk factor entitled “The ongoing COVID-19 pandemic may result in significant disruptions to our clinical trials or other business operations, which could have a material adverse effect on our business.” in Part II. Item 1A of this Quarterly Report on Form 10-Q. To the extent the ongoing COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and this Quarterly Report on Form 10-Q.