10-Q

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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, 2023

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

FOR THE TRANSITION PERIOD FROM

Commission File Number

001-36500

CymaBay Therapeutics, Inc.

(Exact name of registrant as specified in its charter)


Delaware		94-3103561
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7575 Gateway Blvd, Suite 110 Newark, CA		94560
(Address of principal executive offices)		(Zip Code)

(510)

293-8800

(Registrant’s telephone number, including area code)

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, $0.0001 par value per share	CBAY	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, a 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.

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 April 30, 2023, there were 97,513,179 shares of the registrant’s

common stock outstanding.

CYMABAY THERAPEUTICS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION		3

Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022 (unaudited)		3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022 (unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (unaudited)		5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 (unaudited)		6
	Notes to Condensed Consolidated Financial Statements (unaudited)		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		29
Item 4.	Controls and Procedures		29

PART II	OTHER INFORMATION		30
Item 1.	Legal Proceedings		30
Item 1A.	Risk Factors		30
Item 6.	Exhibits		52

Signatures			53

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

CymaBay Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(unaudited)


	March 31, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	59,150		$	20,291
Marketable securities		177,215			115,194
Prepaid expenses and other current assets		6,355			2,588

Total current assets		242,720			138,073
Property and equipment, net		729			701
Operating lease right-of-use asset		137			169
Other assets		1,733			2,909

Total assets	$	245,319		$	141,852

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,633		$	1,096
Accrued research and development expenses		5,565			6,530
Deferred collaboration revenue		33,733			—
Other accrued liabilities		5,569			7,815

Total current liabilities		46,500			15,441
Development financing liability		94,630			90,227
Long-term portion of operating lease liability		—			30

Total liabilities		141,130			105,698
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value: 10,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.0001 par value: 200,000,000 shares authorized; 97,330,560 and 84,681,063 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		17			8
Additional paid-in capital		1,005,877			909,329
Accumulated other comprehensive loss		(70	)		(326	)
Accumulated deficit		(901,635	)		(872,857	)

Total stockholders’ equity		104,189			36,154

Total liabilities and stockholders’ equity	$	245,319		$	141,852

See accompanying notes to the condensed consolidated financial statements.

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CymaBay Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share information)

(unaudited)


	Three Months Ended March 31,
	2023			2022
Operating expenses:
Research and development	$	18,551		$	18,415
General and administrative		8,324			6,087

Total operating expenses		26,875			24,502

Loss from operations		(26,875	)		(24,502	)
Other income (expense), net:
Interest income		2,013			98
Interest expense		(4,403	)		(3,365	)
Other income		487			—

Total other income (expense), net		(1,903	)		(3,267	)

Net loss	$	(28,778	)	$	(27,769	)

Other comprehensive loss:
Unrealized gain (loss) on marketable securities, net of tax		256			(206	)

Total other comprehensive loss		256			(206	)

Comprehensive loss	$	(28,522	)	$	(27,975	)

Basic and diluted net loss per common share	$	(0.29	)	$	(0.32	)
Weighted average common shares outstanding used to calculate basic and diluted net loss per common share		97,971,081			87,802,939

See accompanying notes to the condensed consolidated financial statements.

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CymaBay Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	Three Months Ended March 31,
	2023			2022

Operating activities
Net loss	$	(28,778	)	$	(27,769	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		199			169
Stock-based compensation expense		3,487			2,414
Accretion of development financing liability		4,403			3,365
Net accretion and amortization of investments in marketable securities		(1,318	)		131
Changes in assets and liabilities:
Prepaid expenses and other current assets		(3,767	)		1,077
Other assets		1,176			(728	)
Accounts payable		537			(2,341	)
Deferred collaboration revenue		33,733			—
Accrued research and development expenses		(965	)		(93	)
Other accrued liabilities		(2,276	)		(1,587	)

Net cash provided by (used in) operating activities		6,431			(25,362	)
Investing activities
Purchases of property and equipment		(195	)		—
Purchases of marketable securities		(121,097	)		(62,485	)
Proceeds from maturities of marketable securities		60,650			11,495

Net cash (used in) investing activities		(60,642	)		(50,990	)
Financing activities
Proceeds from issuance of common stock pursuant to equity award plans		710			—
Proceeds from issuance of common stock and pre-funded warrants, net of issuance costs		92,360			(459	)
Proceeds from development financing		—			25,000

Net cash provided by financing activities		93,070			24,541

Net increase (decrease) in cash and cash equivalents		38,859			(51,811	)
Cash and cash equivalents at beginning of period		20,291			125,806

Cash and cash equivalents at end of period	$	59,150		$	73,995

Supplemental disclosure
Cash paid for amounts included in the measurement of lease liabilities	$	176		$	171

See accompanying notes to the condensed consolidated financial statements.

