10-Q 1 reta-20220331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2022

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 Number: 001-37785

 

Reata Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

11-3651945

(State or other jurisdiction of

incorporation or organization)

 

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

 

 

 

5320 Legacy Drive
Plano, Texas

 

75024

(Address of principal executive offices)

 

(Zip Code)

 

(972) 865-2219

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, Par Value $0.001 Per Share

 

RETA

 

NASDAQ Global 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, an emerging growth company, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of May 4, 2022, the registrant had 31,543,735 shares of Class A common stock, $0.001 par value per share, and 4,919,249 shares of Class B common stock, $0.001 par value per share, outstanding.

 

 

 


 

TABLE OF CONTENTS

 

-

 

 

 

 

Page

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

1

DEFINED TERMS

3

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

4

 

Consolidated Balance Sheets

4

 

Consolidated Statements of Operations

5

 

Consolidated Statements of Stockholders’ Equity (Deficit)

6

 

Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

35

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 3.

Defaults Upon Senior Securities

36

Item 4.

Mine Safety Disclosures

36

Item 5.

Other Information

36

Item 6.

Exhibits

37

Signatures

38

 

i


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q, all statements, other than statements of historical or present facts, including statements regarding our future financial condition, future revenues, projected costs, prospects, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “will,” “may,” “might,” “estimate,” “continue,” “anticipate,” “intend,” “target,” “project,” “model,” “should,” “would,” “plan,” “expect,” “predict,” “could,” “seek,” “goals,” “potential,” and similar terms or expressions that concern our expectations, strategy, plans, or intentions. These forward-looking statements include, but are not limited to, statements about:

our expectations regarding the timing, costs, conduct, and outcome of our clinical trials, including statements regarding the timing of the initiation and availability of data from such trials;
the timing and likelihood of regulatory filings and approvals for our product candidates;
whether regulatory authorities determine that additional trials or data are necessary in order to accept a new drug application for review and/or approval;
our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;
our plans to research, develop, and commercialize our product candidates;
the manufacturing, supply, and commercialization of our product candidates, if approved;
the rate and degree of market acceptance of our product candidates;
our expectations regarding the potential market size and the size of the patient populations for our product candidates, if approved for commercial use, and the potential market opportunities for commercializing our product candidates;
the success of competing therapies that are or may become available;
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;
the ability to license additional intellectual property relating to our product candidates and to comply with our existing license agreements;
our ability to maintain and establish relationships with third parties, such as contract research organizations (CROs), contract manufacturing organizations, suppliers, and distributors;
our ability to maintain and establish collaborators with development, regulatory, and commercialization expertise;
our ability to attract and retain key scientific or management personnel;
our ability to grow our organization and increase the size of our facilities to meet our anticipated growth;
the accuracy of our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing;
our expectations related to the use of our available cash;
our ability to develop, acquire, and advance product candidates into, and successfully complete, clinical trials;

1


 

the initiation, timing, progress, and results of future preclinical studies and clinical trials, and our research and development programs;
the impact of governmental laws and regulations and regulatory developments in the United States and foreign countries;
developments and projections relating to our competitors and our industry; and
the impact of the coronavirus disease (COVID-19) on our clinical trials, our supply chain, and our operations; and
other risks and uncertainties, including those described under the heading “Risk Factors” included in our most recent Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (SEC) on February 28, 2022.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

2


 

DEFINED TERMS

Unless the context requires otherwise, references to “Reata,” “the Company,” “we,” “us,” or “our” in this Quarterly Report on Form 10-Q refer to Reata Pharmaceuticals, Inc. and its subsidiaries. We also have used several other terms in this Quarterly Report on Form 10-Q, most of which are explained or defined below.

 

Abbreviated Term

 

Defined Term

AbbVie

 

AbbVie Inc.

