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 March 31, 2020

OR

 

 

 

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

 

For the transition period from                      to                    

Commission File 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 May 8, 2020, the registrant had 28,673,644 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

Table of Contents

 

 

 

 

 

Page

PART I. 

FINANCIAL INFORMATION

 

Item 1. 

Condensed Consolidated Financial Statements 

5

 

Condensed Consolidated Balance Sheets (Unaudited)

5

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

6

 

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

7

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

8

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2. 

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

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4. 

Controls and Procedures

34

PART II. 

OTHER INFORMATION

 

Item 1. 

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

79

Item 3. 

Defaults Upon Senior Securities

79

Item 4. 

Mine Safety Disclosures

79

Item 5. 

Other Information

79

Item 6. 

Exhibits

80

Signatures 

 

81

 

 

 

2

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements 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 to complete Cohort C in our ongoing Phase 2a clinical trial of AKR-001 in NASH patients, including the ability to complete patient enrollment and obtain data during the ongoing COVID-19 pandemic;

·

our ability to manufacture drug product and submit an acceptable IND package to support our planned Phase 2b clinical trial during the ongoing COVID-19 pandemic;

·

our ability to initiate and complete enrollment and collect sufficient data in our planned Phase 2b/3 clinical trial during the ongoing COVID-19 pandemic;

·

the potential for COVID-19 or other pandemic, epidemic or outbreak of infectious diseases to disrupt our business plans, product development activities, ongoing clinical trials, including the timing and enrollment of patients,  the health of our employees and the strength of our supply chain;

·

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

3

 

·

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.

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.

NOTE REGARDING TRADEMARKS

Akero Therapeutics, Inc. is the owner of the AKERO trademark, as well as certain other trademarks, including design versions of some of these trademarks.  The symbols ™ and ® are not used in connection with the presentation of these trademarks in this report and their absence does not indicate a lack of trademark rights.  Certain other trademarks used in this report are the property of third-party trademark owners and may be presented with or without trademark references. 

All brand names or trademarks appearing in this report are the property of their respective owners. Unless the context requires otherwise, references in this report to “Akero,” the “Company,” “we,” “us” and “our” refer to Akero Therapeutics, Inc. and its subsidiary.

 

 

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)

 

 

 

 

 

 

 

 

 

    

March 31, 2020

    

December 31, 2019

Assets

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

47,245

 

$

64,788

Short-term marketable securities

 

 

78,040

 

 

71,612

Prepaid expenses and other current assets

 

 

933

 

 

1,649

Total current assets

 

 

126,218

 

 

138,049

Right of use asset

 

 

226

 

 

 —

Other assets

 

 

177

 

 

69

Total assets

 

$

126,621

 

$

138,118

Liabilities and Stockholders’ Equity

 

 

 

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

1,535

 

$

947

Accrued expenses and other current liabilities

 

 

6,751

 

 

8,422

Total current liabilities

 

 

8,286

 

 

9,369

Other liabilities

 

 

12

 

 

23

Total liabilities

 

 

8,298

 

 

9,392

Commitments and contingencies (Note 11)

 

 

  

 

 

  

Stockholders’ equity:

 

 

  

 

 

  

Common stock, $0.0001 par value, 150,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 28,671,222 and 28,567,837 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

 

 

 3

 

 

 3

Additional paid-in capital

 

 

260,481

 

 

259,049

Accumulated other comprehensive gain (loss)

 

 

45

 

 

(6)

Accumulated deficit

 

 

(142,206)

 

 

(130,320)

Total stockholders’ equity

 

 

118,323

 

 

128,726

Total liabilities and stockholders’ equity

 

$

126,621

 

$

138,118

 

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 March 31, 

 

    

2020

    

2019

Operating expenses:

 

 

  

 

 

  

Research and development

 

$

8,791

 

$

4,063

General and administrative

 

 

3,588

 

 

1,449

Total operating expenses

 

 

12,379

 

 

5,512

Loss from operations

 

 

(12,379)

 

 

(5,512)

Other income (expense):

 

 

  

 

 

  

Interest income

 

 

493

 

 

166

Other expenses

 

 

 —

 

 

(16)

Total other income, net

 

 

493

 

 

150

Net loss

 

 

(11,886)

 

 

(5,362)

Net unrealized gain on short-term marketable securities

 

 

51

 

 

 —

Comprehensive loss

 

$

(11,835)

 

$

(5,362)

Net loss per common share, basic and diluted

 

$

(0.42)

 

$

(31.90)

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

 

 

28,499,475

 

 

168,071

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Redeemable Convertible Preferred

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

 

 

Stock

 

