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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 June 30, 2021

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.)

601 Gateway Boulevard, Suite 350

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 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 August 8, 2021, the registrant had 34,861,893 shares of common stock, $0.0001 par value per share, outstanding.

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SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. The principal risks and uncertainties affecting our business include the following:

Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control, including difficulties in identifying patients with nonalcoholic steatohepatitis (“NASH”) and significant competition for recruiting such patients in clinical trials.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than us.
Failures or delays in the commencement or completion of, or ambiguous or negative results from, our planned clinical trials of our product candidates could result in increased costs to us and could delay, prevent, or limit our ability to generate revenue and continue our business.
Clinical development is uncertain and our clinical trials for efruxifermin (“EFX”) and any future product candidates may experience delays, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.
We rely and will continue to rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval of or commercialize any potential product candidates.
The manufacture of our product candidates is complex and we may encounter difficulties in production. If we or any of our third-party manufacturers encounter such difficulties, or fail to meet rigorously enforced regulatory standards, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.
We are heavily dependent on the success of EFX, our only product candidate.
We may develop EFX, and potentially future product candidates, in combination with other therapies, which exposes us to additional risks.
If we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed and our business will be more vulnerable to any problems that we encounter in developing and commercializing our product candidate.
If we are not successful in discovering, developing, receiving regulatory approval for and commercializing EFX and any future product candidates, our ability to expand our business and achieve our strategic objectives would be impaired.
We may be required to make significant payments under our license agreement for EFX.
The regulatory approval processes of the U.S Food and Drug Administrations (the “FDA”) and comparable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable. Our inability to obtain regulatory approval for EFX or any future product candidate would substantially harm our business.
Even if we are able to obtain regulatory approvals for our product candidate or any future product candidates, if they exhibit harmful side effects after approval, our regulatory approvals could be revoked or otherwise negatively impacted, and we could be subject to costly and damaging product liability claims.
Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse, transparency and other healthcare laws and regulations, which, if violated, could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.
We have incurred significant losses since our inception and we expect to incur losses for the foreseeable future.
We currently have a limited operating history, have not generated any revenue to date, and may never become profitable.
We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. As a result, we may not complete the development and commercialization of our product candidate or develop any future product candidates.
Business interruptions resulting from the ongoing coronavirus disease (“COVID-19”) outbreak or similar public health crises could cause a disruption of the development of our product candidates and adversely impact our business.

2

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Table of Contents

Page

PART I.

FINANCIAL INFORMATION

6

Item 1.

Condensed Consolidated Financial Statements

6

Condensed Consolidated Balance Sheets (Unaudited)

6

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

7

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

8

Condensed Consolidated Statements of Cash Flows (Unaudited)

9

Notes to Unaudited Condensed Consolidated Financial Statements

10

Item 2.

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

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

PART II.

OTHER INFORMATION

38

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

85

Item 3.

Defaults Upon Senior Securities

85

Item 4.

Mine Safety Disclosures

85

Item 5.

Other Information

85

Item 6.

Exhibits

86

Signatures

87

3

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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 complete enrollment in our ongoing Phase 2b clinical trial of EFX in NASH patients with F2/F3 fibrosis, known as the HARMONY study, including the ability to obtain data and maintain our expected timelines during the ongoing COVID-19 pandemic;
our ability to complete enrollment in our ongoing Phase 2b clinical trial of EFX in cirrhotic NASH patients with F4 fibrosis, known as the SYMMETRY study, including the ability to obtain data and maintain our expected timelines during the ongoing COVID-19 pandemic;
the potential for COVID-19 or other pandemic, epidemic or outbreak of an infectious disease, 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 to advance any product candidate into or successfully complete any clinical trial;
our ability to successfully manufacture our product candidates for future 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 EFX 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.

4

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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.