ADPKD

 

Autosomal dominant polycystic kidney disease

ADL

 

Activities of Daily Living

AE

 

Adverse event

ALS

 

Amyotrophic lateral sclerosis

ATP

 

Adenosine triphosphate

bardoxolone

 

Bardoxolone methyl

BXLS

 

Blackstone Life Sciences, LLC

CKD

 

Chronic kidney disease

CMC

 

Chemistry manufacturing controls

COVID-19

 

Coronavirus disease

CRL

 

Complete Response Letter

CRO

 

Contract research organization

DPNP

 

Diabetic peripheral neuropathic pain

eGFR

 

Estimated glomerular filtration rate

EMA

 

European Medicines Agency

ESKD

 

End stage kidney disease

Exchange Act

 

Securities Exchange Act of 1934

FA

 

Friedreich’s ataxia

FDA

 

United States Food and Drug Administration

GFR

 

Glomerular filtration rate

Kyowa Kirin

 

Kyowa Kirin Co., Ltd.

LTIP Plan

 

Second Amended and Restated Long Term Incentive Plan

MAA

 

Marketing Authorization Application

mFARS

 

Modified Friedreich’s Ataxia Rating Scale

NDA

 

New Drug Application

PGIC

 

Patient global impression of change

PK

 

Pharmacokinetic

Registrational trial

 

An adequate and well-controlled trial designed to be sufficient to apply for regulatory

approval of a drug candidate, although notwithstanding the Company’s design a

regulatory agency may determine that further clinical studies or data are required

RSU

 

Restricted Stock Unit

SAE

 

Serious adverse event

SEC

 

U.S. Securities and Exchange Commission

U.S. GAAP

 

Accounting principles generally accepted in the United States

 

3


 

PART I - FINANCIAL INFORMATION

 

 

Item 1. Financial Statements.

Reata Pharmaceuticals, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

531,979

 

 

$

590,258

 

Prepaid expenses and other current assets

 

 

5,357

 

 

 

6,217

 

Total current assets

 

 

537,336

 

 

 

596,475

 

Property and equipment, net

 

 

11,202

 

 

 

11,604

 

Operating lease right-of-use-assets

 

 

131,178

 

 

 

126,777

 

Other assets

 

 

152

 

 

 

160

 

Total assets

 

$

679,868

 

 

$

735,016

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Accounts payable

 

 

9,015

 

 

 

13,505

 

Accrued direct research liabilities

 

 

14,930

 

 

 

14,249

 

Other current liabilities

 

 

13,778

 

 

 

21,450

 

Operating lease liabilities, current

 

 

5,142

 

 

 

3,142

 

Deferred revenue

 

 

755

 

 

 

1,648

 

Total current liabilities

 

 

43,620

 

 

 

53,994

 

Other long-term liabilities

 

 

5

 

 

 

 

Operating lease liabilities, noncurrent

 

 

136,445

 

 

 

132,891

 

Liability related to sale of future royalties, net

 

 

372,013

 

 

 

362,142

 

Total noncurrent liabilities

 

 

508,463

 

 

 

495,033

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock A, $0.001 par value:
   
500,000,000 shares authorized; issued and outstanding – 31,525,514 and
   
31,478,197 at March 31, 2022 and December 31, 2021, respectively

 

 

31

 

 

 

31

 

Common stock B, $0.001 par value:
   
150,000,000 shares authorized; issued and outstanding – 4,919,249 and
   
4,919,249 at March 31, 2022 and December 31, 2021, respectively

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

1,457,222

 

 

 

1,441,584

 

Accumulated deficit

 

 

(1,329,473

)

 

 

(1,255,631

)

Total stockholders’ equity

 

 

127,785

 

 

 

185,989

 

Total liabilities and stockholders’ equity

 

$

679,868

 

 

$

735,016

 

 

 

 

See accompanying notes.

