akro_Current_Folio_10Q

Table of Contents

33

 

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 September 30, 2019

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 No. 001‑38944


Akero Therapeutics, Inc.

(Exact name of registrant as specified in its charter)


 

Delaware

    

81‑5266573

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

170 Harbor Way, 3rd Floor

South San Francisco, CA 94080

(650) 487‑6488


(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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 $0.0001 per share

 

AKRO

 

The Nasdaq Global Select 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 and post 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  

As of November 8, 2019, the registrant had 28,558,653 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

Table of Contents

 

 

 

 

 

Page

PART I. 

FINANCIAL INFORMATION

5

Item 1. 

Condensed Consolidated Financial Statements (unaudited)

5

 

Balance Sheets

5

 

Statements of Operations and Comprehensive Loss

6

 

Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

7

 

Statements of Cash Flows

8

 

Notes to Unaudited Financial Statements

9

Item 2. 

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

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4. 

Controls and Procedures

32

PART II. 

OTHER INFORMATION

32

Item 1. 

Legal Proceedings

32

Item 1A.

Risk Factors

33

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 3. 

Defaults Upon Senior Securities

75

Item 4. 

Mine Safety Disclosures

75

Item 5. 

Other Information

75

Item 6. 

Exhibits

76

Signatures 

 

77

 

 

 

2

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks, uncertainties, and other factors that may cause actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by these forward-looking statements. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

·

the success, cost and timing of our product development activities and clinical trials, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;

·

our ability to advance any product candidate into or successfully complete any clinical trial;

·

our ability or the potential to successfully manufacture our product candidates for clinical trials or for commercial use, if approved;

·

the potential for our identified research priorities to advance our technologies;

·

our ability to obtain and maintain regulatory approval, if obtained, of AKR-001 or any future product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;

·

the ability to license additional intellectual property relating to any future product candidates and to comply with our existing license agreement;

·

our ability to commercialize our products in light of the intellectual property rights of others;

·

the success of competing therapies that are or become available;

·

our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;

·

the commercialization of our product candidates, if approved;

·

our plans to research, develop and commercialize our product candidates;

·

our ability to attract collaborators with development, regulatory and commercialization expertise;

·

future agreements with third parties in connection with the commercialization of our product candidates and any other approved product;

·

the size and growth potential of the markets for our product candidates, and our ability to serve those markets;

·

the rate and degree of market acceptance of our product candidates;

·

regulatory developments in the United States and foreign countries;

·

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

·

our ability to attract and retain key scientific or management personnel;

·

the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

·

the impact of laws and regulations; and

·

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates.

 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or into which we may enter.

3

 

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed or incorporated by reference as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

 

4

 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Akero Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

    

September 30, 2019

    

December 31, 2018

Assets

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

147,835

 

$

75,975

Prepaid expenses and other current assets

 

 

2,238

 

 

1,156

Total current assets

 

 

150,073

 

 

77,131

Restricted cash

 

 

60

 

 

20

Other assets

 

 

10

 

 

 —

Total assets

 

$

150,143

 

$

77,151

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

 

 

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

93

 

$

1,373

Accrued expenses and other current liabilities

 

 

6,632

 

 

969

Total current liabilities

 

 

6,725

 

 

2,342

Other liabilities

 

 

34

 

 

 —

Total liabilities

 

 

6,759

 

 

2,342

Commitments and contingencies (Note 10)

 

 

  

 

 

  

Redeemable convertible preferred stock (Series A and B), $0.0001 par value; no shares authorized, issued and outstanding as of September 30, 2019; 64,730,410 shares authorized, issued and outstanding as of December 31, 2018; aggregate liquidation preference of $0 and $96,358 as of September 30, 2019 and December 31, 2018, respectively

 

 

 —

 

 

124,728

Stockholders’ equity (deficit):

 

 

  

 

 

  

Common stock, $0.0001 par value, 150,000,000 shares authorized as of September 30, 2019 and 75,000,000 shares authorized as of December 31, 2018; 28,558,653 and 238,986 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively

 

 

 3

 

 

 —

Additional paid-in capital

 

 

258,090

 

 

36,646

Accumulated deficit

 

 

(114,709)

 

 

(86,565)

Total stockholders’ equity (deficit)

 

 

143,384

 

 

(49,919)

Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)

 

$

150,143

 

$

77,151

 

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

5

 

Akero Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2019

    

2018

    

2019

    

2018

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

Research and development

 

$

13,885

 

$

1,253

 

$

23,908

 

$

9,899

General and administrative

 

 

2,424

 

 

474

 

 

5,522

 

 

911

Total operating expenses

 

 

16,309

 

 

1,727

 

 

29,430

 

 

10,810

Loss from operations

 

 

(16,309)

 

 

(1,727)

 

 

(29,430)

 

 

(10,810)

Other income (expense), net:

 

 

  

 

 

  

 

 

  

 

 

  

Change in fair value of preferred stock tranche obligation

 

 

 —

 

 

(8,400)

 

 

 —

 

 

(8,400)

Change in fair value of anti-dilution right liability

 

 

 —

 

 

(1,021)

 

 

 —

 

 

(1,032)

Other income, net

 

 

755

 

 

 —

 

 

1,286

 

 

 —

Total other income (expense), net

 

 

755

 

 

(9,421)

 

 

1,286

 

 

(9,432)

Net loss and comprehensive loss

 

 

(15,554)

 

 

(11,148)

 

 

(28,144)

 

 

(20,242)

Accretion of redeemable convertible preferred stock to redemption value

 

 

 —

 

 

(251)

 

 

 —

 

 

(321)

Net loss attributable to common stockholders

 

$

(15,554)

 

$

(11,399)

 

$

(28,144)

 

$

(20,563)

Net loss per share attributable to common stockholders - basic and diluted

 

$

(0.56)

 

$

(89.66)

 

$

(2.66)

 

$

(236.67)

Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted

 

 

28,024,779

 

 

127,141

 

 

10,589,119

 

 

86,884

 

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

 

 

6

 

Akero Therapeutics, Inc.

