VIELA BIO, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with our financial statements and related
notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual
Report on Form 10-K for the year ended
Investors and others should note that we routinely use the Investor Relations section of our website to announce material information to investors and the marketplace. While not all of the information that we post on the Investor Relations section of our website is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in us to review the information that it shares on the Investor Relations section of our website, www.vielabio.com.
Overview
We are a biotechnology company pioneering treatments for autoimmune disease. Our
approach seeks to redefine the treatment of autoimmune diseases by focusing on
critical biological pathways shared across multiple indications. We believe this
approach, which targets the underlying molecular pathogenesis of the disease
allows us to develop more precise therapies, identify patients more likely to
respond to treatment and pursue multiple diseases for each of our product
candidates. Our lead molecule, inebilizumab, is a humanized mAb designed to
target CD19, a molecule expressed on the surface of a broad range of immune
system B cells. In
Regulatory applications have also been filed in several other countries for
inebilizumab in patients with NMOSD, based on results from the N-MOmentum
trial. In
Furthermore, we recently initiated a Phase 3 trial of inebilizumab for myasthenia gravis, a neuromuscular disorder caused by autoantibodies against acetylcholine receptors or muscle specific kinase and a Phase 3 trial of inebilizumab for IgG4-related disease, a group of disorders marked by tumor-like swelling and fibrosis of affected organs, which may be caused by infiltration of CD19-expressing plasmablasts and plasma cells that generate IgG4 antibodies.
In addition, we have a broad pipeline of two additional clinical-stage and two pre-clinical product candidates focused on a number of other autoimmune diseases with high unmet medical needs, including Sjögren's syndrome and lupus, as well as other conditions such as kidney transplant rejection. A Phase 2b trial in Sjögren's syndrome, which is designed as Phase 3-enabling, is ongoing and in 2019, we initiated a separate Phase 2 trial in kidney transplant rejection. We are currently advancing two candidates through pre-clinical studies. For the first candidate, VIB1116, we expect to complete pre-clinical toxicology studies to enable a submission of an IND in 2020.
In
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1b study, we have selected systemic lupus erythematosus (SLE) as the lead indication of a planned Phase 2 trial, anticipated to initiate in the first half of 2021.
We incorporated on
To date, we have devoted substantially all of our resources to organizing and
staffing our company, business planning, raising capital, identifying and
developing product candidates, enhancing our intellectual property portfolio,
undertaking research, conducting pre-clinical studies and clinical trials,
conducting pre-commercial and commercial launch activities, and securing
manufacturing for our development programs. We have one product approved for
sale, Uplizna® in the US, and have not generated any significant revenue from
product sales to date. To date, we have funded our operations primarily with
proceeds from the private placement of convertible preferred stock, the initial
public offering of our common stock, or the IPO, the underwritten public
offering of our common stock in
We have incurred significant operating losses since our inception, which are
mainly attributed to research and development costs, and employee payroll
expense, professional services expense and other administrative expenses
included in general and administrative expenses. Our net loss was
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources. 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 as and 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 our product candidates that we would otherwise prefer to develop and market ourselves.
We initiated patient screening for Phase 1 trial with VIB7734, which has demonstrated an ability to regulate key inflammatory mediators, in patients with COVID-19-related acute lung injury. This Phase 1 trial is on-going. Results from this study are anticipated in the first half of 2021.
In
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we believe that the pandemic has resulted in a decrease in patient visits to
prescribing physicians, as well as challenges in coordination and communication
between patients and prescribing physicians. Furthermore, we believe some
prescribing physicians are reluctant to change existing treatment regimens for
patients, except in the event of significant need, without first meeting
patients in-person prior to making such a change. The ongoing pandemic has led
to increased challenges in having in-person meetings between patients and
prescribing physicians. We believe these factors are adversely impacting, and
may continue to adversely impact for the duration of the pandemic, the number of
new prescriptions written for Uplizna®. For the three months ended
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate significant product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
Components of our Results of Operations
Revenue
We did not generate any revenue from the sale of products since our inception
through
In connection with the license agreement with
Cost of Product Sold
Cost of product sales includes the cost of producing and distributing inventories that are related to product revenues during the respective period, and third-party royalties payable on our net product revenues. Cost of goods sold may also include costs related to excess or obsolete inventory adjustment charges, abnormal costs, unabsorbed manufacturing and overhead costs, amortization of intangible asset, and manufacturing variances. The Company presently expects to have a lower cost of product sold until 2023.