 

Common Stock

 

Paid-In-

 

Comprehensive

 

Accumulated

 

Stockholders’

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Gain (Loss)

 

Deficit

    

Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2019

 

 —

 

$

 —

 

 

28,567,837

 

$

 3

 

$

259,049

 

$

(6)

 

$

(130,320)

 

$

128,726

 Exercise of stock options

 

 —

 

 

 —

 

 

103,385

 

 

 —

 

 

112

 

 

 —

 

 

 —

 

 

112

 Vesting of restricted stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

30

 

 

 —

 

 

 —

 

 

30

 Stock-based compensation expense

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,238

 

 

 —

 

 

 —

 

 

1,238

 Disgorgement of stockholders' short-swing profits, net

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

52

 

 

 —

 

 

 —

 

 

52

 Net unrealized gain on short-term marketable securities

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

51

 

 

 —

 

 

51

 Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(11,886)

 

 

(11,886)

Balances at March 31, 2020

 

 —

 

$

 —

 

 

28,671,222

 

$

 3

 

$

260,481

 

$

45

 

$

(142,206)

 

$

118,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

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)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2020

    

2019

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

  

 

 

  

Net loss

 

$

(11,886)

 

$

(5,362)

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

 

 

  

 

 

  

Stock-based compensation expense

 

 

1,237

 

 

215

Non-cash lease expense

 

 

54

 

 

 —

Net amortization of premiums and discounts on short-term investments

 

 

(103)

 

 

 —

Changes in operating assets and liabilities:

 

 

 

 

 

  

Prepaid expenses and other assets

 

 

724

 

 

197

Accounts payable

 

 

588

 

 

(564)

Accrued expenses and other current liabilities

 

 

(1,931)

 

 

70

Net cash used in operating activities

 

 

(11,317)

 

 

(5,444)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

  

 

 

  

Purchase of short-term marketable securities

 

 

(24,781)

 

 

 —

Proceeds from maturities of short-term marketable securities

 

 

18,500

 

 

 —

Net cash used in investing activities

 

 

(6,281)

 

 

 —

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

  

 

 

  

Proceeds from the exercise of stock options

 

 

112

 

 

 —

Proceeds from the disgorgement of stockholders' short-swing profits, net

 

 

52

 

 

 —

Payment of initial public offering costs

 

 

 —

 

 

(720)

Net cash provided by (used in) financing activities

 

 

164

 

 

(720)

Net decrease in cash, cash equivalents and restricted cash

 

 

(17,434)

 

 

(6,164)

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

 

 

64,848

 

 

76,000

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

 

$

47,414

 

$

69,836

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:

 

 

  

 

 

  

Net unrealizable gain on marketable securities

 

$

51

 

$

 —

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

 

$

 —

 

$

556

 

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 developing pioneering medicines designed to restore metabolic balance and improve overall health for patients with nonalcoholic steatohepatitis “NASH”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, cancer and death. Our lead product candidate is AKR‑001, an analog of fibroblast growth factor 21 (“FGF21”). We are currently conducting a Phase 2a randomized, double-blind, placebo-controlled clinical trial, the BALANCED study, which is evaluating AKR-001 in the treatment of adult NASH patients.

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 Company’s Annual Report on Form 10-K for the year ended December 31, 2019, dated and filed on March 16, 2020 with the U.S. Securities and Exchange Commission. Since the date of those financial statements, other than the adoption of Accounting Standards Update No. 2016‑02, Leases (Topic 842) as discussed in Note 2, there have been no changes to the Company’s significant accounting policies.

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 its initial public offering (“IPO”) in June 2019. The Company has incurred recurring losses since its inception, including a net loss of $11,886 and $5,362 for the three months ended March 31, 2020 and 2019, respectively and net losses of $43,755 and $81,714 for the years ended December 31, 2019 and 2018, respectively. In addition, as of March 31, 2020, the Company had an accumulated deficit of $142,206. The Company expects to continue to generate operating losses for the foreseeable future. As of May 13, 2020, the issuance date of these condensed consolidated financial statements, the Company expects that its existing cash, cash equivalents and short-term marketable securities of $125,285 as of March 31, 2020, 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

9

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

time to complete the clinical development of AKR‑001, to commercialize AKR‑001 if it receives regulatory approval, and to 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 Company’s 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 March 31, 2020 and the results of its operations and its cash flows for the three months ended March 31, 2020 and 2019 and the condensed consolidated statement of stockholders’ equity (deficit) as of March 31, 2020. The financial data and other information disclosed in these notes related to the three months ended March 31, 2020 and 2019 are unaudited. The results for the three months ended March 31, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, 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 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 and the valuation allowance for deferred tax assets. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts.