4


 

Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Operations

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2022

 

 

2021

 

Collaboration revenue

 

 

 

 

 

 

License and milestone

 

$

893

 

 

$

795

 

Other revenue

 

 

21

 

 

 

149

 

Total collaboration revenue

 

 

914

 

 

 

944

 

Expenses

 

 

 

 

 

 

Research and development

 

 

39,804

 

 

 

34,880

 

General and administrative

 

 

24,841

 

 

 

20,704

 

Depreciation

 

 

308

 

 

 

274

 

Total expenses

 

 

64,953

 

 

 

55,858

 

Other income (expense), net

 

 

(9,772

)

 

 

(12,556

)

Loss before taxes on income

 

 

(73,811

)

 

 

(67,470

)

Benefit from (provision for) taxes on income

 

 

(31

)

 

 

15

 

Net loss

 

$

(73,842

)

 

$

(67,455

)

Net loss per share—basic and diluted

 

$

(2.03

)

 

$

(1.86

)

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

 

 

36,412,621

 

 

 

36,203,631

 

 

 

 

See accompanying notes.

5


 

Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share data)

 

 

 

Three Months Ended March 31, 2022

 

 

 

Common Stock A

 

 

Common Stock B

 

 

Additional
Paid-In

 

 

Total
Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

31,478,197

 

 

$

31

 

 

 

4,919,249

 

 

$

5

 

 

$

1,441,584

 

 

$

(1,255,631

)

 

$

185,989

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(73,842

)

 

 

(73,842

)

Compensation expense
   related to stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,444

 

 

 

 

 

 

15,444

 

Exercise of options

 

 

 

 

 

 

 

 

9,375

 

 

 

 

 

 

194

 

 

 

 

 

 

194

 

Issuance of common stock upon
   vesting of restricted stock units

 

 

35,107

 

 

 

 

 

 

2,835

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of common
   stock Class B to Class A

 

 

12,210

 

 

 

 

 

 

(12,210

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2022

 

 

31,525,514

 

 

$

31

 

 

 

4,919,249

 

 

$

5

 

 

$

1,457,222

 

 

$

(1,329,473

)

 

$

127,785

 

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

Common Stock A

 

 

Common Stock B

 

 

Additional
Paid-In

 

 

Total
Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

31,109,154

 

 

$

31

 

 

 

5,044,931

 

 

$

5

 

 

$

1,375,640

 

 

$

(958,245

)

 

$

417,431

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(67,455

)

 

 

(67,455

)

Compensation expense
   related to stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,679

 

 

 

 

 

 

14,679

 

Exercise of options

 

 

 

 

 

 

 

 

112,423

 

 

 

 

 

 

4,678

 

 

 

 

 

 

4,678

 

Issuance of common stock upon
   vesting of restricted stock units

 

 

 

 

 

 

 

 

3,302

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of common
   stock Class B to Class A

 

 

251,102

 

 

 

 

 

 

(251,102

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

 

31,360,256

 

 

$

31

 

 

 

4,909,554

 

 

$

5

 

 

$

1,394,997

 

 

$

(1,025,700

)

 

$

369,333

 

 

 

See accompanying notes.

6


 

Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(73,842

)

 

$

(67,455

)

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

 

 

 

 

 

 

Depreciation

 

 

308

 

 

 

274

 

Amortization of debt issuance costs and imputed interest

 

 

 

 

 

1,714

 

Non-cash interest expense on liability related to sale of future royalty

 

 

9,871

 

 

 

10,925

 

Stock-based compensation expense

 

 

15,444

 

 

 

14,679

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Income tax receivable and payable

 

 

 

 

 

(22

)

Prepaid expenses, other current assets and other assets

 

 

877

 

 

 

1,330

 

Accounts payable

 

 

(4,525

)

 

 

3,629

 

Accrued direct research, other current and long-term liabilities

 

 

(8,914

)

 

 

(9,301

)

Operating lease obligations

 

 

3,489

 

 

 

11

 

Deferred revenue

 

 

(893

)

 

 

(795

)

Net cash used in operating activities

 

 

(58,185

)

 

 

(45,011

)

Investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(288

)

 

 

(193

)

Net cash used in investing activities

 

 

(288

)

 

 

(193

)

Financing activities

 

 

 

 

 

 

Exercise of options

 

 

194

 

 

 

4,678

 

Net cash provided by financing activities

 

 

194

 

 

 

4,678

 

Net decrease in cash and cash equivalents

 

 

(58,279

)

 

 

(40,526

)

Cash and cash equivalents at beginning of year

 

 

590,258

 

 

 

818,150

 

Cash and cash equivalents at end of period

 

$

531,979

 

 

$

777,624

 

Non-cash activity:

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations

 

$

4,885

 

 

$

 

Purchases of equipment in accounts payable, accrued direct research, other current, and long-term liabilities

 

$

2,258

 

 

$

28

 

Acquisition of property and equipment through tenant improvement allowance

 

$

 

 

$

2,495

 

 

See accompanying notes.