Research and Development Expenses
To date, our research and development expenses, net of the acquisition of
Research and development expenses include:
• salaries, payroll taxes, employee benefits, and stock-based compensation
charges for those individuals involved in research and development efforts;
• external research and development expenses incurred under agreements with
contract research organizations and consultants to conduct our
pre-clinical, toxicology and other pre-clinical studies, as well as
clinical trials of our product candidates;
• laboratory supplies;
• costs related to manufacturing product candidates, including fees paid to
third-party manufacturers and raw material suppliers;
• license fees and research funding; and
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• facilities, depreciation and other allocated expenses, which include direct
and allocated expenses for rent, maintenance of facilities, insurance,
equipment and other supplies.
Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. We outsource a substantial portion of our clinical trial activities, utilizing external entities such as Contract Research Organizations ("CROs"), independent clinical investigators and other third-party service providers to assist us with the execution of our clinical trials. We also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements relating to our product candidates.
We plan to substantially increase our research and development expenses for the foreseeable future, as we continue the development of our product candidates and seek to discover and develop new product candidates. Due to the inherently unpredictable nature of pre-clinical and clinical development, we cannot determine with certainty the timing of the initiation, duration or costs of future clinical trials and pre-clinical studies of product candidates. Clinical and pre-clinical development timelines, the probability of success and the amount of associated development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future pre-clinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate's commercial potential. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our future clinical development costs may vary significantly based on factors such as:
• per patient trial costs; • the number of patients needed to determine a recommended dose; • the number of trials required for regulatory approval; • the number of sites included in the trials; • the countries in which the trials are conducted; • the length of time required to enroll eligible patients; • the number of patientswho participate in the trials; • the number of doses that patients receive; • the drop-out or discontinuation rates of patients; • potential additional safety monitoring requested by regulatory agencies; • the duration of patient participation in the trials and follow-up; • the phase of development of the product candidate; • the efficacy and safety profile of the product candidate; and • developments related to the coronavirus outbreak and impact of it and COVID-19 on the costs and timing associated with the conduct of our clinical trials and other related activities.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and
employee-related costs, including stock-based compensation for personnel in our
executive, finance and other administrative functions. Other significant costs
include facility and/or rent-related costs, legal fees relating to intellectual
property and corporate matters, professional fees for accounting and consulting
services and insurance costs. We anticipate that our general and administrative
expenses will increase in the future to support our continued research and
development activities, pre-commercialization and commercialization activities.
We also anticipate increased expenses related to audit, legal, regulatory and
tax-related services associated with maintaining compliance with stock exchange
listing and
Interest Income
Interest income consists of interest earned on our cash and cash equivalents and marketable securities.