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CymaBay Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share information)

(unaudited)


	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Equity

Balances as of December 31, 2022		84,681,063	$	8	$	909,329	$	(326	)	$	(872,857	)	$	36,154
Issuance of common stock upon exercise of options and awards		203,077		—		710		—			—			710
Issuance of common stock and pre-funded warrants, net of $5,390 issuance costs		11,821,428		9		92,351		—			—			92,360
Exercise of pre-funded warrants		624,992		—		—		—			—			—
Stock-based compensation expense		—		—		3,487		—			—			3,487
Net loss		—		—		—		—			(28,778	)		(28,778	)
Net unrealized gain on marketable securities		—		—		—		256			—			256

Balances as of March 31, 2023		97,330,560	$	17	$	1,005,877	$	(70	)	$	(901,635	)	$	104,189


	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Equity

Balances as of December 31, 2021		84,677,939	$	8	$	899,798	$	(13	)	$	(766,856	)	$	132,937
Issuance costs related to issuance of common stock and pre-funded warrants		—		—		5		—			—			5
Stock-based compensation expense		—		—		2,414		—			—			2,414
Net loss		—		—		—		—			(27,769	)		(27,769	)
Net unrealized loss on marketable securities		—		—		—		(206	)		—			(206	)

Balances as of March 31, 2022		84,677,939	$	8	$	902,217	$	(219	)	$	(794,625	)	$	107,381

See accompanying notes to the condensed consolidated financial statements.

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CymaBay Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Description of Business

CymaBay Therapeutics, Inc. (the Company or CymaBay) is a clinical-stage biopharmaceutical company focused on developing and providing access to innovative therapies for patients with liver and other chronic diseases with high unmet medical need. The Company’s key clinical development candidate is seladelpar. Seladelpar has been under development primarily for the treatment of primary biliary cholangitis (PBC), a rare liver disease. The Company was incorporated in Delaware in October 1988 as Transtech Corporation. The Company’s headquarters and operations are located in Newark, California and it operates in one segment.

Liquidity

The Company has incurred net operating losses and negative cash flows from operations since its inception. During the three months ended March 31, 2023, the Company incurred a net loss of $28.8 million and generated $6.4 million of net cash flow from operations. At March 31, 2023, the Company had an accumulated deficit of $901.6 million.

Historically, the Company has incurred substantial research and development expenses in the course of studying its product candidates in clinical trials. To date, none of the Company’s product candidates have been approved for marketing and sale, and the Company has not recorded any revenue from product sales. Generally, the Company’s ability to achieve profitability is dependent on its ability to successfully develop, acquire or

in-license

additional product candidates, conduct clinical trials for those product candidates, obtain regulatory approvals, and support commercialization activities for those product candidates. Any products developed will require approval of the U.S. Food and Drug Administration (FDA) or a foreign regulatory authority prior to commercial sale. The regulatory approval process is expensive, time-consuming, and uncertain, and any denial or delay of approval could have a material adverse effect on the Company. Even if approved, the Company’s products may not achieve market acceptance and will face competition from both generic and branded pharmaceutical products.

As of March 31, 2023, the Company had cash, cash equivalents and marketable securities totaling $236.4 million, which the Company believes is sufficient to fund its current operating plan for at least twelve months from the issuance date of its financial statements. The Company has historically obtained, and expects to obtain in the future, additional financing to fund its business strategy through: future equity offerings; debt financing; one or more possible licenses, collaborations or other similar arrangements with respect to development and/or commercialization rights of the Company’s product candidates; or a combination of the above. It is unclear if or when any such transactions will occur, on satisfactory terms or at all. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business strategies. If adequate funds are not available to the Company, it could have a material adverse effect on the Company’s business, results of operations, and financial condition. Market volatility could also adversely impact the Company’s investments as well as its ability to access capital when and as needed. Failure to raise sufficient capital when needed could require the Company to significantly delay, scale back or discontinue one or more of its product development programs or commercialization efforts, or other aspects of its business plans, and the Company’s operating results and financial condition would be adversely affected.

2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying interim condensed consolidated financial statements are unaudited and are comprised of the accounts of CymaBay and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method.

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which requires management to make informed estimates and assumptions that impact the amounts and disclosures reported in the condensed consolidated financial statements and accompanying notes, and the requirements of the United States Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted.

In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include normal recurring adjustments necessary for the fair presentation of the Company’s financial position and its results of operations and comprehensive loss and its cash flows for the periods presented. These statements do not include all disclosures required by U.S. GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the fiscal year ended December 31, 2022, which is contained in the Company’s Annual Report on Form

10-K

as filed with the SEC on March 23, 2023. The results for the three months ended March 31, 2023 are not necessarily indicative of results to be expected for the entire year ending December 31, 2023 or future operating periods.