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

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable Convertible Preferred

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

Stock

 

Common Stock

 

Treasury Stock

 

Paid-In-

 

Accumulated

 

Stockholders’

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balances at December 31, 2018

 

64,730,410

 

$

124,728

 

238,986

 

$

 —

 

 —

 

$

 —

 

$

36,646

 

$

(86,565)

 

$

(49,919)

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

215

 

 

 —

 

 

215

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(5,362)

 

 

(5,362)

Balances at March 31, 2019

 

64,730,410

 

 

124,728

 

238,986

 

 

 —

 

 —

 

 

 —

 

 

36,861

 

 

(91,927)

 

 

(55,066)

Conversion of convertible preferred stock into common stock upon closing of initial public offering

 

(64,730,410)

 

 

(124,728)

 

21,056,136

 

 

 2

 

 —

 

 

 —

 

 

124,726

 

 

 —

 

 

124,728

Issuance of common stock upon closing of initial public offering, net of issuance costs and underwriting fees of $10,348

 

 —

 

 

 —

 

6,612,500

 

 

 1

 

 —

 

 

 —

 

 

95,452

 

 

 —

 

 

95,453

Issuance of restricted common stock upon early exercise of stock options

 

 —

 

 

 —

 

487,933

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Exercise of stock options

 

 —

 

 

 —

 

159,824

 

 

 —

 

 —

 

 

 —

 

 

100

 

 

 —

 

 

100

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

402

 

 

 —

 

 

402

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(7,228)

 

 

(7,228)

Balances at June 30, 2019

 

 —

 

 

 —

 

28,555,379

 

 

 3

 

 —

 

 

 —

 

 

257,541

 

 

(99,155)

 

 

158,389

Issuance of restricted common stock upon early exercise of stock options

 

 —

 

 

 —

 

3,274

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Vesting of restricted common stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

66

 

 

 —

 

 

66

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

483

 

 

 —

 

 

483

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(15,554)

 

 

(15,554)

Balances at September 30, 2019

 

 —

 

$

 —

 

28,558,653

 

$

 3

 

 —

 

$

 —

 

$

258,090

 

$

(114,709)

 

$

143,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2017

 

5,000,000

 

$

5,000

 

226,400

 

$

 —

 

 —

 

$

 —

 

$

 —

 

$

(4,564)

 

$

(4,564)

Repurchase of founders’ stock

 

 —

 

 

 —

 

(75,467)

 

 

 —

 

75,467

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of treasury stock as founders’ stock

 

 —

 

 

 —

 

75,467

 

 

 —

 

(75,467)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(421)

 

 

(421)

Balances at March 31, 2018

 

5,000,000

 

 

5,000

 

226,400

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(4,985)

 

 

(4,985)

Issuance of Series A redeemable convertible preferred stock, net of issuance costs of $216

 

17,653,333

 

 

8,787

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Accretion of redeemable convertible preferred stock to redemption value

 

 —

 

 

70

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(70)

 

 

(70)

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(8,673)

 

 

(8,673)

Balances at June 30, 2018

 

22,653,333

 

 

13,857

 

226,400

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(13,728)

 

 

(13,728)

Accretion of redeemable convertible preferred stock to redemption value

 

 —

 

 

251

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(34)

 

 

(217)

 

 

(251)

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

34

 

 

 —

 

 

34

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(11,148)

 

 

(11,148)

Balances at September 30, 2018

 

22,653,333

 

$

14,108

 

226,400

 

$

 —

 

 —

 

$

 —

 

$

 —

 

$

(25,093)

 

$

(25,093)

 

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

 

 

7

 

Akero Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

    

2019

    

2018

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

  

 

 

  

Net loss

 

$

(28,144)

 

$

(20,242)

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

 

 

  

 

 

  

Stock-based compensation expense

 

 

1,100

 

 

34

Shares issued in connection with Amgen Agreement

 

 

 —

 

 

1,353

Acquisition of technology in connection with Amgen Agreement

 

 

 —

 

 

5,000

Issuance date fair-value of anti-dilution liability

 

 

 —

 

 

1,639

Change in fair value of preferred stock tranche liability

 

 

 —

 

 

8,400

Change in fair value of anti-dilution right liability

 

 

 —

 

 

1,032

Changes in operating assets and liabilities:

 

 

 

 

 

  

Prepaid expenses and other assets

 

 

(1,097)

 

 

(563)

Accounts payable

 

 

(1,280)

 

 

459

Accrued expenses and other current liabilities

 

 

5,443

 

 

338

Net cash used in operating activities

 

 

(23,978)

 

 

(2,550)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

  

 

 

  

Acquisition of technology in connection with Amgen Agreement

 

 

 —

 

 

(5,000)

Net cash used in investing activities

 

 

 —

 

 

(5,000)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

  

 

 

  

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

 

 

 

 

14,784

Proceeds from issuance of common stock in initial public offering, net of issuance costs and underwriting fees

 

 

95,452

 

 

 —

Proceeds from the early exercise of stock options in exchange for restricted common stock

 

 

321

 

 

 —

Proceeds from the exercise of stock options

 

 

100

 

 

 —

Net cash provided by financing activities

 

 

95,873

 

 

14,784

Net increase in cash, cash equivalents and restricted cash

 

 

71,895

 

 

7,234

Cash and restricted cash at beginning of period

 

 

76,000

 

 

618

Cash, cash equivalents and restricted cash at end of period

 