Short-term marketable securities

The Company invests in short-term marketable securities, primarily money market funds, commercial paper, U.S. treasury securities and corporate debt securities. The Company classifies its short-term marketable securities as available-for-sale securities and reports them at fair value in short-term marketable securities on the consolidated balance sheets with related unrealized gains and losses included within accumulated other comprehensive gain (loss) on

10

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

the consolidated balance sheets. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in other income (expense), net on the consolidated statements of operations and comprehensive loss. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income (expense), net. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in other income (expense), net.

The Company regularly reviews all its investments for other-than-temporary declines in estimated fair value. This review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost basis. When the Company determines that the decline in estimated fair value of an investment is below the amortized cost basis and the decline is other-than-temporary, the carrying value of the security will be reduced and a loss will be recorded for the amount of such decline.

Concentrations of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and short-term marketable securities. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company deposits its cash investments in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Leases

Leases (Topic 842) Effective January 1, 2020

The Company determines whether an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether the Company has the right to control the identified asset. Right-of-use, or ROU, assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and are further adjusted by any lease payments made prior to or on lease commencement, lease incentives received and initial direct costs incurred, as applicable.  The Company elected, as allowed under Topic 842 (or “ASC 842”), to not recognize leases with a lease term of one year or less on its balance sheet. Operating lease costs included in the measurement of the lease are recognized on a straight-line basis over the lease term. Variable lease costs are expensed as incurred as an operating expense.

In accordance with ASC 842, components of a lease should be split into three categories: lease components, non-lease components, and non-components. The fixed and in-substance fixed contract consideration (including any consideration related to non-components) must be allocated, based on the respective relative fair values, to the lease components and non-lease components.

Entities may elect not to separate lease and non-lease components. Accordingly, entities making this election would account for each lease component and related non-lease component together as a single lease component. The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets and allocate all of the contract consideration to the lease component only.

11

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

ASC 842 allows for the use of judgment in determining whether the assumed lease term is for a major part of the remaining economic life of the underlying asset and whether the present value of lease payments represents substantially all of the fair value of the underlying asset. The Company applies the bright line thresholds referenced in ASC 842-10-55-2 to assist in evaluating leases for appropriate classification. The aforementioned bright lines are applied consistently to the Company’s leases.

The Company determines the lease classification and the present value of future lease payments at the time of the lease commencement using an incremental borrowing rate that it estimates based upon the Company’s credit risk and term of the lease. The interest rate implicit in lease contracts has not historically been readily determinable and the Company must therefore use the appropriate incremental borrowing rate to measure its leases. To estimate the incremental borrowing rate, a credit rating applicable to the Company is estimated using a synthetic credit rating analysis since the Company does not currently have a rating agency-based credit rating. Additionally, a notching method is utilized to apply an upward adjustment to the resulting credit rating to reflect a collateralized borrowing.

Leases (Topic 840) Prior to the Adoption of Topic 842

The Company enters into lease agreements for office facilities which are classified as operating leases. Rent expense is recognized on a straight-line basis over the noncancelable term of the lease and, accordingly, the Company records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability, which is included within accrued expenses and other current liabilities on the condensed consolidated balance sheet.

Research and development costs

Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred to discover, research and develop drug candidates, including personnel expenses, stock-based compensation expense, third-party license fees and external costs including fees paid to consultants and clinical research organizations ("CROs"), in connection with drug product manufacturing, nonclinical studies and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis. Non-refundable prepayments for goods or services that will be used or rendered for future 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.

Costs incurred in obtaining technology licenses are charged immediately to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future uses.

Research contract costs and accruals

The Company has entered into various research and development and other agreements with commercial firms, researchers and others for provisions of goods and services. These agreements are generally cancelable, and the related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ materially from the Company's estimates.

12

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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 the Company’s 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.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and the Company's expected dividend yield. The Company completed its initial public offering in June 2019 and accordingly, lacks sufficient company-specific historical and implied volatility information for its shares traded in the public markets. Therefore, it estimates its expected share price volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price. The expected term of the Company's stock options has been determined utilizing the "simplified" method for awards that qualify as "plain-vanilla" options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future. The fair value of each restricted common stock award is estimated on the date of grant based on the fair value of the Company's common stock on that same date.

Compensation expense for purchases under the Employee Stock Purchase Plan is recognized based on the fair value of the common stock estimated based on the closing price of our common stock as reported on the date of offering, less the purchase discount percentage provided for in the plan.

The Company classifies stock-based compensation expense in its consolidated statement of operations and comprehensive loss in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified.