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The condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the amounts and disclosures reported in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Actual results could differ materially from those estimates and assumptions. These estimates form the basis for making judgments about the carrying values of assets and liabilities when these values are not readily apparent from other sources. Estimates are assessed each reporting period and updated to reflect current information and any changes in estimates will generally be reflected in the period first identified.

Revenue Recognition

As part of the Company’s drug development strategy, the Company periodically enters into collaboration arrangements with third party collaborators, under which the Company may license certain rights to our intellectual property to permit collaborators to further develop, manufacture and/or otherwise commercialize its drug candidates. The terms of these agreements typically include, but are not limited to, payments to the Company of one or more of the following: nonrefundable, upfront license fees; development and commercial milestone payments whose payment is typically contingent upon milestone achievement; funding of research and/or development activities; and royalties on net sales of licensed products.

At the inception of an arrangement, the Company evaluates if a counterparty to a contract is a customer, if the arrangement is within the scope of

ASC 606—Revenue from Contracts with Customers

, and the term of the contract. The Company recognizes revenue when the customer obtains control of promised goods or services in a contract for an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. For contracts with customers, the Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including any constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. As part of the accounting for contracts with customers, the Company must develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract. The Company then allocates the total transaction price to each performance obligation based on the estimated standalone selling prices of each performance obligation. The Company recognizes the amount of the transaction price allocated to the respective performance obligation as revenue when the performance obligation is satisfied or as it is satisfied.

Upfront License Fees:

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront license fees allocated to the license at a point in time when the license is effective and the underlying intellectual property has been made available to the collaborator and the collaborator is able to use and benefit from the license. For licenses that are not distinct from other promised goods and services, as well as for other performance obligations identified in the arrangement, the Company utilizes judgment to assess the nature of the performance obligation to determine whether it is satisfied over time or at a point in time. A performance obligation is satisfied over time if the customer simultaneously receives and consumes the benefits from the Company’s performance, if the Company’s performance enhances an asset controlled by the customer, or if the Company has an enforceable right to be paid by the customer and the Company’s performance does not create an asset that has alternative use to the Company.

If a performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. Revenue is recorded proportionally to the selected measure of progress either over the service period or at a point in time based on the products or services to be provided. The Company uses the

cost-to-cost

measure of progress when it best depicts the transfer of control to the customer which occurs as the Company incurs costs. Under the

cost-to-cost

measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation (an “input method” under Topic 606). The Company uses judgment to estimate the total cost expected to complete the research and development performance obligations, which include subcontractors’ costs, labor, materials, other direct costs and an allocation of indirect costs. The Company evaluates these cost estimates and the progress each reporting period and, as necessary, it adjusts the measure of progress and related revenue recognition.

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If the arrangement includes optional goods and services, the Company assesses whether delivery of such goods and services requires the customer to pay fees consistent with their standalone selling prices, or if customer may be entitled to incremental discounts that it would not have received without entering into the agreement and committing to purchase the initial goods and services. Presence of such discounts indicates the customer has received material rights which also represent performance obligations.

Development and Regulatory Milestone Payments

: Depending on facts and circumstances, the Company may conclude that it is appropriate to include a milestone payment in the estimated transaction price using the most likely amount method or that it is appropriate to fully constrain the milestone. A milestone payment is included in the transaction price in the reporting period when the Company concludes that it is probable that recording revenue in the period will not result in a significant reversal of revenue in future periods. The Company may record revenues from certain milestones in a reporting period before the milestone is achieved if it concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. Revenue from milestones is recognized to the extent of progress made in satisfying the associated performance obligation(s). The Company records a corresponding contract asset when this conclusion is reached. Milestone payments that have not been included in the transaction price to date are fully constrained. These milestones remain fully constrained until the Company concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. The Company

re-evaluates

the probability of achievement of such development and regulatory milestones and any related constraint each reporting period. The Company adjusts our estimate of the overall transaction price, including the amount of licensing revenue that was recorded, if necessary.

Sales-based Milestone and Royalty Payments:

The Company’s collaborators may be required to pay it sales-based milestone payments or royalties on future sales of commercial products. The Company recognize revenues related to sales-based milestone and royalty payments upon the later to occur of (i) achievement of the collaborator’s underlying sales or (ii) satisfaction of any performance obligation(s) related to these sales, in each case provided that the license to our intellectual property is deemed to be the predominant item to which the sales-based milestones and/or royalties relate.