 

7


 

Reata Pharmaceuticals, Inc.

Notes to Unaudited Consolidated Financial Statements

 

 

1. Description of Business

Reata Pharmaceuticals, Inc.’s (Reata, the Company, we, us, or our) mission is to identify, develop, and commercialize innovative therapies that change patients’ lives for the better. The Company focuses on small-molecule therapeutics with novel mechanisms of action for the treatment of severe, life-threatening diseases with few or no approved therapies. The Company’s lead programs are omaveloxolone in a rare neurological disease called Friedreich’s ataxia (FA) and bardoxolone methyl (bardoxolone) in rare forms of chronic kidney disease (CKD). Both of the Company’s lead product candidates activate the transcription factor Nrf2 to normalize mitochondrial function, restore redox balance, and resolve inflammation. Because mitochondrial dysfunction, oxidative stress, and inflammation are features of many diseases, the Company believes omaveloxolone, bardoxolone, and our next-generation Nrf2 activators have many potential clinical applications. Reata possesses exclusive, worldwide rights to develop, manufacture, and commercialize omaveloxolone, bardoxolone, and our next-generation Nrf2 activators, excluding certain Asian markets for bardoxolone in certain indications, which are licensed to Kyowa Kirin Co., Ltd. (Kyowa Kirin). In addition, we are developing RTA 901, the lead product candidate from our Hsp90 modulator program, in neurological indications. We are the exclusive licensee of RTA 901 and have worldwide commercial rights.

The Company’s consolidated financial statements include the accounts of all majority-owned subsidiaries. Accordingly, the Company’s share of net earnings and losses from these subsidiaries is included in the consolidated statements of operations. Intercompany profits, transactions, and balances have been eliminated in consolidation.

Prior period reclassifications

Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period presentation. Specifically, Operating lease obligations have been reclassed out of Accrued direct research, other current and long-term liabilities in prior periods to conform with the current period presentation on the consolidated statements of cash flows.

2. Summary of Significant Accounting Policies

 

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The consolidated balance sheet at December 31, 2021, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, refer to the annual consolidated financial statements and footnotes thereto of the Company.

 

Summary of Significant Accounting Policies

The significant accounting policies used in the preparation of these condensed consolidated financial statements for the three months ended March 31, 2022 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

8


 

3. Collaboration Agreements

Subsequent to the 2019 reacquisition of certain rights originally licensed to AbbVie Inc. (AbbVie) (see AbbVie below), the Company’s collaboration revenue and deferred revenue have been generated primarily from licensing fees and reimbursements for expenses received under our exclusive license with Kyowa Kirin (the Kyowa Kirin Agreement).

Kyowa Kirin

In December 2009, the Company entered into an exclusive license with Kyowa Kirin to develop and commercialize bardoxolone in the licensed territory. The terms of the agreement include payment to the Company of a nonrefundable, up-front license fee of $35.0 million and additional development and commercial milestone payments. As of March 31, 2022, the Company has received $50.0 million related to regulatory development milestone payments from Kyowa Kirin and has the potential in the future to achieve another $47.0 million from regulatory milestones and $140.0 million from commercial milestones. The Company also has the potential to achieve tiered royalties ranging from the low teens to the low 20 percent range, depending on the country of sale and the amount of annual net sales, on net sales by Kyowa Kirin in the licensed territory. The Company is participating on a joint steering committee with Kyowa Kirin to oversee the development and commercialization activities related to bardoxolone. Any future milestones and royalties received are subject to mid to lower single digit percent declining tiered commissions to certain consultants as compensation for negotiations of the Kyowa Kirin Agreement.