Comprehensive loss

Comprehensive loss includes net loss as well as other changes in stockholders' equity (deficit) that result from transactions and economic events other than those with stockholders. Our comprehensive loss is comprised of net loss and unrealized gains and losses on our short-term marketable securities.

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 adopted accounting pronouncements

In February 2016 the FASB issued ASU 2016-02, Leases (Topic 842, ASC 842 or ASU 2016-02). ASU 2016-02 amends several aspects of lease accounting, including requiring lessees to recognize almost all leases with a term

13

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

greater than one year as a ROU asset and corresponding liability, measured at the present value of the lease payments. On January 1, 2020, the Company adopted Topic 842 using the modified retrospective approach and the adoption date as the initial date of application. Results for the three months ended March 31, 2020 are presented under Topic 842. No prior period amounts were adjusted and continue to be reported in accordance with previous lease guidance, Accounting Standards Codification Topic 840, Leases, or Topic 840.

 

Topic 842 provides a number of optional practical expedients in transition. The Company elected the short-term lease expedient for leases with a term of one year or less, which permits a lessee to not recognize lease assets and lease liabilities for those leases. The Company elected the practical expedients to not reassess its prior conclusions about lease identification under the new standard, to not reassess lease classification, and to not reassess initial direct costs for its existing leases at adoption.

 

Operating lease liabilities and their corresponding ROU assets are recorded based on the present value of future lease payments over the expected remaining lease term at lease commencement. In transition to ASC 842, the Company utilized the remaining lease term of its leases, as of the effective date, in determining the appropriate incremental borrowing rate. Lease cost for operating leases is recognized on a straight-line basis over the lease term as an operating expense.

 

The impact of the Company’s adoption of Topic 842 on the accompanying condensed consolidated balance sheet as of January 1, 2020 was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Adjustments

 

 

 

 

 

 

 

Due to the

 

 

 

 

December 31, 

 

Adoption of

 

January 1,

 

 

2019

 

Topic 842

 

2020

Assets:

 

 

 

 

 

 

 

 

 

Operating lease ROU asset

 

$

 —

 

$

280

 

$

280

Liabilities:

 

 

 

 

 

 

 

 

 

Operating lease liabilities, current (included in accrued expenses and other current liabilities)

 

 

 —

 

 

224

 

 

224

Deferred rent, current (included in accrued expenses and other current liabilities)

 

 

 2

 

 

(2)

 

 

 —

Operating lease liabilities, noncurrent (included in other liabilities)

 

 

 —

 

 

60

 

 

60

Deferred rent, noncurrent (included in other liabilities)

 

 

 2

 

 

(2)

 

 

 —

 

The Company adopted Accounting Standards Update No. ASU 2018‑13, Fair Value Measurement (Topic 820)—Disclosure Framework (“ASU 2018‑13”) on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

 

In March 2020, the FASB issued Accounting Standards Update ASU 2020-03, “Codification Improvements to Financial Instruments” (“ASU 2020-03”). ASU 2020-03 improves a variety of codification topics by eliminating inconsistencies and providing clarifications making the codification easier to apply. The conforming amendments are effective upon issuance and did not materially impact the Company’s condensed consolidated financial statements.

 

 

 

14

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

3.            Fair value of financial assets and liabilities 

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.

·

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 following is a summary of our financial assets measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of March 31, 2020 Using:

 

 

Total

 

Level 1

 

Level 2

 

Level 3

Money market funds

    

$

32,733

 

$

32,733

 

$

 —

 

$

 —

Commercial paper

 

 

46,509

 

 

 —

 

 

46,509

 

 

 —

U.S. treasury securities

 

 

12,141

 

 

12,141

 

 

 —

 

 

 —

Corporate debt securities

 

 

19,390

 

 

           —

 

 

19,390

 

 

 —

 

 

$

110,773

 

$

44,874

 

$

65,899

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of December 31, 2019 Using:

 

 

Total

 

Level 1

 

Level 2

 

Level 3

Money market funds

    

$

49,948

    

$

49,948

 

$

 —

 

$

 —

Commercial paper

 

 

49,114

 

 

 —

 

 

49,114

 

 

 —

U.S. treasury securities

 

 

6,048

 

 

6,048

 

 

 —

 

 

 —

Corporate debt securities

 

 

20,143

 

 

 —

 

 

20,143

 

 

 —

 

 

$

125,253

 

$

55,996

 

$

69,257

 

$

 —

Commercial paper and corporate debt securities were valued by the Company using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy. 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. During the three months ended March 31,  2020 and 2019,  there were no transfers between Level 1,  Level 2 and Level 3.