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Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended
September 30,
2020 2019 Change
(in thousands)
Revenue:
Product revenue, net $ 2,316 $ - $ 2,316
Total Revenue 2,316 - 2,316
Operating expenses:
Cost of products sold 650 - 650
Research and development 25,890 38,700 (12,810 )
Selling, general and administrative 13,995 10,230 3,765
Total operating expenses 40,535 48,930 (8,395 )
Loss from operations (38,219 ) (48,930 ) 10,711
Other income
Interest income 574 520 54
Total other income 574 520 54
Net loss $ (37,645 ) $ (48,410 ) $ 10,765 Product Revenue. Product revenue was
Cost of Product Sold. The cost of product sold consists of costs related to
the sales of Uplizna®. These costs include materials, manufacturing overhead,
amortization of milestone payments, and royalties payable on net sales of
Uplizna®. During the three months ended
Research and Development Expenses. Research and development expenses were
General and Administrative Expenses. General and administrative expenses were
Interest Income. Interest income was
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Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
September 30,
2020 2019 Change
(in thousands)
Revenue:
Product revenue, net $ 2,316 $ - 2,316
License Revenue - 20,000 (20,000 )
Total Revenue 2,316 20,000 (17,684 )
Operating expenses:
Cost of products sold 650 - 650
Research and development 78,131 72,113 6,018
Selling, general and administrative 43,685 24,575 19,110
Total operating expenses 122,466 96,688 25,778
Loss from operations (120,150 ) (76,688 ) (43,462 )
Other income
Interest income 2,871 1,829 1,042
Total other income 2,871 1,829 1,042
Net loss $ (117,279 ) $ (74,859 ) $ (42,420 ) Revenue. Product revenue was
Cost of Product Sold. The cost of product sold consists of costs related to the
sales of Uplizna®. These costs include materials, manufacturing overhead,
amortization of milestone payments, and royalties payable on net sales of
Uplizna®. During the nine months ended
Research and Development Expenses. Research and development expenses were
General and Administrative Expenses. General and administrative expenses were
Interest Income. Interest income was
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Liquidity and Capital Resources
Cash Flows
We have incurred net losses and negative cash flows from operations since our
inception and anticipate we will continue to incur net losses for the
foreseeable future. As of
The following table sets forth a summary of the net cash flow activity for each
period presented:
Nine Months Ended
September 30,
2020 2019
(in thousands)
Net cash provided by (used in):
Operating activities $ (97,654 ) $ (69,202 )
Investing activities (150,910 ) (67,912 )
Financing activities 159,362 165,963
Net increase (decrease) in cash $ (89,202 ) $ 28,849
Operating Activities
Net cash used in operating activities was
Investing Activities
Net cash used in investing activities was
Financing Activities
Net cash provided by financing activities was
Funding Requirements
We believe that our existing cash, cash equivalents and marketable securities will be sufficient to meet our anticipated cash requirements into 2023. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect.
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Our future capital requirements will depend on many factors, including:
• the revenue received from commercial sales of Uplizna® or any potential
commercial sales of our product candidates, if approved, and product
pricing, as well as product coverage and the adequacy of reimbursement of
third-party payors, relating to Uplizna® or any such product, if approved;
• the cost of commercialization activities for and manufacturing of Uplizna®
and our product candidates if we receive marketing approval for any such
product candidate, including marketing, sales and distribution costs;
• the initiation, progress, timing, costs and results of drug discovery,
pre-clinical studies and clinical trials of inebilizumab, VIB4920 and
VIB7734 and any other future product candidates;
• the number and characteristics of product candidates that we pursue;
• the outcome, timing and costs of seeking regulatory approvals;
• the cost of manufacturing VIB4920 and VIB7734 and future product candidates
for clinical trials in preparation for marketing approval and in
preparation for commercialization;
• the costs of any third-party products used in our combination clinical
trials that are not covered by such third party or other sources;
• the costs associated with hiring additional personnel and consultants as
our pre-clinical and clinical activities increase;
• the emergence of competing therapies and other adverse market developments;
• the ability to establish and maintain strategic licensing or other
arrangements and the financial terms of such agreements;
• the costs involved in preparing, filing, prosecuting, maintaining,
expanding, defending and enforcing patent claims, including litigation
costs and the outcome of such litigation;
• the extent to which we in-license or acquire other products and technologies;
• the costs of operating as a public company; and
• the extent to which our business is adversely impacted by the effects of
the novel coronavirus outbreak or by other health epidemics or pandemics.
Until such time, if ever, as we can generate substantial product revenues to support our capital requirements, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and 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 funds through collaborations, or other similar arrangements with third parties, we may need to relinquish valuable rights to our product candidates, future revenue streams, research programs or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings as and when needed, we may be required to delay, limit, reduce or terminate our product development 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.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations at September 30,
2020 .
Payments Due by Period
Less than 1-3 3-5 More than
Total 1 Year Years Years 5 Years
(in thousands)
Operating lease obligations $ 1,206 $ 736 $ 275 $ 195 $ -
Capital lease obligations 1,114 239 476 399 -
Total $ 2,320 $ 975 $ 751 $ 594 $ -
We enter into contracts in the normal course of business with CROs, clinical supply manufacturers and vendors for pre-clinical studies, research supplies and other services and products for operating purposes. These contracts
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generally provide for termination after a notice period, and, therefore, are cancelable contracts and not included in the table above.
We have also entered into license and collaboration agreements with third parties, which are in the normal course of business. We have not included future payments under these agreements in the table of contractual obligations above since obligations under these agreements are contingent upon future events such as our achievement of specified development, regulatory, and commercial milestones, or royalties on net product sales.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with
Except as described below with respect to revenue recognition for product
revenue, accounts receivable and inventory, during the three months ended
Revenue Recognition for Contract with Customers
ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation
Product Revenues, net
Our contracts with a specialty distributor, or SD, and a specialty pharmacy, or SP, which we refer to as our customers, are within the scope of ASC 606. Contractual performance obligations are limited to transfer of control of Uplizna® to the customer. We recognize product revenues, net of variable consideration related to certain allowances and accruals, in our consolidated financial statements upon transfer of control of Uplizna® to the customer. The transfer of control occurs at a point-in-time upon the customer's receipt of the product after considering when the customer obtains legal title to the product and the customer has accepted the product. At this point, customers can direct the use of and obtain substantially all of the remaining benefits of the product.
The customer is initially invoiced at the contractual list price for Uplizna®. Revenue is reduced from contractual list price at the time of recognition for expected chargebacks, rebates, discounts, and certain fees, which are referred to as GTN adjustments. These reductions are primarily attributed to government programs such as the Federal Supply Schedule, Tricare, Medicare, Medicaid and the 340B Drug Pricing Program containing various pricing implications such as mandatory discounts and pricing protection below the wholesaler list price. In addition, the reductions also include expected copay assistance for commercially insured patients, prompt-pay discounts and certain fees paid to the specialty distributor and specialty pharmacy based on contractually determined rates. The GTN adjustments are generally reflected as either a reduction to receivables (and settled through the issuance of credits), or, are reflected as a liability and settled through cash payments. We do not offer a general right of return and accordingly do not include product returns within the GTN adjustments.
Significant judgment is required in estimating GTN adjustments considering legal interpretations of applicable laws and regulations, current experience, current contract prices under applicable programs, unbilled claims, and processing time lags.
We also reduce product revenue for cash payments (e.g., distribution fees) made to entities within the distribution channel (including the customer) where we do not receive a distinct good or service in exchange for such payments. Shipping and handling activities represent fulfillment activities and we record such costs within cost of goods sold on the
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consolidated statements of operations and comprehensive loss. In addition, we have elected to exclude taxes collected from customers and remitted to governmental authorities from the measurement of the transaction price.
.
We monitor the financial performance and creditworthiness of our customers so that we can properly assess and respond to changes in the customers' credit profiles. We provide reserves against trade receivables for estimated credit losses that may result from a customer's inability to pay. Amounts determined to be uncollectible are written-off against the established reserve.
Other Company Information
Growth Company Status
We are an emerging growth company as defined in the JOBS Act. Under the JOBS Act, companies have extended transition periods available for complying with new or revised accounting standards. We have elected this exemption to delay adopting new or revised accounting standards until such time as those standards apply to private companies.
In addition, we intend to rely on the other exemptions and reduced reporting
requirements provided by the JOBS Act. Subject to certain conditions set forth
in the JOBS Act, we are entitled to rely on certain exemptions as an emerging
growth company, we are not required to, among other things, (i) provide an
auditor's attestation report on our system of internal controls over financial
reporting pursuant to Section 404(b), (ii) provide all of the compensation
disclosure that may be required of non-emerging growth public companies under
the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with
any requirement that may be adopted by the
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued and adopted accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, "Summary of significant accounting policies".
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under
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