The Company receives payments from its customers based on billing schedules established in each contract. Upfront payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

The Company allocates amounts included in the transaction price based on standalone selling prices of various performance obligations. Variable consideration (such as milestones and royalties) is allocated to specific performance obligations if it is triggered through our performance or represents a specific outcome from the performance associated with this performance obligation, and if such allocation would meet the allocation objective of allocating to each performance obligation an amount that depicts consideration to which the Company would be entitled in exchange for delivery of such performance obligation. The remaining consideration is generally allocated on a relative standalone selling price basis.

The Company determines standalone selling prices using a variety of methods, including cost associated with our performance plus a reasonable margin, prices observed in the market for similar goods or services, and valuation techniques involving projected discounted cash flows.

Fair Value of Financial Instruments

The Company’s financial instruments during the periods reported consist of cash, cash equivalents, marketable securities, accounts payable, certain accrued liabilities, and the development financing liability.

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 at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs and is as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

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Level 3—Inputs that are significant to the fair value measurement and are unobservable (i.e. supported by little or no market activity), which requires the reporting entity to develop its own valuation techniques and assumptions.

The carrying amounts of cash equivalents approximate their related fair values due to the short-term nature of these instruments. Cash equivalents are classified as level 1 and accounts payable and accrued liabilities as level 2 under the fair value hierarchy.

The following tables present the Company’s financial assets that are measured at fair value on a recurring basis using the above input categories (in thousands):


	As of March 31, 2023
	Level 1		Level 2		Level 3		Total

Assets:
Cash equivalents:
Money market funds	$	57,843	$	—	$	—	$	57,843

Total cash equivalents		57,843		—		—		57,843
Marketable securities:
U.S. and foreign commercial paper		—		85,120		—		85,120
U.S. and foreign corporate debt securities		—		10,375		—		10,375
Supranational debt securities		—		4,475		—		4,475
U.S. agency securities		—		26,159		—		26,159
U.S. treasury securities		—		51,086		—		51,086

Total marketable securities		—		177,215		—		177,215

Total assets measured at fair value	$	57,843	$	177,215	$	—	$	235,058


	As of December 31, 2022
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	9,770	$	—	$	—	$	9,770

Total cash equivalents		9,770		—		—		9,770
Marketable securities:
U.S. and foreign commercial paper		—		46,121		—		46,121
U.S. and foreign corporate debt securities		—		24,807		—		24,807
Supranational debt securities		—		12,890		—		12,890
U.S. agency securities		—		7,759		—		7,759
U.S. treasury securities		—		23,617		—		23,617

Total marketable securities		—		115,194		—		115,194

Total assets measured at fair value	$	9,770	$	115,194	$	—	$	124,964

The Company estimates the fair value of its money market funds, corporate debt, asset-backed securities, commercial paper, U.S. treasury securities, U.S agency securities, and supranational debt securities by taking into consideration data obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data, and other observable inputs.

The fair value of the Company’s development financing liability is $85.1 million. The development financing liability is classified as level 3 under the fair value hierarchy, as its valuation is based on a discounted cash flow model that uses unobservable inputs such as the estimated timing of regulatory approval, attainment of certain sales milestones and the discount

rate.

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Cash, Cash Equivalents, and Marketable Securities

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking, interest-bearing, and money market funds.

The Company invests excess cash in marketable securities with high credit ratings. These securities consist primarily of corporate debt, commercial paper, asset-backed securities, U.S. treasury securities, and supranational debt securities and are classified as

“available-for-sale.”

The Company considers marketable securities as short-term investments if the maturity date is less than or equal to one year from the balance sheet date. The Company considers marketable securities as long-term investments if the maturity date is in excess of one year from the balance sheet date.

Realized gains and losses from the sale of marketable securities, if any, are calculated using the specific-identification method. Expected losses judged to be related partially or in whole to declines in credit risk-related factors of the security issuer are included in interest income or expense in the condensed consolidated statements of operations and comprehensive loss at the time the factors contributing to the expected losses are identified. Unrealized holding gains and losses are reported in accumulated other comprehensive loss in the condensed consolidated balance sheets. To date, the Company has not recorded any expected losses on its marketable securities related to credit risk-related declines in market value. In determining whether a decline in market value is related to expected credit losses, various factors are considered, including the cause, duration of time and severity of the expected loss, any adverse changes in the investees’ financial condition, and the Company’s intent and ability to hold the security for a period of time sufficient to allow for an anticipated recovery in market value.