5

Table of Contents

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)

    

June 30, 2021

    

December 31, 2020

Assets

 

  

 

  

Current assets:

  

  

Cash and cash equivalents

$

157,538

$

187,242

Short-term marketable securities

72,490

81,145

Prepaid expenses and other current assets

 

6,194

 

2,958

Total current assets

 

236,222

 

271,345

Property and equipment, net

110

131

Operating lease right-of-use asset

1,562

1,662

Other assets, noncurrent

115

201

Total assets

$

238,009

$

273,339

Liabilities and Stockholders’ Equity

 

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

2,307

$

3,428

Accrued expenses and other current liabilities

 

14,152

 

9,683

Total current liabilities

 

16,459

 

13,111

Operating lease liability, noncurrent

1,417

1,516

Total liabilities

17,876

14,627

Commitments and contingencies (Note 11)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Common stock, $0.0001 par value, 150,000,000 shares authorized as of June 30, 2021 and December 31, 2020; 34,840,782 and 34,741,649 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

4

 

4

Additional paid-in capital

 

473,688

 

468,238

Accumulated other comprehensive loss

(9)

(3)

Accumulated deficit

 

(253,550)

 

(209,527)

Total stockholders’ equity

 

220,133

 

258,712

Total liabilities and stockholders’ equity

$

238,009

$

273,339

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

6

Table of Contents

Akero Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

    

Operating expenses:

 

  

 

  

 

  

 

  

 

Research and development

$

23,976

$

13,037

$

34,578

$

21,828

General and administrative

 

4,990

 

3,417

 

9,516

 

7,005

Total operating expenses

 

28,966

 

16,454

 

44,094

 

28,833

Loss from operations

 

(28,966)

 

(16,454)

 

(44,094)

 

(28,833)

Other income, net

 

33

 

247

 

71

 

740

Net loss

 

(28,933)

 

(16,207)

 

(44,023)

 

(28,093)

Net unrealized gain (loss) on short-term marketable securities

(7)

45

(6)

96

Comprehensive loss

$

(28,940)

$

(16,162)

$

(44,029)

$

(27,997)

Net loss per common share, basic and diluted

$

(0.83)

$

(0.57)

$

(1.27)

$

(0.98)

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

 

34,814,631

 

28,602,976

 

34,779,647

 

28,551,227

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

7

Table of Contents

Akero Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

(Unaudited)

Accumulated

Additional

Other

Total

Common Stock

Paid-In-

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Gain (Loss)

Deficit

    

Equity (Deficit)

Balances at December 31, 2020

34,741,649

$

4

$

468,238

$

(3)

$

(209,527)

$

258,712

Exercise of stock options

28,670

24

24

Vesting of restricted stock

9

9

Stock-based compensation expense

 

2,364

 

2,364

Net unrealized gain on short-term marketable securities

1

1

Net loss

 

(15,090)

 

(15,090)

Balances at March 31, 2021

34,770,319

$

4

$

470,635

$

(2)

$

(224,617)

$

246,020

Exercise of stock options

60,333

393

393

Vesting of restricted stock

9

9

Issuance of common stock pursuant to ESPP purchases

10,130

215

215

Stock-based compensation expense

 

 

 

2,436

 

 

 

2,436

Net unrealized loss on short-term marketable securities

(7)

(7)

Net loss

(28,933)

(28,933)

Balances at June 30, 2021

34,840,782

$

4

$

473,688

$

(9)

$

(253,550)

$

220,133

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

Exercise of stock options

3,202

9

9

Vesting of restricted stock

13

13

Issuance of common stock pursuant to ESPP purchases

9,255

158

158

Stock-based compensation expense

 

 

 

1,322

 

 

 

1,322

Net unrealized gain on short-term marketable securities

45

45

Net loss

(16,207)

(16,207)

Balances at June 30, 2020

28,683,679

$

3

$

261,983

$

90

$

(158,413)

$

103,663

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

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Akero Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Six Months Ended June 30, 

    

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES

 

  

 

  

Net loss

$

(44,023)

$

(28,093)

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

 

 

  

Stock-based compensation expense

 

4,800

 

2,560

Depreciation

21

Non-cash lease expense

100

107

Net amortization of premiums and discounts on short-term investments

303

(62)

Changes in operating assets and liabilities:

 

 

  

Prepaid expenses and other assets

 

(2,848)

 

(9,419)

Accounts payable

 

(1,121)

 

1,589

Accrued expenses and other current liabilities

 

4,475

 

(472)

Operating lease liability

(87)

(111)