 

 

15

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

4.           Short-term marketable securities

The following is a summary of short-term marketable securities as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

 

Amortized cost

 

Gross unrealized gains

 

Gross unrealized losses

 

Fair value

Money market funds

    

$

32,733

    

$

 —

 

$

 —

 

$

32,733

Commercial paper

 

 

46,509

 

 

 —

 

 

 —

 

 

46,509

U.S. treasury securities

 

 

12,058

 

 

83

 

 

 —

 

 

12,141

Corporate debt securities

 

 

19,428

 

 

 —

 

 

(38)

 

 

19,390

 

 

$

110,728

 

$

83

 

$

(38)

 

$

110,773

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

$

32,733

Short-term marketable securities

 

 

 

 

 

 

 

 

 

 

 

78,040

 

 

 

 

 

 

 

 

 

 

 

$

110,773

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

Amortized cost

 

Gross unrealized gains

 

Gross unrealized losses

 

Fair value

Money market funds

    

$

49,948

    

$

 —

 

$

 —

 

$

49,948

Commercial paper

 

 

49,114

 

 

 —

 

 

 —

 

 

49,114

U.S. treasury securities

 

 

6,048

 

 

 —

 

 

 —

 

 

6,048

Corporate debt securities

 

 

20,149

 

 

 —

 

 

(6)

 

 

20,143

 

 

$

125,259

 

$

 —

 

$

(6)

 

$

125,253

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

$

53,641

Short-term marketable securities

 

 

 

 

 

 

 

 

 

 

 

71,612

 

 

 

 

 

 

 

 

 

 

 

$

125,253

 

 

 

5.           Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2020

 

2019

Accrued employee compensation and benefits

 

$

740

 

$

1,606

Accrued external research and development expenses

 

 

4,998

 

 

6,361

Accrued legal and professional fees

 

 

657

 

 

370

Operating lease liability

 

 

230

 

 

 —

Other

 

 

126

 

 

85

 

 

$

6,751

 

$

8,422

 

 

 

 

16

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

6.           Stockholder’s equity (deficit)

Common stock

As of March 31, 2020 and December 31, 2019, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 150,000,000 shares of $0.0001 par value common stock. 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, have the exclusive right to vote for the election of directors of the Company. Common stockholders are entitled to receive dividends, as may be declared by the board of directors. Through March 31, 2020,  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 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. As of March 31, 2020 and December 31, 2019, there were 28,671,222 and 28,567,837 shares of common stock issued and outstanding, respectively.

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

 

 

 

 

 

 

 

 

March 31, 2020

 

December 31, 2019

Options outstanding under the 2018 Stock Option and Grant Plan

 

2,193,592

 

2,296,029

Options outstanding under the 2019 Stock Option and Incentive Plan

 

901,858

 

800,526

Options available for future grant

 

2,812,364

 

1,771,931

2019 Employee Stock Purchase Plan

 

555,042

 

269,364

 

 

6,462,856

 

5,137,850

 

Undesignated preferred stock

The Company’s fourth amended and restated certificate of incorporation authorizes 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 March 31, 2020.

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

17

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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 vesting during the three months ended March 31, 2020 and 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 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.

The following table summarizes restricted stock activity since December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

Grant-Date Fair

 

    

Number of Shares

    

 Value

Unvested restricted common stock as of December 31, 2019

 

155,149

 

$

0.52

Shares vesting

 

(61,617)

 

 

0.47

Unvested restricted common stock as of March 31, 2020

 

93,532

 

$

0.55

 

As of March 31, 2020, there were 93,532 shares of unvested restricted common stock consisting of 9,450 shares from unvested restricted common stock awards under restricted stock agreements with the founders and 84,082 shares from the early exercise of stock options.

 

7.           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.

18

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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. The 2019 Plan was increased by 1,142,713 shares on January 1, 2020.

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. The 2019 ESPP was increased by 285,678 shares on January 1, 2020.

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

 

 

March 31, 

 

 

2020

    

2019

 

Expected term (in years)

 

6.0

 

6.0

 

Volatility

 

80.60

%  

67.44

%  

Risk-free interest rate

 

1.63

%  

2.57

%  

Dividend yield

 

 0

%  

 0

%  

 

19

Table of Contents

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, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Weighted-

    

Weighted-

    

 

 

 

 

 

 

Average

 

Average

 

Aggregate

 

 

 

 

Exercise

 

remaining

 

Intrinsic

 

 

Number

 

Price per

 

contractual

 

Value

 

 

of Options

 

Share

 

term (years)

 

(000's)

Balance outstanding, December 31, 2019

 

3,096,555

 

$

7.89

 

9.19

 

$

44,323

Options granted

 

103,500

 

 

20.08

 

  

 

 

  

Options exercised

 

(103,385)

 

 

1.09

 

 

 

 

 

Options cancelled

 

(1,220)

 

 

0.62

 

  

 

 

  

Balance outstanding, March 31, 2020

 

3,095,450

 

$

8.53

 

8.98

 

$

39,285

Exercisable, March 31, 2020

 

264,176

 

$

7.76

 

8.83

 

$

3,550

Vested and expected to vest, March 31, 2020

 

3,095,450

 

$

8.53

 

8.98

 

$

39,285

 

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 three months ended March 31, 2020 was $13.91.

Stock-based compensation

The Company recorded $1,237 in stock-based compensation expense for the three months ended March 31, 2020, with $368 classified as research and development expense and $869 classified as general and administrative expense in the condensed consolidated statements of operations and comprehensive loss. The Company recorded $215 in stock-based compensation expense for the three months ended March 31, 2019, with $82 classified as research and development expense and $133 classified as general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

As of March 31, 2020, total unrecognized compensation cost related to unvested stock options was $15,820, which is expected to be recognized over a weighted average period of 2.9 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 6). 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.

 

8.           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.

20

Table of Contents

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 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. 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.

Under the Amgen Agreement, the Company made a milestone payment in August 2019 of $2,500 in connection with dosing the first patient in its Phase 2a clinical trial and is obligated to make aggregate remaining milestone payments to Amgen of up to $37,500 upon the achievement of specified clinical and regulatory milestones and aggregate milestone payments of up to $75,000 upon the achievement of specified commercial milestones for all products licensed under the Amgen Agreement.

 

Under the Amgen Agreement, the Company is obligated to pay Amgen tiered royalties ranging from a low to high single-digit percentages on annual net sales of the licensed products, beginning on the first commercial sale of such licensed products in each country and expiring on a country-by-country basis on the latest of (i) the expiration of the last valid patent claim covering such licensed products in such country, (ii) the loss of regulatory exclusivity in such country, and (iii) ten years after the first commercial sale of such licensed product in such country. The royalty payments are subject to reduction under specified conditions set forth in the Amgen Agreement.

 

The Company is solely responsible for all development, manufacturing, and commercial activities and costs of the licensed products, including clinical studies or other tests necessary to support the use of a licensed product. The Company is also responsible for costs related to the filing, prosecution and maintenance of the licensed patent rights.

 

The Amgen Agreement will remain in effect until the expiration of the royalty term in all countries for all licensed products. The Amgen Agreement may be terminated by either party with at least 90 days' notice in the event of material breach by the other party that remains uncured for 90 days, by either party for insolvency or bankruptcy of the other party and immediately by Amgen if the Company challenges the licensed patents. The Company may also terminate the Amgen Agreement with 90 days' written notice for discretionary reasons such as scientific, technical, regulatory or commercial issues, as defined in the Amgen Agreement.

 

During the three months ended March 31, 2020 and 2019, the Company did not record any research and development expense in connection with the Amgen Agreement.

 

9.           Income taxes

During the three months ended March 31, 2020 and 2019, the Company did not record any income tax benefits for the net operating losses incurred or for the research and development tax credits generated in each period due to its

21

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

uncertainty of realizing a benefit from those items.  All of the Company’s operating losses since inception have been generated in the United States.

 

10.           Net loss per share

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2020

    

2019

Numerator:

 

 

  

 

 

  

Net loss

 

$

(11,886)

 

$

(5,362)

Denominator:

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

 

28,499,475

 

 

168,071

Net loss per share, basic and diluted

 

$

(0.42)

 

$

(31.90)

 

The Company excluded 77,223 shares and 70,915 shares of restricted common stock, presented on a weighted average basis, from the calculations of basic net loss per share for the three months ended March 31,  2020 and 2019, 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 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 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 for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2020

    

2019

Options to purchase common stock

 

3,095,450

 

2,314,740

Unvested restricted common stock

 

93,532

 

66,042

Redeemable convertible preferred stock (as converted to common stock)

 

 

21,056,136

 

 

3,188,982

 

23,436,918

 

 

11.         Commitments and contingencies

COVID-19 Pandemic

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. As of May 2020, COVID-19 has spread to other countries, including Europe and the United States, and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified and the United States, Europe and Asia have implemented severe travel restrictions, social distancing requirements, stay-at-home orders and have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. The Company’s financial results for the three months ended March 31, 2020 were not significantly impacted by COVID-19, however, the Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on its financial condition, operations, and business plans for 2020, including the timing and enrollment of patients in its planned clinical trials and other expected milestones of its product candidate.

22

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Operating leases

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 has provided a security deposit of approximately $20, which is included as a component of other assets (non-current) on the Company’s condensed consolidated balance sheets.

On May 7, 2020, the Company entered into an agreement to effectuate an early termination of the 2018 office lease agreement in South San Francisco, California, without penalty. This early termination will be effective as of June 30, 2020 and reduces the Company’s future minimum lease payments by approximately $180 (see Note 13 – Subsequent Event).

In September 2019 the Company entered into an agreement to use office space in Cambridge, Massachusetts.  The agreement was for an initial six-month term,  which was extended until September 2020, and provides for rolling six-month extensions. The Company has determined this lease to be short term, as the Company is not obligated at any time for more than a six-month term. The Company makes monthly payments of $4 under the agreement.

For the three months ended March 31, 2020, the components of operating lease cost were as follows:

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

March 31, 2020

Lease cost:

 

Statement of Operations Classification:

 

 

 

Operating lease cost

 

General and administrative expense

 

$

59

Variable operating lease cost

 

General and administrative expense

 

 

27

Short-term lease cost

 

Research and development expense

 

 

 8

Total operating lease cost

 

 

 

$

94

 

 

 

 

 

 

Other information:

 

 

 

 

 

Cash paid for amounts included in the measurement of operating lease liability

 

 

 

$

59

Weighted average remaining lease term

 

 

 

 

1 year

Weighted average discount rate

 

 

 

 

8.0%

 

The following table presents the maturity of the Company’s operating lease liabilities as of March 31, 2020:

 

 

 

 

Year ending December 31,

 

 

2020 (remainder)

$

178

2021

 

61

2022

 

 —

2023

 

 —

2024

 

 —

2025 and thereafter

 

 —

Total future minimum lease payments

 

239

Less imputed interest

 

(9)

Total operating lease liabilities

$

230

 

23

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

In February 2020, the Company entered into a seven-year agreement to occupy 6,647 square feet of office space in South San Francisco, California, which has not yet commenced as the space is not currently available for the Company’s use.  Under the agreement, the Company is required to make $2,267 in total minimum payments during the term, which is not included in the maturity table above. The Company anticipates that its occupancy of the space will commence on or about June 2020.

Prior to the Company’s adoption of ASC 842 on January 1, 2020, the Company recognized rent expense on a straight-line basis over the respective lease periods and recorded rent expense of $305 for the year ended December 31, 2019. As of December 31, 2019, future minimum commitments due under the Company’s leases totaled $401, of which $321 was due in 2020 and $80 was due in 2021.

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 March 31, 2020, the Company had non-cancelable purchase commitments under these agreements totaling $7,969.

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 March 31, 2020.

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.

 

12.         Related parties

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 (see Note 11). The parties terminated the agreement in September 2019.  The Company did not incur any expenses from Atlas during the three months ended March 31, 2020. The Company incurred $5 from Atlas under the use and occupancy agreement during the three months ended March 31, 2019. As of March 31, 2020 and December 31, 2019, the Company did not owe any amounts to Atlas.

 

24

Table of Contents

Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

 

13.         Subsequent event

The Company evaluated subsequent events through May 13, 2020, the date on which these financial statements were issued.

On May 7, 2020, the Company entered into an agreement to effectuate an early termination of the 2018 office lease agreement in South San Francisco, California. This early termination will be effective as of June 30, 2020 and will reduce the Company’s future minimum lease payments by approximately $180.  

 

25

Table of Contents

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

The following discussion should be read in conjunction with our financial statements and accompanying footnotes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019. 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 cardio-metabolic nonalcoholic steatohepatitis, or NASH, company developing pioneering medicines designed to restore metabolic balance and improve overall health for NASH patients. 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, cancer and death. Our lead product candidate, AKR-001, is an analog of fibroblast growth factor 21, or FGF21, which 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. We are currently conducting a Phase 2a randomized, double-blind, placebo-controlled clinical trial, the BALANCED study, which is evaluating AKR-001 in the treatment of NASH patients.

On March 31, 2020 we reported results for the primary and several secondary efficacy endpoints for the BALANCED study, at week 12 of the 16-week dosing period. Each of the three AKR-001 dose groups met the primary endpoint as well as all reported secondary endpoints. These results included highly significant 12-14% absolute reductions in liver fat and 63-72% relative reductions in liver fat (in each case compared with 0% for placebo). Reductions in ALT of 24-32 U/L were observed (compared with 6 U/L for placebo). These robust efficacy results are expected to provide flexibility in dose selection for the next study. We propose, pending consultation with FDA, to progress two doses for further evaluation. These results are consistent with previous clinical trials in patients with type 2 diabetes, or T2D, in which administration of AKR-001 was associated with substantial improvements in lipid metabolism and insulin sensitivity. We believe these data, coupled with clinical results from other FGF21 analogs, demonstrate AKR-001's potential to serve as a cornerstone for the treatment of NASH.