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Unrealized gains and losses of the Company’s

available-for-sale

marketable securities as of March 31, 2023 and December 31, 2022 are presented in the tables below (in thousands):


			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value

As of March 31, 2023:
Cash equivalents:
Money market funds	$	57,843	$	—	$	—		$	57,843

Total cash equivalents		57,843		—		—			57,843
Current marketable securities:
U.S. and foreign commercial paper		85,120		—		—			85,120
U.S. and foreign corporate debt securities		10,449		—		(74	)		10,375
Supranational debt securities		4,489		—		(14	)		4,475
U.S. agency securities		26,143		37		(21	)		26,159
U.S. treasury securities		51,084		48		(46	)		51,086

Total current marketable securities		177,285		85		(155	)		177,215

Total marketable securities	$	235,128	$	85	$	(155	)	$	235,058


			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
As of December 31, 2022:
Cash equivalents:
Money market funds	$	9,770	$	—	$	—		$	9,770

Total cash equivalents		9,770		—		—			9,770
Current marketable securities:
U.S. and foreign commercial paper		46,121		—		—			46,121
U.S. and foreign corporate debt securities		24,964		—		(157	)		24,807
Supranational debt securities		12,946		—		(56	)		12,890
U.S. agency securities		7,782		16		(39	)		7,759
U.S. treasury securities		23,707		2		(92	)		23,617

Total current marketable securities		115,520		18		(344	)		115,194

Total marketable securities	$	125,290	$	18	$	(344	)	$	124,964

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The following table shows the fair value of the Company’s marketable securities, by contractual maturity, as of March 31, 2023 (in thousands):


Due less than 1 year	$	177,215
Due between 1 and 2 years		—

Total fair value	$	177,215

Concentration of Risk

Cash, cash equivalents, and marketable securities consist of financial instruments that potentially subject the Company to a concentration of credit risk to the extent of the fair value recorded on the balance sheet. The Company invests cash that is not required for immediate operating needs primarily in highly liquid instruments that bear minimal risk. The Company has established guidelines relating to the quality, diversification, and maturities of securities to enable the Company to manage its credit risk. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments and issuers of investments to the extent recorded on the condensed consolidated balance sheets.

Certain materials and key components that the Company utilizes in its operations are obtained through single suppliers. Since the suppliers of key components and materials must be named in a new drug application NDA filed with the FDA for a product, significant delays can occur if the qualification of a new supplier is required. If delivery of material from the Company’s suppliers were interrupted for any reason, the Company may be unable to supply any of its product candidates for clinical trials.

Research and Development Expenses

Research and development expenses consist of costs incurred in identifying, developing, and testing product candidates. These expenses consist primarily of costs for research and development personnel, including related stock-based compensation; contract research organizations (CRO) and other third parties that assist in managing, monitoring, and analyzing clinical trials; investigator and site fees; laboratory services; consultants; contract manufacturing services;

non-clinical

studies, including materials; and allocated expenses, such as depreciation of assets, and facilities and information technology that support research and development activities. Research and development costs are expensed as incurred, including expenses that may or may not be reimbursed under research and development funding arrangements. Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid assets until the goods are received or services are rendered. Such payments are evaluated for current or long-term classification based on when they will be realized. Additionally, if expectations change such that the Company does not expect goods to be delivered or services to be rendered, such prepayments are charged to expense.

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The Company records expenses related to clinical studies and manufacturing development activities based on its estimates of the services received and efforts expended pursuant to contracts with multiple CROs and manufacturing vendors that conduct and manage these activities on its behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In amortizing or accruing service fees, the Company estimates the time period over which services will be performed, enrollment of subjects, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the Company will adjust the accrued or prepaid expense balance accordingly. To date, there have been no material differences from the Company’s estimates to the amounts actually incurred.

Development Financing Agreement

The

Company accounts for the Financing Agreement (see Note 4) as a debt instrument. Accordingly, the Company has recorded payments received under the Financing Agreement as part of a development financing liability in the Company’s condensed consolidated balance sheet. The liability is recorded at amortized cost and accreted to the contractual success fee amounts based on the estimated timing of regulatory approval and attainment of certain sales milestones using an imputed interest rate. Certain transaction fees incurred specifically to complete the Financing Agreement were capitalized and recorded as a reduction to the carrying amount of the development financing liability and are being amortized to interest expense using the effective interest rate method.

There are several factors that could affect the estimated timing of regulatory approval and attainment of sales milestones, some of which are not entirely within the Company’s control. Therefore, at each reporting date, the Company reassesses the estimated timing of regulatory approval and attainment of sales milestones and the expected contractual success fee payments due therefrom. If the timing and/or amount of such expected payments is materially different than original estimates, the Company will prospectively adjust the accretion of the development financing liability and the imputed interest rate.

The Company identified certain contingent repayment features in the Financing Agreement that are required to be bifurcated from the debt host instrument as embedded derivative liabilities; however, the Company determined the fair value of these features, both individually and in the aggregate, was immaterial at inception and as of March 31, 2023. The fair value of these features will be assessed at each reporting date and will be marked to market, if material. To determine the amount to record for the embedded derivative liabilities, the Company must assess the probability of occurrence of various potential future events that could affect the timing and/or amount of future cash flows related to the Financing

Agreement.

Stock-Based Compensation

Stock-based compensation is measured at fair value on the grant date of the award. Compensation cost is recognized as expense on a straight-line basis over the vesting period for options with service conditions, and forfeitures are accounted for as they occur. The Company uses the Black-Scholes option pricing model to determine the fair value of stock option awards. The determination of fair value for stock-based awards using an option-pricing model requires management to make certain assumptions regarding subjective input variables such as expected term, dividends, volatility and risk-free rate. If actual results are not consistent with the Company’s assumptions and judgments used in making these estimates, the Company may be required to increase or decrease compensation expense, which could be material to the Company’s results of operations.

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Recently Issued Accounting Pronouncements

ASU

2016-13

In June 2016, the FASB issued ASU

No. 2016-13,

Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

, an amendment which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to

available-for-sale

debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. In November 2019, FASB issued ASU

No. 2019-10,

Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which deferred the adoption deadline for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, and entities are required to use a modified retrospective approach, with certain exceptions. The Company adopted this standard on January 1, 2023 and noted no material impact on its condensed consolidated financial statements and related disclosures.

3. Other Accrued Liabilities

Other accrued liabilities consist of (in thousands):


	March 31, 2023		December 31, 2022
Accrued compensation	$	2,299	$	5,779
Accrued professional fees and other		2,733		1,372
Current portion of operating lease liability		537		664

Total other accrued liabilities	$	5,569	$	7,815

4. Development Financing Agreement

On July 30, 2021 (the Effective Date), the Company entered into a Development Financing Agreement (the Financing Agreement) with an affiliate of Abingworth LLP (Abingworth) to provide funding to the Company to support its development of seladelpar for the treatment of primary biliary cholangitis (PBC). The Financing Agreement provided the Company $75.0 million in base funding, of which $25.0 million was provided in August 2021, $25.0 million was provided in November 2021, and $25.0 million was provided in January 2022. The use of proceeds from the funding is limited to PBC “Development Program” costs incurred or paid as defined in the Financing Agreement. In return, the Company will pay to Abingworth:

(1) contingent upon the first to occur of regulatory approval of seladelpar for the treatment of PBC in the U.S., U.K., Germany, Spain, Italy or France (Regulatory Approval), fixed success payments equal to 2.0x of the funding provided, consisting of $10 million payable in 90 days after the Regulatory Approval and thereafter, payments due on the first six anniversaries of the Regulatory Approval in the amounts of $15.0 million, $22.5 million, $22.5 million, $25.0 million, $27.5 million and $27.5 million, respectively and

(2) variable success payments equal to 1.1x of the funding provided, consisting of sales milestone payments of (x) $17.5 million and $27.5 million, respectively upon first reaching certain cumulative U.S. product sales thresholds, and (y) $37.5 million upon first reaching a specified U.S. product sales run rate.

Promptly following receipt of Regulatory Approval, the Company is required to execute a note agreement and deliver a promissory note to Abingworth within two business days to convert the fixed and variable success payments into a note payable. At the time that Abingworth receives, collectively, an aggregate of 3.1x of the funding provided ($232.5 million), the Company’s payment obligations under the Financing Agreement will be fully satisfied. The Company has the option to satisfy its payment obligations to Abingworth upon Regulatory Approval, or a change of control of the Company, by paying an amount equal to the remaining payments payable to Abingworth subject to a

mid-single-digit

discount rate. Upon a change of control of the Company, an acceleration payment of 1.35x of the funding provided is payable, net of payments already made to Abingworth and creditable against future payments to Abingworth.

Pursuant to the Financing Agreement, the Company granted Abingworth a security interest in all its assets (other than intellectual property not related to seladelpar), provided that the Company is permitted to incur certain indebtedness. The security interest will terminate when the Company has paid Abingworth 2.0x of the funding provided or upon certain terminations of the Financing Agreement.

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The Financing Agreement provides for negative, affirmative and additional covenants, which the Company must comply with for the duration of the Financing Agreement term. As of March 31, 2023, the Company was in compliance with all covenants stipulated in the Financing Agreement.

In certain instances, upon the termination of the Financing Agreement, the Company will be obligated to pay Abingworth a multiple of the amounts paid to the Company under the Financing Agreement, including specifically:

(i) 310% of such amounts in the event that Abingworth terminates the Financing Agreement due to (x) a Fundamental Breach, as defined in the Financing Agreement, (y) the bankruptcy of the Company, or (z) a safety concern resulting from gross negligence on the part of the Company or due to a safety concern that was material on the Effective Date and the material data showing such safety concern was not publicly known, disclosed to Abingworth, or in the diligence room made available to Abingworth,

(ii) 200% of such amounts in the event the Financing Agreement is terminated due to (x) Material Breach, as defined in the Financing Agreement, by the Company or (y) the security interests of Abingworth being invalidated or terminated other than as set forth in the Financing Agreement, and

(iii) 100% of such amounts in the event of certain irresolvable disagreements within the executive review committee overseeing the Company’s development of seladelpar.