$

147,895

 

$

7,852

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:

 

 

  

 

 

  

Conversion of convertible preferred stock into common stock

 

$

124,728

 

$

 —

Accretion of redeemable convertible preferred stock to redemption value

 

$

 —

 

$

321

Issuance date fair value of preferred stock tranche obligation

 

$

 —

 

$

7,350

Deferred offering costs included in accounts payable and accrued expenses and other current liabilities

 

$

 —

 

$

60

Common stock issued in connection with Amgen Agreement

 

$

 —

 

$

1,353

 

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

 

 

8

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

1.           Nature of the business and basis of presentation

Akero Therapeutics, Inc., together with its wholly-owned subsidiary Akero Securities Corporation, (“Akero” or the “Company”) is a clinical-stage biotechnology company focused on developing and commercializing transformative treatments for patients with serious metabolic diseases. Akero’s initial focus is on nonalcoholic steatohepatitis (“NASH”), a disease without any approved therapies. 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, liver cancer and death. We are developing AKR‑001, an analog of fibroblast growth factor 21 (“FGF21”), for NASH and began dosing patients for a Phase 2a clinical trial (BALANCED) of AKR‑001 in July 2019.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, ability to secure additional capital to fund operations, completion and success of clinical testing, compliance with governmental regulations, development by competitors of new technological innovations, dependence on key personnel and protection of proprietary technology. AKR‑001 will require extensive clinical testing prior to regulatory approval and commercialization. These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Basis of presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company after elimination of all intercompany accounts and transactions. All adjustments necessary for the fair presentation of the Company’s condensed consolidated financial statements for the periods have been reflected. The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2018, which are included in the Company’s registration statement on Form S‑1, as amended, relating to our initial public offering (“IPO”), (File No. 333‑231747) dated and filed on May 24, 2019 with the U.S. Securities and Exchange Commission ( the “SEC”), as declared effective by the SEC on June 19, 2019 (the “Registration Statement”). Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies.

Initial public offering

On June 19, 2019, the Registration Statement became effective. The IPO closed on June 24, 2019 at which time the Company issued 6,612,500 shares of common stock, including the exercise in full by the underwriters of their option to purchase up to 862,500 additional shares of common stock, at a public offering price of $16.00 per share. The Company received $98,394, net of underwriting discounts and commissions, but before deducting offering costs payable by the Company, which were $2,942. Upon the closing of the IPO, all outstanding shares of redeemable convertible preferred stock converted into 21,056,136 shares of common stock (see Note 4). In connection with the completion of its IPO in June 2019, the Company amended its certificate of incorporation to authorize the issuance of up to 150,000,000 shares of $0.0001 par value common stock and 10,000,000 shares of $0.0001 par value preferred stock designated as undesignated preferred stock.

Reverse stock split

On June 6, 2019, the Company effected a one-for-3.07418 reverse stock split of the Company’s common stock. All common stock, stock options and per share information presented in the unaudited condensed consolidated financial statements have been adjusted to reflect the reverse stock split on a retroactive basis for all periods presented. There was

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

no change in the par value of the Company’s common stock. The ratio by which shares of preferred stock are convertible into shares of common stock was adjusted to reflect the effects of the reverse stock split.

Liquidity

In accordance with Accounting Standards Update (“ASU”) No. 2014‑15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205‑40), the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued.

Since its inception, the Company has funded its operations primarily with proceeds from sales of redeemable convertible preferred stock and most recently with proceeds from the IPO. The Company has incurred recurring losses since its inception, including a net loss of $15,554 and $11,148 for the three months ended September 30, 2019 and 2018, respectively and net losses of $28,144 and $20,242 for the nine months ended September 30, 2019 and 2018, respectively. In addition, as of September 30, 2019, the Company had an accumulated deficit of $114,709. The Company expects to continue to generate operating losses for the foreseeable future. As of November 12, 2019, the issuance date of these condensed consolidated financial statements, the Company expects that its existing cash and cash equivalents of $147,835 as of September 30, 2019, will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of these condensed consolidated financial statements. The Company expects that it will require additional funding beyond this time to complete the clinical development of AKR‑001, commercialize AKR‑001, if it receives regulatory approval, and pursue in-licenses or acquisitions of other product candidates.

If the Company is unable to obtain funding, the Company will be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

 

2.           Summary of significant accounting policies

Unaudited interim financial statements

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with GAAP for interim financial reporting and as required by Regulation S-X, Rule 10‑01. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of September 30, 2019 and the results of its operations and its cash flows for the three and nine months ended September 30, 2019 and 2018 and the condensed consolidated statement of stockholders’ equity (deficit) as of September 30, 2019. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2019 and 2018 are unaudited. The results for the three and nine months ended September 30, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period.

Use of estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses, the valuations of common stock, preferred stock tranche obligation, anti-dilution right liability and the valuation allowance for deferred tax assets.

Cash and cash equivalents

The Company classifies as cash and cash equivalents amounts on deposit in banks and cash invested temporarily in various instruments, primarily money market accounts, with original maturities of three months or less at the time of purchase. The carrying amounts reported in the condensed consolidated balance sheet represents the fair values of cash and cash equivalents.

Restricted cash

As of December 31, 2018 and September 30, 2019, the Company was required to maintain a separate cash balance of $20 and $40, respectively, to collateralize corporate credit cards with a bank, which was classified as restricted cash (non-current) on its condensed consolidated balance sheets.

As of December 31, 2018, the Company was required to maintain a separate cash balance of $5 for the benefit of the landlord in connection with the Company’s office space lease in South San Francisco, California (the “Lease”), which is classified as other current assets on its condensed consolidated balance sheets. As of September 30, 2019, in connection with the First Amendment to the Lease, the Company was required to maintain a separate cash balance of $20 for the benefit of the landlord, which was classified as restricted cash (non-current) on its condensed consolidated balance sheets (see Note 10).