The COVID-19 pandemic has not materially impacted data collection for the BALANCED study or preparations for our upcoming Phase 2b/3 trial. We have completed all data collection for the BALANCED study. A total of 50 subjects achieved at least a 30% relative reduction of liver fat at week 12 as measured by magnetic resonance imaging – proton density fat fraction (MRI-PDFF) and therefore were eligible for end-of-study biopsies. Forty-eight of the biopsy-eligible subjects were treated with AKR-001 compared with two subjects on placebo. End-of-study biopsies have been successfully collected for 42 (84%) of the 50 biopsy-eligible subjects. Toward the end of this quarter, we expect to unblind the BALANCED study data and to report efficacy and safety data, including paired biopsy results. We expect to include results for the proportions of subjects who achieved at least a 2-point reduction in NAFLD activity score (NAS), a 1-point reversal in fibrosis score with no worsening of NASH, and NASH resolution with no worsening of fibrosis. Additional expected analyses include biomarkers of liver injury and fibrosis and other relevant measures for NASH studies, together with safety and tolerability.

We were incorporated in January 2017 and 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.

26

Table of Contents

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 $11.9 million for the three months ended March 31, 2020 and  $43.8 million for the year ended December 31, 2019. As of March 31, 2020, we had an accumulated deficit of $142.2 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 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 March 31, 2020, we had cash, cash equivalents and short-term marketable securities of $125.3 million, which we believe will be sufficient to fund our operating expenses and capital expenditure requirements for at least 12 months from the issuance date of these condensed consolidated financial statements.

Impact of the COVID-19 Pandemic

As of May 2020, a novel strain of coronavirus (“COVID-19”) has spread globally. Efforts to contain the spread of COVID-19 have intensified and the United States, Europe and Asia have implemented severe travel restrictions, social distancing requirements, and stay-at-home orders, among other restrictions, which have led to delays in the commencement of non-COVID-19-related clinical trials. As a result, the COVID-19 pandemic has caused significant disruptions to the U.S., regional and global economies and has contributed to significant volatility and negative pressure in financial markets.

We have been carefully monitoring the COVID-19 pandemic and its potential impact on our business and have taken important steps to help ensure the safety of employees and their families and to reduce the spread of COVID-19. We have established a work-from-home policy for all employees. We have also maintained efficient communication with our manufacturing and supply partners as the COVID-19 situation has progressed. We have taken these precautionary steps while maintaining business continuity so that we can continue to progress our programs. Our financial results for the three months ended March 31, 2020 were not significantly impacted by COVID-19, and the COVID-19 pandemic has not materially impacted data collection for the BALANCED study, which has been completed, or preparations for our upcoming Phase 2b/3 trial.

The BALANCED study’s Data Monitoring Committee convened for a review of unblinded safety data following completion of treatment and recommended that a planned expansion cohort (Cohort C) in NASH patients who have compensated cirrhosis (F4), Child-Pugh Class A, proceed without any amendments to the protocol. After a temporary suspension of enrollment plans, we began screening for Cohort C on May 7, 2020 and expect to begin enrollment in the second quarter of this year. Cohort C is designed to inform the long-term development plan in patients NASH who have compensated cirrhosis (F4), Child-Pugh Class A. We expect to update the AKR-001 IND after completion of the recommended toxicology package for a biopharmaceutical, enabling a longer-term Phase 2b/3 clinical

27

Table of Contents

trial to commence during the first half of 2021. These chronic toxicology studies include 26-week dosing followed by a 13-week recovery period off drug in rats and non-human primates. In addition, a standard package of reproductive and developmental toxicology studies has been completed. We also expect to have drug product available in the fourth quarter of 2020 to supply the planned Phase 2b portion of an anticipated Phase 2b/3 clinical trial beginning in the first half of 2021. Commercial-scale manufacturing of GMP drug substance (API) was completed in April 2020 without any impact from COVID-19. Manufacture of GMP drug product lots is scheduled for the third quarter of 2020.

Notwithstanding the foregoing, the future impact of the COVID-19 pandemic on our industry, the healthcare system and our current and future operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. See “Item 1A. Risk Factors” for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition.

Components of our results of operations

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;

·