In addition, if, following certain terminations, the Company continues to develop seladelpar for the treatment of PBC and obtains regulatory approval, it will make the payments to Abingworth as if the Financing Agreement had not been terminated, less any payments made upon termination.

The Company shall not be obligated to make any payments to Abingworth under certain instances of technical or regulatory failure of the PBC development program as defined in the Financing Agreement.

As part of the arrangement, an executive review committee was established between the Company and Abingworth to discuss the Company’s development of seladelpar.

The Company evaluated the Financing Agreement and determined it to be a research and development funding arrangement with the characteristics of a debt instrument, as the transfer of financial risk to Abingworth was not considered substantive and genuine. Accordingly, the Company has recorded payments received under the Financing Agreement as part of a development financing liability in its condensed consolidated balance sheets. The Company accounts for the overall development financing liability at amortized cost based on the estimated timing of regulatory approval and attainment of certain sales milestones and the contractual success fee payments expected to be due therefrom, as discounted using an imputed interest rate. The development financing liability is being accreted as interest expense to its expected future repayment amount over the expected life of the agreement using the effective interest rate method. Certain legal and financial advisory fees incurred specifically to complete the Financing Agreement were capitalized and recorded as a reduction to the carrying amount of the development financing liability and are also being amortized to interest expense using the effective interest method.

There are several factors that could affect the estimated timing of regulatory approval and attainment of sales milestones, some of which are not entirely within the Company’s control. Therefore, the Company periodically reassesses the estimated timing of regulatory approval and attainment of sales milestones and the expected contractual success fee payments due therefrom. If the timing and/or amount of such expected payments is materially different than original estimates, the Company will prospectively adjust the accretion of the development financing liability and the imputed interest rate.

The Company identified certain contingent repayment features in the agreement that are required to be bifurcated from the debt host instrument as embedded derivative liabilities; however, the fair value of these features was immaterial at the Effective Date and as of March 31, 2023. The fair value of the embedded derivative liabilities will be assessed at subsequent reporting dates if material.

As of March 31, 2023, the development financing liability was classified as a long-term liability, as the Company expects the related repayments to take place between 2024 and 2030 for purposes of the model used to calculate its carrying value. The imputed interest rate on the unamortized portion of the development financing liability was approximately 19.2% as of March 31, 2023.

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5. Collaboration and License Agreement

On January 6, 2023, the Company entered into a Collaboration and License Agreement (License Agreement) with Kaken Pharmaceuticals Co., Ltd (Kaken). The Company granted Kaken an exclusive license to develop and commercialize seladelpar (the Licensed Product) for the prevention or treatment of primary biliary cholangitis (PBC) in Japan.

Pursuant to the terms of the License Agreement, Kaken will bear the cost of, and be responsible for, among other things, conducting the clinical studies and other developmental activities for the Licensed Product in PBC in Japan as well as preparing and filing applications for regulatory approval and commercializing the Licensed Product in Japan. Kaken is obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize, the Licensed Product in Japan, including obtaining pricing approval for the Licensed Product in Japan. The Company is obligated to supply to Kaken its requirements of Licensed Product for clinical and commercial use, which may be terminated upon specified circumstances, and with appropriate technology transfer.

The Company will deliver to Kaken data from its clinical trials, nonclinical studies and other

pre-clinical

studies, as well as chemistry manufacturing and controls (CMC) data, minutes of meetings with regulatory authorities, and

know-how

within the Company’s control that is reasonably necessary for Kaken to develop and seek regulatory approval of seladelpar for the treatment of PBC in Japan.

The Company is responsible for the completion of CMC development activities to enable future supply of the Licensed Product to Kaken and to enable Kaken to seek regulatory approval of the Licensed Product in Japan. The Company may also be requested by Kaken to conduct CMC activities specific to commercialization in Japan and provide other assistance.

In consideration of the license and other rights granted by the Company, Kaken made an upfront cash payment to the Company of ¥

4.5 billion (approximately

$34.2

million at contract inception date) and is obligated to pay potential milestone payments to the Company totaling up to

¥17.0

billion (approximately $

128.0

million at contract inception date) upon the achievement of certain regulatory and sales

milestones. The commercial supply of the Licensed Products to Kaken will be provided based on a commercial supply agreement to be negotiated between the parties in the future.