Net cash used in operating activities

 

(38,380)

 

(33,901)

CASH FLOWS FROM INVESTING ACTIVITIES

 

  

 

  

Purchase of short-term marketable securities

 

(31,654)

 

(24,781)

Proceeds from sales of short-term marketable securities

9,865

Proceeds from maturities of short-term marketable securities

 

40,000

 

47,100

Net cash provided by investing activities

 

8,346

 

32,184

CASH FLOWS FROM FINANCING ACTIVITIES

 

  

 

  

Proceeds from the exercise of stock options

 

417

 

121

Proceeds from the issuance of common stock pursuant to employee stock purchase plan purchases

215

158

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

52

Payment of deferred offering costs

(342)

(67)

Net cash provided by financing activities

 

290

 

264

Net decrease in cash, cash equivalents and restricted cash

 

(29,744)

 

(1,453)

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

 

187,390

 

64,848

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

$

157,646

$

63,395

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:

 

  

 

  

Change in net unrealizable gain (loss) on marketable securities

$

(6)

$

96

Remeasurement of ROU asset and lease liability

$

-

$

173

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

$

123

$

583

The accompanying notes are an integral part of these condensed 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)

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 cardio-metabolic nonalcoholic steatohepatitis, or NASH, company dedicated to developing pioneering medicines designed to restore metabolic balance and improve overall health. 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. The Company’s lead product candidate, efruxifermin, or EFX, is an analog of fibroblast growth factor 21, or FGF21, which is an endogenously expressed hormone that protects against cellular stress and regulates metabolism of lipids, carbohydrates and proteins throughout the body. The Company conducted a Phase 2a clinical trial, the BALANCED study, to evaluate EFX in the treatment of biopsy-confirmed NASH patients. The main portion of this study in NASH patients with F1-F3 fibrosis showed EFX’s potential to reverse fibrosis, resolve NASH, improve liver health, improve glycemic control and improve lipoprotein profile. An expansion cohort in F4 NASH patients with compensated cirrhosis showed comparable results. The Company initiated a Phase 2b clinical trial, the HARMONY study, to evaluate EFX in the treatment of NASH patients with F2/F3 fibrosis in February 2021 and randomized the first patient in March 2021. The Company initiated a second Phase 2b clinical trial in F4 NASH patients with compensated cirrhosis, the SYMMETRY study, in July 2021. Based on clinical data to date, the Company believes EFX has the potential to be a highly-differentiated, best-in-class FGF21 analog and foundational NASH monotherapy.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, completion and success of clinical testing, development by competitors of new technological innovations, compliance with governmental regulations, dependence on key personnel and protection of proprietary technology and the ability to secure additional capital to fund operations. EFX 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 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.

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 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 and a follow-on public offering of its common stock in July 2020. The Company has incurred recurring losses since its inception, including net losses of $44,023 and $28,093 for the six months ended June 30, 2021 and 2020, respectively, and net losses of $79,207 and $43,755 for the years ended December 31, 2020 and 2019, respectively. In addition, as of June 30, 2021, the Company had an accumulated deficit of $253,550. The Company expects to continue to generate operating losses for the foreseeable future. As of August 13, 2021, the issuance date of these condensed consolidated financial statements, the Company expects that its existing cash, cash equivalents and short-term marketable securities of

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

$230,028 as of June 30, 2021, 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 EFX, commercialize EFX, 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 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 condensed consolidated balance sheet as of June 30, 2021, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020, the condensed consolidated statements of stockholders’ equity (deficit) for the three and six months ended June 30, 2021 and 2020 and condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2021 and 2020 are unaudited. The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, 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.

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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 condensed consolidated balance sheets with related unrealized gains and losses included within accumulated other comprehensive gain (loss) on the condensed 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 on the condensed 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. 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.

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.

Restricted cash

As of June 30, 2021 and December 31, 2020, the Company was required to maintain a separate cash balance of $108 for the benefit of the landlord in connection with the Company’s Gateway office space lease in South San Francisco, California (the “Gateway Lease”), which is classified within other assets (non-current) on the condensed consolidated balance sheets (see Note 11).