The up-front payment and regulatory milestones are accounted for as a single unit of accounting. The Company regularly evaluates its remaining performance obligation under the Kyowa Kirin Agreement. Accordingly, revenue may fluctuate from period to period due to changes to its estimated performance obligation period and variable considerations. The Company began recognizing revenue related to the up-front payment upon execution of the Kyowa Kirin Agreement.

In March 2021, the Company’s performance obligation period under the Kyowa Kirin Agreement was extended to June 2022 , which decreased quarterly revenue recognition by approximately $0.4 million prospectively.

On July 27, 2021, Kyowa Kirin submitted a New Drug Application (NDA) in Japan to the Ministry of Health, Labour and Welfare for bardoxolone for improvement of renal function in patients with Alport syndrome. Based on this submission, the Company earned a $5.0 million milestone payment, variable consideration previously considered constrained, under the Kyowa Kirin Agreement. As a result, the Company recorded $4.7 million in collaboration revenue, a cumulative catch-up for the portion of this milestone that was satisfied in prior periods, and $0.3 million in deferred revenue that will be recognized over the remaining performance obligation period, ending in June 2022.

AbbVie

In September 2010, the Company entered into a license agreement with AbbVie (the AbbVie License Agreement) for an exclusive license to develop and commercialize bardoxolone in the Licensee Territory (as defined in the AbbVie License Agreement).

In December 2011, the Company entered into a collaboration agreement with AbbVie (the Collaboration Agreement) to jointly research, develop, and commercialize the Company’s portfolio of second and later generation oral Nrf2 activators.

In October 2019, the Company and AbbVie entered into an Amended and Restated License Agreement (the Reacquisition Agreement) pursuant to which the Company reacquired the development, manufacturing, and commercialization rights concerning its proprietary Nrf2 activator product platform originally licensed to AbbVie in the AbbVie License Agreement and the Collaboration Agreement. In exchange for such rights, the Company agreed to pay AbbVie $330.0 million, all of which has subsequently been paid. Additionally, the Company will pay AbbVie an escalating, low single-digit royalty on worldwide net sales, on a product-by-product basis, of omaveloxolone and certain next-generation Nrf2 activators. The execution of the Reacquisition Agreement ended our performance obligations under the Collaboration Agreement.

9


 

The Company recognized interest expense related to the Reacquisition Agreement of approximately $1.7 million, during the three months ended March 31, 2021. As of March 31, 2022, the Company has fully satisfied its payable to AbbVie, therefore no interest expense was recognized for the three months ended March 31, 2022.

4. Liability Related to Sale of Future Royalties

On June 24, 2020, the Company closed on the Development and Commercialization Funding Agreement with an affiliate of Blackstone Life Sciences, LLC (BXLS), which provides funding for the development and commercialization of bardoxolone for the treatment of CKD caused by Alport syndrome, autosomal dominant polycystic kidney disease (ADPKD), and certain other rare CKD indications in return for future royalties (the Development Agreement). The Development Agreement includes a $300.0 million payment by an affiliate of BXLS in return for various percentage royalty payments on worldwide net sales of bardoxolone, once approved in the United States or certain specified European countries, by Reata and its licensees, other than Kyowa Kirin. The royalty percentage will initially be in the mid-single digits and, in future years, can vary between higher-mid single digit percentages to low-single digit percentages depending on various milestones, including indication approval dates, cumulative royalty payments, and cumulative net sales. Pursuant to the Development Agreement, we have granted BXLS a security interest in substantially all of our assets. After a bardoxolone product approval has been obtained by the Company, the Company is obligated to make certain minimum cumulative payment amounts in 2025 through 2033, but only until BXLS has achieved certain internal rate of return target.

In addition, concurrent with the Development Agreement, the Company entered into a common stock purchase agreement (the Purchase Agreement) with affiliates of BXLS to sell an aggregate of 340,793 shares of the Company’s Class A common stock at $146.72 per share for a total of $50.0 million.

The Company concluded that there were two units of accounting for the consideration received, comprised of the liability related to the sale of future royalties and the common shares. The Company allocated the $300.0 million from the Development Agreement and $50.0 million from the Purchase Agreement between the two units of accounting on a relative fair value basis at the time of the transaction. The Company allocated $294.5 million, which includes $0.8 million in transaction costs incurred, in transaction consideration to the liability, and $55.5 million to the common shares. The Company determined the fair value of the common shares based on the closing stock price on the June 24, 2020, the closing date of the Development Agreement. The effective interest rate under the Development Agreement, including transaction costs, is approximately 13.8%. The Company reassessed the expected royalty payments and lowered our previous estimate of future sales for which royalties will be paid. Accordingly, we have prospectively adjusted and recognized lower non-cash interest expense using a 10.9% effective interest rate, as of March 31, 2022.

The following table shows the activity within the liability related to sale of future royalties for the three months ended March 31, 2022:

 

Liability Related to Sale of Future Royalties

 

 

(in thousands)

 

Balance at December 31, 2021

$

362,928

 

Non-cash interest expense recognized

 

9,855

 

Balance at March 31, 2022

 

372,783

 

Less: Unamortized transaction cost

 

(770

)

Carrying value at March 31, 2022

$

372,013

 

 

10


 

5. Other Income (Expense), Net

 

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Other income (expense), net

 

 

 

 

 

 

Investment income

 

$

132

 

 

$

80

 

Interest expense

 

 

 

 

 

(1,714

)

Non-cash interest expense on liability
   related to sale of future royalty

 

 

(9,871

)

 

 

(10,925

)

Other income (expense)

 

 

(33

)

 

 

3

 

Total other income (expense), net

 

$

(9,772

)

 

$

(12,556

)

 

Investment Income

Interest income consists primarily of interest generated from our cash and cash equivalents.

Interest Expense

Interest expense consists primarily of the imputed interest from amount due to AbbVie under the Reacquisition Agreement.

Non-Cash Interest Expense on Liability Related to Sale of Future Royalties

Non-cash interest expense consists of recognition of interest expense based on the Company’s current estimate of future royalties expensed to be paid over the estimated term of the Development Agreement.

Other Income (Expense)

Other income (expense) consists primarily of gains and losses on foreign currency exchange.

6. Leases

The Company headquarters is located in Plano, Texas, where it leases approximately 122,000 square feet of office space. The Company leases additional space located in Irving, Texas, where it leases approximately 34,890 square feet of office and laboratory space.

On February 4, 2022, the Company extended the lease for the office and laboratory space in Irving, Texas, to October 31, 2024, with an option to extend for a fixed twelve-month period.

On March 8, 2022, the Company extended the lease for the Plano office to December 31, 2023.

The Company has an additional lease of a single-tenant, build-to-suit building of approximately 327,400 square feet of office and laboratory space located in Plano, Texas with an initial lease term of 16 years. The Company entered into the lease agreement on October 15, 2019 (the 2019 Lease Agreement), and at the Company’s option, it may renew the lease for two consecutive five-year renewal periods or one ten-year renewal period. On December 15, 2021, the Company obtained control of the space, and, accordingly, the Company recorded related right-of-use assets and the lease liabilities during the fourth quarter of 2021. The Company recorded the liability associated with the 2019 Lease Agreement at the present value of the lease payments not yet paid, using the discount rate as of the commencement date. As the discount rate implicit in the 2019 Lease Agreement was not readily determinable, the Company utilized its incremental borrowing rate. The renewals are not assumed in the determination of the lease term, since they are not deemed to be reasonably assured at the inception of the lease. At inception, the Company recorded $124.5 million as a right-of-use asset, which represented a lease liability of $133.2 million, net of $8.7 million of lease incentives recognized.

11


 

For the three months ended March 31, 2022, the Company paid $0.8 million for amounts included in the measurement of lease liabilities. During the three months ended March 31, 2022, and 2021, the Company recorded total rent expense of $4.3 million and $0.8 million, respectively.