The License Agreement may be early terminated by either party for material breach, upon a party’s insolvency or bankruptcy or upon a challenge by one party of any patents of the other party, and Kaken may terminate in specified situations, including for a safety concern, clinical failure or termination of

an underlying in-license to the

Company. Kaken may also terminate the License Agreement at its convenience with specified prior notice.

Pursuant to the License Agreement, the Company and Kaken agreed to establish a joint steering committee to provide strategic oversight of both parties’ activities under the License Agreement.

The Company concluded that Kaken is a customer and that the arrangement represents a contract with a customer under the scope of ASC 606. The Company identified the following key promised goods and services under the arrangement: (1) the exclusive license to develop and commercialize seladelpar in Japan, including the initial transfer of the underlying technology and

know-how;

(2) delivery of data gathered through the execution of the Company’s development activities for PBC to support Kaken’s regulatory filings in Japan; and (3) completing the Company’s global CMC development activities as necessary for the manufacture and supply of the Licensed Product to Kaken.

The license granted Kaken rights to certain intellectual property of the Company and was effective upon the execution of the License Agreement. However, the parties have not completed the transfer of the licensed technology and

know-how

by March 31, 2023 and as such the related performance obligation was not satisfied as of March 31, 2023. Further, the Company’s data delivery performance obligation and the CMC development performance obligation have also not been delivered as of March 31, 2023.

As none of the performance obligations related to the License Agreement were satisfied as of March 31, 2023, no revenue was recognized during the quarter ended March 31, 2023. The initial transaction price consists of the upfront payment of ¥4.5 billion ($33.7 million at the time of receipt) which the Company received in January 2023. This amount was recorded in deferred revenue as of March 31, 2023 and is expected to be recognized during the year ending December 31, 2023 as various performance obligations are satisfied. The Company determined that the potential milestone payments and royalties, if recognized, are probable of significant revenue reversal, as their achievement is highly dependent on factors outside the Company’s control, and therefore represent variable consideration that is fully constrained and excluded from the transaction price as of March 31, 2023.

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6. Stockholders’ Equity

Preferred and Common Stock Authorized

The Company is authorized to issue 10,000,000 shares of preferred stock and 200,000,000 shares of common stock as of March 31, 2023 and December 31, 2022.

Sale of Common Stock and Prefunded Warrants

On January 23, 2023, pursuant to a shelf registration statement on Form

S-3,

the Company issued a total of 11,821,428 shares of its common stock at $7.00 per share in an underwritten public offering. Concurrently, the Company sold to an existing investor who did not participate in the common stock sale a

pre-funded

warrant to purchase up to an aggregate of 2,142,857 shares of common stock at a purchase price of $6.9999 per share, which represents the per share public offering price for the common stock less the $0.0001 per share exercise price for the

pre-funded

warrant. The aggregate net proceeds to the Company from this offering was $92.4

million, after deducting underwriting discounts and commissions and other offering expenses.

The

pre-funded

warrants were determined to be equity classified; accordingly, proceeds received from their issuance were recorded as a component of stockholders’ equity within additional

paid-in

capital. None of the January 2023

pre-funded

warrants were exercised and therefore remain outstanding as of March 31, 2023.

Pursuant to the Company’s

public equity offering completed in

November 2021

, the Company issued

pre-funded

warrants to purchase

3,125,000

shares of common stock at a price of $

3.9999

per share. These

pre-funded

warrants have an exercise price of $

0.0001

per share, were fully exercisable upon issuance, and have

expiration date. The Company determined that the

pre-funded

warrants should be equity classified because they are freestanding financial instruments, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, permit the holders to receive a fixed number of shares of common stock upon exercise, are indexed to the Company’s common stock and meet the equity classification criteria. In

February 2023

pre-funded

warrants to purchase

625,000

shares of common stock from the November 2021equity financing were

net

exercised

, resulting

624,992

shares of common stock issued to the holders of the

pre-funded

warrants.

Pre-funded

warrants to purchase

4,642,857

shares of common stock were outstanding as of March

2023

At-the-Market

(ATM) Facility

In March 2023, the Company filed a registration statement on Form

S-3

with the SEC and entered into an

at-the-market

facility (ATM) to sell up to $100.0 million of common stock under the registration statement. To date, the Company has not sold any shares of common stock under the ATM.

7. Net Loss Per Common Share

Basic net loss per share of common stock is based on the weighted-average number of shares of common stock equivalents outstanding during the period.

Pre-funded

warrants to purchase

shares of

common stock were included in the weighted-average common stock share equivalents outstanding for the three months ended March 31, 2023 and 2022.

SEC Form 10-Q filed by CymaBay Therapeutics Inc.