As of December 31, 2020, the Company was required to maintain a separate cash balance of $40 to collateralize corporate credit cards with a bank, which is classified within other assets (non-current) on the condensed consolidated balance sheet.

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. At June 30, 2021 and December 31, 2020, all of the Company's cash, cash equivalents and short-term investments were held at one accredited financial institution.

Property and equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which is three years for furniture and equipment. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. Depreciation and amortization begins at the time the asset is placed in service.

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Leases

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 has elected 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.

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.

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, contract manufacturing organizations, or CMOs, and clinical research organizations, or 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.

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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 went public 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 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 condensed 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. The Company’s comprehensive loss is comprised of net loss and changes in unrealized gains and losses on its 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.

On the last business day of the second quarter in 2021, the aggregate market value of the Company shares held by non-affiliate stockholders exceeded $700 million. As a result, as of December 31, 2021, the Company will be considered a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, and will cease to be an emerging growth company as defined in the JOBS Act. The Company will no longer be exempt from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, and our independent registered public accounting firm will

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

evaluate and report on the effectiveness of internal control over financial reporting. The Company will also no longer be permitted to take advantage of reduced reporting requirements for smaller reporting companies.

Recently adopted accounting pronouncements

On January 1, 2021, the Company adopted Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. ASU 2019-12 was effective beginning January 1, 2021. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.

Recently issued accounting pronouncements not yet adopted

In June 2016, the FASB issued No. ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In November 2019, the FASB issued No. ASU 2019-10 to modify the effective date for ASU 2016-13 for other public business entities includes smaller reporting companies, as defined by the SEC. This guidance will become effective for the Company beginning in the first quarter of 2023. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its condensed consolidated financial statements.

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.

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

The following is a summary of our financial assets measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020:

June 30, 2021

 

Total

 

Level 1

Level 2

Level 3

Money market funds

    

$

151,379

$

151,379

$

$

Commercial paper

 

12,993

12,993

 

Corporate debt securities

 

59,497

59,497

 

$

223,869

$

151,379

$

72,490

$

December 31, 2020

 

Total

 

Level 1

Level 2

Level 3

Money market funds

    

$

158,023

    

$

158,023

$

$

Commercial paper

 

47,955

 

 

47,955

 

Corporate debt securities

 

33,190

 

 

33,190

 

$

239,168

$

158,023

$

81,145

$

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 six months ended June 30, 2021 and the twelve months ended December 31, 2020, there were no transfers between Level 1, Level 2 and Level 3.

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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 June 30, 2021 and December 31, 2020:

June 30, 2021

Amortized cost

Gross unrealized gains

Gross unrealized losses

Fair value

Money market funds

    

$

151,379

    

$

$

$

151,379

Commercial paper

 

12,993

 

 

 

12,993

Corporate debt securities

 

59,506

 

 

(9)

 

59,497

$

223,878

$

$

(9)

$

223,869

Cash equivalents

$

151,379

Short-term marketable securities

72,490

$

223,869

December 31, 2020

 

Amortized cost

 

Gross unrealized gains

Gross unrealized losses

Fair value

Money market funds

    

$

158,023

    

$

$

$

158,023

Commercial paper

 

47,955

 

 

 

47,955

Corporate debt securities

 

33,193

 

 

(3)

 

33,190

$

239,171

$

$

(3)

$

239,168

Cash equivalents

$

158,023

Short-term marketable securities

81,145

$

239,168

As of June 30, 2021 and December 31, 2020, all of the Company’s short-term marketable securities had contractual maturities of less than one year.

5.           Accrued expenses and other current liabilities

The following is a summary of accrued expenses and other current liabilities as of June 30, 2021 and December 31, 2020:

June 30, 2021

December 31, 2020

Accrued external research and development expenses

$

12,255

$

8,740

Accrued employee compensation and benefits

1,594

495

Accrued legal and professional fees

 

76

 

154

Short-term lease liability and other

 

227

 

294

$

14,152

$

9,683

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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 June 30, 2021 and December 31, 2020, 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 June 30, 2021, 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 paid 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.