Deferred offering costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process preferred stock or common stock equity financings as deferred offering costs until such financings are consummated. As of December 31, 2018, the Company recorded deferred offering costs of $361 in the accompanying condensed consolidated balance sheets. As of September 30, 2019, the Company did not have any deferred offering costs recorded.

Fair value measurements

Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

·

Level 1—Quoted prices in active markets for identical assets or liabilities.

·

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

·

Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The carrying values of the Company’s prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

Stock-based compensation

The Company measures all stock-based awards granted to employees and nonemployees based on the fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award, on a straight-line basis. The Company accounts for forfeitures as they occur. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. Prior to our initial public offering, the exercise price for all stock options granted was at the estimated fair value of the underlying common stock as determined on the date of grant by the Company’s Board of Directors.

Preferred stock tranche obligation

The Company classified its preferred stock tranche obligation for the future purchase, and option to purchase, Series A Preferred Stock as a liability on its September 30, 2018 consolidated balance sheets as the preferred stock tranche obligation was a freestanding financial instrument that required the Company to transfer equity instruments upon future closings of the Series A Preferred Stock. The preferred stock tranche obligation was initially recorded at fair value upon the date of issuance and was subsequently remeasured to fair value at each reporting date. Changes in the fair value of the preferred stock tranche obligation were recognized as a component of other expense in the consolidated statements of operations and comprehensive loss. Changes in the fair value of the preferred stock tranche obligation were recognized until the tranche obligations were fulfilled or otherwise extinguished in the fourth quarter of 2018. 

In November 2018, in connection with the Company's issuance and sale of Series A Preferred Stock, the Company satisfied its obligation to issue additional shares under the Second Tranche Closing. In December 2018, in connection with the Company's issuance and sale of Series B Preferred Stock, the Company terminated the option to purchase Series A Preferred Stock provided under the 2018 Series A Agreement.

Anti-dilution right liability

The Company classified the anti-dilution right under its license agreement with Amgen Inc. (“Amgen”) (see Note 7) as a derivative liability on its condensed consolidated balance sheets as the anti-dilution right represented a freestanding financial instrument that required the Company to transfer equity instruments upon future equity closings. The anti-dilution right liability was initially recorded at fair value upon the date of issuance and was subsequently remeasured to fair value at each reporting date.

In November 2018, in connection with the Company’s issuance and sale of Series A Preferred Stock, the Company satisfied its anti-dilution right under the Amgen Agreement (as discussed in Note 7 below).

Classification and accretion of redeemable convertible preferred stock

The Company classified its redeemable convertible preferred stock outside of stockholders’ equity (deficit) because the shares contained certain redemption features that were not solely within the control of the Company. Costs incurred in connection with the issuance of redeemable convertible preferred stock, as well as the recognition of the preferred stock tranche obligation, were recorded as a reduction of gross proceeds from issuance. The net carrying value

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

of redeemable convertible preferred stock were accreted to their redemption values through a charge to additional paid-in capital or accumulated deficit over the period from date of issuance to the earliest date on which the holders could, at their option, elect to redeem their shares. In December 2018, in connection with the Company’s issuance and sale of Series B Preferred Stock, the Company terminated the redemption rights associated with the Series A Preferred Stock that allowed the holders, at their option, to elect to redeem their shares at a specified date. Accordingly, the Company ceased accreting the net carrying value of the Series A redeemable convertible preferred stock to the redemption value.

Emerging growth company

The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). Under the JOBS Act, companies have extended transition periods available for complying with new or revised accounting standards. The Company has elected this exemption to delay adopting new or revised accounting standards until such time as those standards apply

Recently issued accounting pronouncements not yet adopted

In February 2016, the FASB issued ASU No. 2016‑02, Leases (Topic 842) (“ASU 2016‑02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today. ASU 2016‑02 is effective for the Company for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. The Company is in the process of completing its review of its existing lease agreements under ASC 842 and does not expect the adoption of ASU 2016‑02 to have a material impact on its financial position, results of operations or cash flows.

In July 2017, the FASB issued ASU No. 2017‑11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) (Part I) Accounting for Certain Financial Instruments with Down Round Features (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017‑11”). Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of non-public entities contained within Accounting Standards Codification (“ASC”) Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. ASU 2017‑11 is effective for the Company for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2017‑11 will have on its consolidated financial statements.

In August 2018, the FASB issued No. ASU 2018‑13, Fair Value Measurement (Topic 820)—Disclosure Framework (“ASU 2018‑13”), which improves the disclosure requirements for fair value measurements. For non-public entities, ASU 2018‑13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for any removed or modified disclosures. The Company is currently evaluating the impact that the adoption of ASU 2018‑13 will have on its consolidated financial statements.

 

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

3.           Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2019

 

2018

Accrued employee compensation and benefits

 

$

966

 

$

304

Accrued external research and development expenses

 

 

5,182

 

 

430

Accrued legal and professional fees

 

 

199

 

 

106

Liability for early exercise of stock options and restricted stock

 

 

225

 

 

 —

Other

 

 

60

 

 

129

 

 

$

6,632

 

$

969

 

 

4.           Redeemable convertible preferred stock

Upon completion of our IPO on June 24, 2019, all outstanding shares of our redeemable convertible preferred stock were converted into 21,056,136 shares of common stock and the related carrying value was reclassified to common stock and additional paid-in capital. Accordingly, there were no shares of redeemable convertible preferred stock outstanding as of September 30, 2019.

As of December 31, 2018, redeemable convertible preferred stock consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Preferred

    

 

 

    

 

 

    

 

 

 

Preferred

 

stock

 

 

 

 

 

 

 

Common stock

 

 

stock

 

issued and

 

Carrying

 

Liquidation

 

issuable upon

 

    

authorized

    

outstanding

    

value

    

preference

    

conversion

Series A Preferred Stock

 

50,858,462

 

50,858,462

 

$

79,457

 

$

50,858

 

16,543,739

Series B Preferred Stock

 

13,871,948

 

13,871,948

 

$

45,271

 

$

45,500

 

4,512,397

 

 

64,730,410

 

64,730,410

 

$

124,728

 

$

96,358

 

21,056,136

 

 

5.           Stockholder’s equity (deficit)

Common stock

As of September 30, 2019 and December 31, 2018, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 150,000,000 shares and 75,000,000 shares of $0.0001 par value common stock, respectively. The voting, dividend and liquidation rights of the holders of the Company’s common stock were subject to and qualified by the rights, powers and preferences of the holders of the redeemable convertible preferred stock set forth in the Company’s audited annual consolidated financial statements and related notes included in the Registration Statement.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. The holders of common stock, voting exclusively and as a separate class, are entitled to elect one director of the Company. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to the preferential dividend rights of redeemable convertible preferred stock. Through September 30, 2019, no cash dividends had been declared or paid.

On June 24, 2019, the Company completed its IPO at which time the Company issued 6,612,500 shares of common stock, including the exercise in full by the underwriters of their option to purchase up to 862,500 additional

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

shares of common stock, at a public offering price of $16.00 per share. The Company received $98,394, net of underwriting discounts and commissions, but before deducting offering costs payable by the Company, which were $2,942. Upon the closing of the IPO, all outstanding shares of convertible preferred stock converted into 21,056,136 shares of common stock (see Note 4). As of September 30, 2019 and December 31, 2018, there were 28,558,653 and 238,986 shares of common stock issued and outstanding, respectively.

The following shares of common stock were reserved for issuance as follows:

 

 

 

 

 

 

 

    

September 30, 2019

    

December 31, 2018

Conversion of outstanding shares of preferred stock

 

 —

 

21,056,136

Options outstanding under the 2018 Stock Option and Grant Plan

 

2,300,708

 

1,839,913

Options outstanding under the 2019 Stock Option and Incentive Plan

 

116,526

 

Options available for future grant

 

2,455,931

 

1,219,461

2019 Employee Stock Purchase Plan

 

273,869

 

 

 

5,147,034

 

24,115,510

 

Undesignated preferred stock

As of September 30, 2019, the Company’s fourth amended and restated certificate of incorporation authorized the Company to issue up to 10,000,000 shares of undesignated preferred stock, par value $0.0001 per share. There were no undesignated preferred shares issued or outstanding as of September 30, 2019.

Restricted common stock

In March 2017, the Company issued an aggregate of 226,400 shares of restricted common stock under restricted stock agreements with the founders. Pursuant to the terms of the agreements, the restricted common stock was initially subject to a vesting schedule over a four-year period commencing in January 2017 and culminating in January 2021. During the vesting period, the Company has the right to repurchase up to all unvested shares at the amount paid if the relationship between the recipient and the Company ceases. Subject to the continued employment or other business relationship with the Company, all of the restricted common stock becomes fully vested within four years of the date of issuance.

In October 2017, 75,467 shares of restricted common stock were subject to repurchase by the Company when one of the founders terminated his relationship with the Company. The Company repurchased the shares in March 2018 for an immaterial amount and immediately reissued the shares to the remaining founders. In connection with the repurchase and reissuance of the shares, the Company amended the restricted stock agreements with the remaining founders such that the restricted common stock is now subject to a vesting schedule over a two-year period commencing in May 2018 and culminating in June 2020.

The Company accounted for the acceleration of vesting under the amended restricted stock agreement as a modification of the original awards and recognized the remaining unvested shares prospectively over the revised vesting period. The grant date fair value of restricted stock vested during the three and nine months ended September 30, 2019 was insignificant.

In April, June and July 2019, the Company amended certain option grant agreements granted under the Company’s 2018 Stock Option and Grant Plan to allow the holders the right to early exercise unvested options, subject to a repurchase right held by the Company equal to the lesser of the original exercise price per share or the fair value of the shares on the repurchase date. The unvested shares issued as a result of the early exercise are deemed restricted stock pursuant to a restricted stock agreement and a vesting schedule identical to the vesting schedule of the original grant

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

agreement. The proceeds related to unvested restricted common stock are recorded as liabilities until the stock vests, at which point they are reclassified to additional paid-in capital. Common shares issued for the early exercise of options are included in issued and outstanding shares. As of September 30, 2019, there were 383,320 shares of unvested restricted common stock that had been early exercised and were subject to repurchase.

The following table summarizes restricted stock activity since December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

Grant-Date Fair

 

    

Number of Shares

    

 Value

Unvested restricted common stock as of December 31, 2018

 

80,190

 

$

 —

Early exercise of unvested stock options

 

491,207

 

 

448

Vested

 

(150,331)

 

 

(96)

Unvested restricted common stock as of September 30, 2019

 

421,066

 

$

352

 

As of September 30, 2019, there were 421,066 shares of unvested restricted common stock consisting of 37,746 shares from unvested restricted common stock awards under restricted stock agreements with the founders and 383,320 shares from the early exercise of stock options.

 

6.           Stock-based awards

2018 Stock option and grant plan

The Company’s 2018 Stock Option and Grant Plan (the “2018 Plan”) provided for the Company to grant incentive stock options or nonqualified stock options, restricted stock awards and other stock-based awards to employees, directors and consultants of the Company. The 2018 Plan was administered by the board of directors or, at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions were determined at the discretion of the board of directors, or its committee if so delegated.

The total number of shares of common stock that could have been issued under the 2018 Plan was 3,071,960 shares, of which 107,635 shares remained available for grant on June 18, 2019, the date that the Company’s 2019 Stock Option and Incentive Plan (the “2019 Plan”) became effective. Upon the effectiveness of the 2019 Plan, the 107,635 remaining shares available under the 2018 Plan were transferred and became available for issuance under the 2019 Plan. Shares of common stock underlying outstanding awards under the 2018 Plan that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) will be added to the shares of common stock available for issuance under the 2019 Plan.

2019 Stock option and incentive plan

The 2019 Plan was adopted and approved by the Company’s board of directors in May 2019 and by the Company’s stockholders in June 2019. The 2019 Plan became effective on June 18, 2019 and replaced the Company’s 2018 Plan on that date. The 2019 Plan allows the board of directors or the compensation committee of the board of directors to make equity-based incentive awards to the Company’s officers, employees, directors or other key persons (including consultants).  The number of shares initially reserved for issuance under the 2019 Plan is 2,572,457, which includes the 107,635 shares transferred from the 2018 Plan, and shall be cumulatively increased on January 1, 2020 and each January 1 thereafter by 4% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s board of directors or compensation committee of the board of directors.

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

The 2019 Plan is administered by the board of directors or, at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or its committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option may not be greater than ten years. All incentive options granted to any person possessing more than 10% of the total combined voting power of all classes of shares may not have an exercise price of less than 110% of the fair market value of the common stock on the grant date. Stock options granted to employees, officers, members of the board of directors and consultants will typically vest over a four-year period.

Shares that are expired, terminated, surrendered or canceled under the 2019 Plan without having been fully exercised will be available for future awards.

2019 Employee stock purchase plan

The 2019 Employee Stock Purchase Plan (the “2019 ESPP”) was adopted and approved by the Company’s board of directors in May 2019 and by the Company’s stockholders in June 2019. The 2019 ESPP became effective on June 18, 2019, at which time 273,869 shares were reserved for issuance. The 2019 ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2020 and each January 1 thereafter through January 1, 2029, by the least of (i) 1% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31, (ii) 410,803 shares or (iii) such number of shares as determined by the compensation committee.

Stock option valuation

The assumptions that the Company used to determine the grant-date fair value of stock options granted to employees, directors and consultants were as follows, presented on a weighted average basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2019

    

2018

    

2019

    

2018

Expected term (in years)

 

 

n/a

 

5.87

 

 

6.04

 

5.87

Volatility

 

 

n/a

 

70.86

%

 

69.80

%  

70.86

Risk-free interest rate

 

 

n/a

 

2.86

%

 

2.39

%  

2.86

Dividend yield

 

 

n/a

 

0.00

%

 

0.00

%  

0.00

Weighted average fair value of common stock

 

 

n/a

$

0.29

 

$

8.26

 

0.29

 

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

Stock options

The following table summarizes the Company’s stock option activity since December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Weighted-

    

Weighted-

    

 

 

 

 

 

 

Average

 

Average

 

Aggregate

 

 

 

 

Exercise

 

remaining

 

Intrinsic

 

 

Number

 

Price per

 

contractual

 

Value

 

 

of Options

 

Share

 

term (years)

 

(000's)

Balance Outstanding, December 31, 2018

 

1,839,913

 

$

0.61

 

9.74

 

$

10,577

Options granted

 

1,228,352

 

$

7.61

 

  

 

 

  

Options exercised

 

(651,031)

 

$

0.65

 

  

 

 

  

Balance Outstanding, September 30, 2019

 

2,417,234

 

$

4.16

 

9.23

 

$

44,931

Exercisable, September 30, 2019

 

72,910

 

$

3.43

 

9.11

 

$

1,409

Vested and expected to vest, September 30, 2019

 

2,417,234

 

$

4.16

 

9.23

 

$

44,931

 

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

The weighted average grant-date fair value per share of stock options granted during the nine months ended September 30, 2019 was $4.85.

Stock-based compensation

The Company recorded $34 in stock-based compensation expense for the three and nine months ended September 20, 2018, with $18 classified as research and development expense and $16 classified as general and administrative expense in the condensed consolidated statements of operations and comprehensive loss The Company recorded total stock-based compensation for options granted for the three and nine months ended September 30, 2019 of $483 and $1,100, with $125 and $301 classified as research and development expense and $358 and $799 classified as general and administrative expense, respectively, in the condensed consolidated statements of operations and comprehensive loss.

As of September 30, 2019, total unrecognized compensation cost related to the unvested stock-based awards was $6,235, which is expected to be recognized over a weighted average period of 3.11 years.

In April, June and July 2019, certain option holders early exercised options to purchase 491,207 shares of common stock, at an average exercise price of $0.65 per share, for cash proceeds of $321 (See Note 5). Stock-based compensation expense related to these options will continue to be recognized over the requisite service period of the awards based on the grant-date fair value which was determined using the Black-Scholes option-pricing model.

 

7.           Amgen license agreement

In June 2018, the Company entered into a license agreement (the “Amgen Agreement”) with Amgen pursuant to which the Company was granted an exclusive license to certain patents and intellectual property related to a long-acting FGF21 analog in order to commercially develop, manufacture, use and distribute FGF21 as a treatment for NASH and other serious metabolic diseases. The Amgen Agreement provides the Company with exclusive global rights to the licensed products and the right to grant sublicenses that cover AKR‑001 to third parties.

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

In exchange for these rights, the Company made an upfront payment of $5,000 and issued 2,653,333 shares of Series A Preferred Stock with a fair value of $1,353 to Amgen. The total consideration transferred to Amgen under the agreement of $6,353 is included within research and development expense in the condensed consolidated statements of operations and comprehensive loss. The Company accounted for the acquisition of technology as an asset acquisition because it did not meet the definition of a business. The Company recorded the total consideration transferred to Amgen as research and development expense in the condensed consolidated statements of operations and comprehensive loss because the acquired technology represented in-process research and development and had no alternative future use.

 In addition, under the Amgen Agreement, Amgen was entitled to maintain a 10% ownership interest of the outstanding shares of the Company’s common stock, on a fully diluted and converted basis, through the second closing of the Company’s Series A Preferred Stock financing. The Company assessed the Amgen anti-dilution right and determined that the right (i) met the definition of a freestanding financial instrument that was not indexed to the Company’s own stock and (ii) met the definition of a derivative and did not qualify for equity classification. The anti-dilution right liability was initially valued at $1,639 which the Company recorded as research and development expense in June 2018. Changes in the fair value of the anti-dilution right liability continued to be recognized until the Company satisfied the obligation which occurred in November 2018. The Company recognized a loss of $1,021 and $1,032 within other expense in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2018, related to the change in fair value of the anti-dilution right liability prior to its extinguishment in November 2018.

In November 2018, in connection with the second closing of the  Company’s Series A Preferred Stock financing, the Company issued 3,205,128 shares of Series A Preferred Stock to Amgen for a total value of $7,404 satisfying its anti-dilution obligation under the Amgen Agreement. The Company reclassified the carrying value of the anti-dilution right liability, equal to the then current fair value of $7,404, to the carrying value of the Series A Preferred Stock.

During the three and nine months ended September 30, 2018, the Company recorded research and development expense of $7,992 in connection with the Amgen Agreement, including the upfront cash payment of $5,000, the fair value of $1,353 of shares of Series A Preferred Stock issued to Amgen and the fair value of $1,639 for the issuance of the anti-dilution right liability. During the three and nine months ended September 30, 2019, the Company did not record any research and development expense in connection with the Amgen Agreement.

 

8.           Income taxes

During the three and nine months ended September 30, 2019 and 2018, the Company recorded no income tax benefits for the net operating losses incurred or for the research and development tax credits generated in each period due to its uncertainty of realizing a benefit from those items.  All of the Company’s operating losses since inception have been generated in the United States.

 

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

-9.           Net loss per share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2019

    

2018

    

2019

    

2018

Numerator:

 

 

  

 

 

  

 

 

  

 

 

  

Net loss

 

$

(15,554)

 

$

(11,148)

 

$

(28,144)

 

$

(20,242)

Accretion of redeemable convertible preferred stock to redemption value

 

 

 —

 

 

(251)

 

 

 —

 

 

(321)

Net loss attributable to common stockholders, basic and diluted

 

$

(15,554)

 

$

(11,399)

 

$

(28,144)

 

$

(20,563)

Denominator:

 

 

  

 

 

  

 

 

  

 

 

  

Weighted average common shares outstanding, basic and diluted

 

 

28,024,779

 

 

127,141

 

 

10,589,119

 

 

86,884

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.56)

 

$

(89.66)

 

$

(2.66)

 

$

(236.67)

 

The Company excluded 42,667 shares and 99,259 shares of restricted common stock, presented on a weighted average basis, from the calculations of basic net loss per share attributable to common stockholders for the three months ended September 30, 2019 and 2018, respectively, because those shares had not vested. The Company excluded 56,679 shares and 139,516 shares of restricted common stock, presented on a weighted average basis, from the calculations of basic net loss per share attributable to common stockholders for the nine months ended September 30, 2019 and 2018, respectively, because those shares had not vested.

The Company’s potentially dilutive securities, which include stock options, unvested restricted common stock and redeemable convertible preferred stock, have been excluded from the computation of diluted net loss per share attributable to common stockholders as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

 

 

 

 

 

Three and nine months ended

 

 

September 30, 

 

    

2019

    

2018

Options to purchase common stock

 

2,417,234

 

740,767

Shares to be purchased under employee stock purchase plan

 

2,626

 

 —

Unvested restricted stock

 

421,066

 

94,338

Redeemable convertible preferred stock (as converted to common stock)

 

 

7,368,894

Total

 

2,840,926

 

8,203,999

 

 

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

10.         Commitments and contingencies

Lease agreements

The Company entered into a use and occupancy agreement for office space in Cambridge, Massachusetts on August 15, 2018, with Atlas Venture Life Science Advisors, LLC, a related party (See Note 11). The parties terminated the agreement in September 2019.

In October 2018, the Company entered into a lease agreement for office space in South San Francisco, California. In March 2019, the Company amended this lease agreement (the “First Amendment”) to extend the term of the lease and expand the square footage of the existing leased office space. The First Amendment lease expires in March 2021. Monthly lease payments to be paid under the amended agreement total $19 which are subject to a 3% annual increase beginning in October 2019 and continuing for each successive year until the lease has expired or been terminated. The Company provided a security deposit of approximately $20, which is included as a component of restricted cash on the Company’s condensed consolidated balance sheet as of September 30, 2019.

In September 2019 the Company entered into an agreement to use office space in Cambridge, Massachusetts.  The agreement is for an initial six month term with rolling six month extensions. The Company makes monthly payments of $4 under the agreement.

The Company recognizes rent expense on a straight-line basis over the respective lease periods and has recorded rent expense of $87 and $230 for the three and nine months ended September 30, 2019, respectively.

Research and manufacturing commitments

The Company has entered into agreements with contract research organizations and contract manufacturing organizations to provide services in connection with its nonclinical studies and clinical trials and to manufacture clinical development materials. As of September 30, 2019, the Company had non-cancelable purchase commitments under these agreements totaling $6,158.

Indemnification agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not currently aware of any indemnification claims and has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of September 30, 2019.