Supplemental balance sheet and other information related to the Company’s operating leases is as follows:

 

 

 

 

 

As of March 31,

 

 

 

 

 

2022

 

 

2021

 

Weighted-average remaining lease term (in years)

 

 

15.6

 

 

 

1.5

 

Weighted-average discount rate

 

 

 

 

6.5

%

 

 

8.1

%

Maturities of lease liabilities by fiscal year for the Company’s operating leases:

 

 

As of March 31, 2022

 

 

 

(in thousands)

 

2022 (remaining nine months)

 

$

9,748

 

2023 (1)

 

 

10,638

 

2024

 

 

7,427

 

2025

 

 

13,737

 

Thereafter

 

 

196,049

 

Total lease payments (1)

 

 

237,599

 

Less: Imputed interest

 

 

(96,012

)

Present value of lease liabilities

 

$

141,587

 

(1) Above table assumes one year rent abatement is applied beginning in June 2023 following United States Food and Drug Administration (FDA) approval of omaveloxolone.

7. Income Taxes

The following table summarizes income tax (benefit) expense and effective income tax rate:

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2022

 

 

2021

 

 

 

(in thousands, except for percentage data)

 

Benefit from (provision for) taxes on income

 

$

(31

)

 

$

15

 

Effective income tax rate

 

 

0.0

%

 

 

0.0

%

 

The Company’s effective tax rate for the three months ended March 31, 2022, varies with the statutory rate primarily due to changes in the valuation allowance related to certain deferred tax assets generated or utilized in the applicable period.

Deferred tax assets are regularly reviewed for recoverability by jurisdiction and valuation allowances are established based on historical and projected future taxable losses and the expected timing of the reversals of existing temporary differences. The Company has recorded valuation allowances against the majority of its deferred tax assets as of March 31, 2022, and the Company expects to maintain these valuation allowances until there is sufficient evidence that future earnings can be achieved, which is uncertain at this time.

12


 

8. Stock-Based Compensation

The following table summarizes time-based and performance-based stock compensation expense reflected in the consolidated statements of operations:

 

 

Three Months Ended

 

 

 

March 31

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Research and development

 

$

7,606

 

 

$

6,808

 

General and administrative

 

 

7,838

 

 

 

7,871

 

Total stock compensation expense

 

$

15,444

 

 

$

14,679

 

 

Restricted Stock Units (RSUs)

The following table summarizes RSU activity as of March 31, 2022, under the Second Amended and Restated Long Term Incentive Plan (LTIP Plan) agreement:

 

 

Number of
RSUs

 

 

Weighted-Average
Grant Date Fair
Value

 

Outstanding at January 1, 2022

 

 

809,145

 

 

$

66.91

 

Granted

 

 

513,559

 

 

 

27.36

 

Vested

 

 

(37,942

)

 

 

110.88

 

Forfeited

 

 

(67,917

)

 

 

71.76

 

Outstanding at March 31, 2022

 

 

1,216,845

 

 

$

48.58

 

 

As of March 31, 2022, total unrecognized compensation expense related to RSU and performance-based RSUs awards that were deemed probable of vesting was approximately $40.8 million, which excludes 148,000 shares of unvested performance-based RSUs that were deemed not probable of vesting totaling unrecognized stock-based compensation expense of $14.2 million.

Stock Options

The following table summarizes stock option activity as of March 31, 2022, under the LTIP Plan and standalone option agreements:

 

 

Number of
Options

 

 

Weighted-
Average
Price

 

Outstanding at January 1, 2022

 

 

4,743,180

 

 

$

86.06

 

Granted

 

 

1,110,981

 

 

 

27.78

 

Exercised

 

 

(9,375

)

 

 

21.25

 

Forfeited

 

 

(175,492

)

 

 

114.33

 

Expired

 

 

(7,468

)

 

 

145.19

 

Outstanding at March 31, 2022

 

 

5,661,826

 

 

$

73.78

 

Exercisable at March 31, 2022

 

 

3,013,168

 

 

$

59.05

 

 

As of March 31, 2022, total unrecognized compensation expense related to stock options was approximately $88.4 million, which excludes 568,450 shares of unvested performance-based stock options that were deemed not probable of vesting totaling unrecognized stock-based compensation expense of $49.4 million.<