On July 10, 2020, the Company completed a follow-on public offering at which time the Company issued 6,012,390 shares of common stock, including the exercise in full by the underwriters of their option to purchase up to 784,224 additional shares of common stock, at a public offering price of $36.00 per share. The Company received $203,460 net of underwriting discounts and commissions, but before deducting offering costs paid by the Company, which were $906.

On May 18, 2021, the Company filed a Form S-3 Registration Statement and the accompanying prospectus activating the at-the-market, or ATM, facility by entering into a sales agreement with J.P. Morgan Securities LLC, relating to shares of the Company’s common stock offered. Pursuant to the terms of the sales agreement, the Company may offer and sell shares of common stock, having an aggregate price of up to $100.0 million from time to time. The Company reserved 5,000,000 shares of common stock related to the ATM offering. During the three and six months ended June 30, 2021, the Company did not make any sales under the ATM facility.

As of June 30, 2021 and December 31, 2020, there were 34,840,782 and 34,741,649 shares of common stock issued and outstanding, respectively.

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

June 30, 2021

December 31, 2020

Options outstanding under the 2018 Stock Option and Grant Plan

 

2,059,016

 

2,148,019

Options outstanding under the 2019 Stock Option and Incentive Plan

 

1,903,356

 

1,585,293

Options available for future grant

 

3,199,146

 

2,127,544

Common stock available for ATM program

5,000,000

2019 Employee Stock Purchase Plan

 

881,249

 

543,963

Total

 

13,042,767

 

6,404,819

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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 June 30, 2021.

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. In March 2018, the Company amended the restricted stock agreements such that the restricted common stock became subject to a vesting schedule over a two-year period commencing in May 2018 and culminating in June 2020. As of June 30, 2021, all restricted stock issued to the founders is fully vested.

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 certain holders the right to early exercise specified 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, 2020:

Grant-Date Fair

    

Number of Shares

    

 Value

Unvested restricted common stock as of December 31, 2020

33,614

0.62

Shares vesting

(29,778)

0.62

Unvested restricted common stock as of June 30, 2021

 

3,836

$

0.62

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.

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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 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 was 2,572,457, which included the 107,635 shares transferred from the 2018 Plan, and shall be cumulatively increased on each January 1 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 1,389,665 shares on January 1, 2021 and 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 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 347,416 shares on January 1, 2021 and by 285,678 shares on January 1, 2020.

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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 as follows, presented on a weighted average basis:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

2020

2021

2020

Expected term (in years)

 

5.66

 

5.58

5.86

5.81

Expected volatility

 

70.43

%

74.40

%

70.43

%

77.70

%

Weighted average risk-free interest rate

 

1.05

%

0.44

%

0.80

%

1.07

%

Expected dividend yield

 

0.00

%

0.00

%

0.00

%

0.00

%

Stock options

The following table summarizes the Company’s stock option activity since December 31, 2020:

    

    

Weighted-

    

Weighted-

    

Average

Average

Aggregate

Exercise

remaining

Intrinsic

Number

Price per

contractual

Value

of Options

Share

term (years)

(000's)

Balance outstanding, December 31, 2020

3,733,312

$

12.15

8.53

$

52,498

Options granted

318,063

$

26.47

Options exercised

(89,003)

$

4.69

Balance outstanding, June 30, 2021

3,962,372

$

13.47

8.18

$

47,630

Exercisable, June 30, 2021

 

1,585,509

$

9.90

 

7.85

$

23,967

Vested and expected to vest, June 30, 2021

 

3,962,372

$

13.47

 

8.18

$

47,630

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 and six months ended June 30, 2021 was $16.49 and $16.27, respectively.

Stock-based compensation

The following table summarizes the Company’s stock-based compensation expense during the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30, 

Six Months Ended June 30, 

2021

2020

2021

2020

Classified within research and development expense

$

734

$

369

$

1,453

$

737

Classified within general and administrative expense

1,702

953

3,347

1,823

Total stock-based compensation expense

$

2,436

$

1,322

$

4,800

$

2,560

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

As of June 30, 2021, total unrecognized compensation cost related to unvested stock options was $23,595, which is expected to be recognized over a weighted average period of 2.17 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, Inc. (“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 EFX to third parties.