Legal proceedings

The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

11.         Related party transactions

Atlas Venture Life Science Advisors, LLC

A partner of Atlas Venture Life Science Advisors, LLC (“Atlas”), a significant investor in the Company, has served on the Company’s board of directors since 2018. In August 2018, the Company entered into a use and occupancy agreement for office space with Atlas in Cambridge, Massachusetts. The parties terminated the agreement in September 2019. As of September 30, 2019, the Company had no outstanding liability to Atlas.

 

12.         Subsequent events

The Company evaluated subsequent events through November 12, 2019, the date on which these financial statements were issued. Based on this evaluation, it was determined that no subsequent events occurred that require recognition or disclosure in its financial statements for the three months ended September 30, 2019.

 

 

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

The following discussion should be read in conjunction with our condensed financial statements and accompanying footnotes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related footnotes included in our final prospectus for our initial public offering filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, or the Securities Act, with the Securities and Exchange Commission, or the SEC, dated June 19, 2019, or the Prospectus.  Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” Because of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Overview

We are a clinical-stage biotechnology company focused on developing and commercializing transformative treatments for serious metabolic diseases with high unmet medical need. Our initial focus is nonalcoholic steatohepatitis, or NASH, a disease without any approved therapies. NASH is a severe form of nonalcoholic fatty liver disease, or NAFLD, characterized by inflammation and fibrosis in the liver that can progress to cirrhosis, liver failure, liver cancer and death. NASH is a leading cause for liver transplantation. Our lead product candidate, AKR-001, which we are developing as a potential treatment for patients with NASH, is an analog of fibroblast growth factor 21, or FGF21. FGF21 is an endogenously-expressed hormone that regulates metabolism of lipids, carbohydrates and proteins throughout the body. FGF21 also plays a critical role in protecting many types of cells from various forms of stress. FGF21 analogs have shown evidence of therapeutic benefit in clinical trials of patients with NASH, many of whom are dyslipidemic and insulin resistant. In previous clinical trials in patients with type 2 diabetes, or T2D, administration of AKR-001 was associated with substantial improvements in lipid metabolism and insulin sensitivity. We believe these data demonstrate AKR-001’s potential to serve as a cornerstone for the treatment of NASH. On May 24, 2019, the U.S. Food and Drug Administration, or FDA, Division of Gastroenterology and Inborn Errors Products cleared our Investigational New Drug application, or IND, to conduct a Phase 2a clinical trial evaluating AKR-001 in the treatment of NASH patients. We began screening patients for our Phase 2a clinical trial (BALANCED) on May 28, 2019 and dosed our first patient on July 2, 2019. We expect to complete collection of data for the primary endpoint of our Phase 2a clinical trial in the first quarter of 2020, and we expect to complete repeat liver biopsies and all collection of data for the clinical trial in the second quarter of 2020.

We were incorporated in January 2017 and received initial seed funding in the amount of $5.0 million from Apple Tree Partners. Since our inception, we have devoted substantially all of our efforts to organizing and staffing our company, business planning, raising capital, in-licensing rights to AKR-001, research and development activities for AKR-001, building our intellectual property portfolio and providing general and administrative support for these operations. To date, we have principally raised capital through the issuance of convertible preferred stock and the initial public offering of our common stock.

We have incurred significant operating losses since inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of AKR-001 and any future product candidates. Our net losses were $28.1 million and $81.7 million for the nine months ended September 30, 2019 and the year ended December 31, 2018, respectively. The net loss for the year ended December 31, 2018 included non-cash charges of $62.2 million related to the change in fair value of our preferred stock tranche obligation and $5.8 million related to the change in fair value of our anti-dilution right liability. As of September 30, 2019, we had an accumulated deficit of $114.7 million. We expect to continue to incur significant expenses for at least the next several years as we advance AKR-001 through later-stage clinical development, develop additional product candidates and seek regulatory approval of any product candidates that complete clinical development. In addition, if we obtain marketing approval for any product candidates, we expect to incur significant commercialization expenses related

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to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates.

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 product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, which may include collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, reduce or eliminate the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to 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 product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of September 30, 2019, we had cash and cash equivalents of $147.8 million.

Financial operations overview

Collaboration and grant revenue

We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all. If our development efforts for AKR-001 or additional product candidates that we may develop in the future are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements.

Operating expenses

Research and development expenses

Research and development expenses consist primarily of costs incurred in connection with the development of AKR-001, as well as unrelated discovery program expenses. We expense research and development costs as incurred. These expenses include:

·

employee-related expenses, including salaries, related benefits and stock-based compensation expense, for employees engaged in research and development functions;

·

expenses incurred under agreements with contract research organizations, or CROs, that are primarily engaged in the oversight and conduct of our clinical trials; contract manufacturing organizations, or CMOs, that are primarily engaged to provide drug substance and product for our clinical trials, research and development programs, as well as investigative sites and consultants that conduct our clinical trials, nonclinical studies and other scientific development services;

·

the cost of acquiring and manufacturing nonclinical and clinical trial materials, including manufacturing registration and validation batches;

·

costs related to compliance with quality and regulatory requirements; and

·

payments made under third-party licensing agreements.

 

Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

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Product candidates in later stages of clinical development, such as AKR-001, generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned clinical development activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of AKR-001 and any future product candidates.

Our clinical development costs may vary significantly based on factors such as:

·

per patient trial costs;

·

the number of trials required for 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 patients that participate in the trials;

·

the number of doses that patients receive;

·

the drop-out or discontinuation rates of patients enrolled in clinical trials;

·

potential additional safety monitoring requested by regulatory agencies;

·

the duration of patient participation in the trials and follow-up;

·

the cost and timing of manufacturing our product candidates;