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. Amgen was also 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. 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 the BALANCED study and is obligated to pay Amgen $7,500 in connection with dosing the first patient in a Phase 3 clinical trial, up to $30,000 in connection with marketing approvals, 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 and six months ended June 30, 2021 and 2020, the Company did not record any research and development expense in connection with the Amgen Agreement.

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

9.           Income taxes

During the three and six months ended June 30, 2021 and 2020, 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 uncertainty of realizing a benefit from those items. All of the Company’s operating losses since inception have been generated in the United States.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act, (the “Act”) was signed into law. The Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company analyzed the provisions of the Act and determined there was no significant impact to its income tax provision for the three and six months ended June 30, 2021.

On December 27, 2020, the “Consolidated Appropriations Act, 2021” (the “CAA”) was signed into law. The CAA includes provisions meant to clarify and modify certain items put forth in CARES Act, while providing aid to businesses affected by the pandemic. The CAA allows deductions for expenses paid for by Paycheck Protection Program (“PPP”) and Economic Injury Disaster Loan (“EIDL”) Program, clarifies forgiveness of EIDL advances, and other business provisions. The Company analyzed the provisions of the CAA and determined there was no significant impact to its 2020 tax provision.

On June 29, 2020, California signed Assembly Bill 85 (“A.B. 85”), was signed into law. A.B. 85, which includes several tax measures, provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5 million of tax per year. Generally, A.B. 85 suspends the use of net operating losses for taxable years 2020, 2021, and 2022 for taxpayers with taxable income of $1 million or more.” Since the Company is not expected to generate California source taxable income of more than $1 million, no material impact is anticipated at this time.

10.           Net loss per share

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

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Numerator:

 

  

 

  

 

  

 

  

Net loss

$

(28,933)

$

(16,207)

$

(44,023)

$

(28,093)

Denominator:

 

 

Weighted average common shares outstanding, basic and diluted

 

34,814,631

 

28,602,976

34,779,647

28,551,227

Net loss per share, basic and diluted

$

(0.83)

$

(0.57)

$

(1.27)

$

(0.98)

The Company excluded 8,963 shares and 70,244 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 June 30, 2021 and 2020, respectively, because those shares had not vested. The Company excluded 16,367 shares and 54,971 shares of restricted common stock, presented on a weighted average basis, from the calculations of basic net loss per share for the six months ended June 30, 2021 and 2020, respectively, because those shares had not vested.

The Company’s potentially dilutive securities, which include stock options and unvested restricted common stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

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 and six months ended June 30, 

    

2021

    

2020

Options to purchase common stock

 

3,962,372

 

3,183,248

Unvested restricted common stock

 

3,836

 

63,389

 

3,966,208

 

3,246,637

11.         Commitments and contingencies

COVID-19 Pandemic

In March 2020, the novel strain of coronavirus (“COVID-19”) was declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 intensified and the United States, Europe and Asia implemented severe travel restrictions, social distancing requirements, stay-at-home orders and delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. The Company’s financial results for the three and six months ended June 30, 2021 were not significantly impacted by COVID-19, however despite vaccination efforts, 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 2021, including the timing and enrollment of patients in its ongoing and future clinical trials and other expected milestones of its product candidate.

Operating lease

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. The lease commenced on July 10, 2020 when the Company took occupancy of the leased space and the lease was determined to be operating classified. Under the agreement, the Company is required to make approximately $2,300 in total minimum payments during the term. The Company is also required to pay its proportionate share of building operating and tax costs after the first year under lease which are not included in the measurement of the lease and treated as variable lease cost and expensed when incurred.

As of June 30, 2021, maturities of the Company’s operating lease liability was as follows:

2021 (remaining)

$

153

2022

312

2023

321

2024

331

2025

341

2026 and thereafter

559

Total future minimum lease payments

2,017

Less imputed interest

(407)

Present value of operating lease liabilities

$

1,610

As of June 30, 2021, the total lease liability was $1,610, of which $1,417 was noncurrent and $193 was short-term and classified within “Accrued expenses and other current liabilities” on the condensed consolidated balance sheet.

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Akero Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

For the three and six months ended June 30, 2021 and 2020, the components of operating lease cost were as follows: