SEC Filing | Albireo

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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 September 30, 2022

☐	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 001-33451

Albireo Pharma, Inc.

(Exact name of registrant as specified in its charter)

s
Delaware (State or other jurisdiction of incorporation or organization)		90-0136863 (IRS Employer Identification No.)

53 State Street, 19th Floor, Boston, MA (Address of principal executive offices)		02109 (Zip code)

Registrant’s telephone number, including area code: (857) 254-5555

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ALBO	The Nasdaq Capital 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.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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

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

As of November 1, 2022, there were 20,701,283 shares of Common Stock, $0.01 par value per share, outstanding.

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Albireo Pharma, Inc.


		Page
Cautionary Note Regarding Forward-Looking Statements

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)		6

Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021		6

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021		7

Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2022 and 2021		8

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021		9

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021		10

Notes to Condensed Consolidated Financial Statements		11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

Item 3. Quantitative and Qualitative Disclosures About Market Risk		42

Item 4. Controls and Procedures		42

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		43

Item 1A. Risk Factors		43

Item 6. Exhibits		44

Signatures		45

All brand names, trademarks or service marks appearing in this quarterly report are the property of their respective owners. The registrant’s use or display of another party’s trademark, service mark, trade dress or product in this quarterly report is not intended to, and does not, imply a relationship with, or endorsement or sponsorship of, the registrant by such other party.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, that relate to future events or to our future operating or financial performance. Any forward-looking statement involves known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statement. Forward-looking statements include statements, other than statements of historical fact, about, among other things:

●

our commercialization plans and expectations for commercializing Bylvay™ (odevixibat) globally;

●

the progress, number, scope, cost, duration or results of our development activities, nonclinical studies and clinical trials of Bylvay, elobixibat, A3907, A2342 or any of our other product candidates or programs, such as the target indication(s) for development or approval, the size, design, population, conduct, cost, objective or endpoints of any clinical trial, or the timing for initiation or completion of or availability of results from any clinical trial (including BOLD, our pivotal clinical trial of Bylvay in patients with biliary atresia, for submission, review or approval of any regulatory filing, or for meeting with regulatory authorities;

●

the potential benefits that may be derived from any of our product candidates;

●

the timing of and our ability to obtain and maintain regulatory approval of our existing product candidates, any product candidates that we may develop, and any related restrictions, limitations, or warnings in the label of any approved product candidates;

●

any payment that EA Pharma Co., Ltd., or EA Pharma, may make to us or any other action or decision that EA Pharma may make concerning elobixibat or our business relationship;

●

any royalty payments we may make to Sagard Healthcare Partners (Delaware) LP (“Sagard”) for revenues generated from Bylvay (odevixibat);

●

the potential impacts of the COVID-19 pandemic, inflation and rising interest rates on our business operations or financial condition;

●

our future operations, financial position, revenues, costs, expenses, uses of cash, capital requirements, our need for additional financing or the period for which our existing cash resources will be sufficient to meet our operating requirements; or

●

our strategies, prospects, plans, expectations, forecasts or objectives.

Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “targets,” “likely,” “will,” “would,” “could,” “should,” “continue,” “scheduled” and similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on our estimates or projections of the future that are subject to known and unknown risks and uncertainties and other important factors that may cause our actual results, level of activity, performance, experience or achievements to differ materially from those expressed or implied by any forward-looking statement. Actual results, level of activity, performance, experience or achievements may differ materially from those expressed or implied by any forward-looking statement as a result of various important factors, including our critical accounting policies and risks and uncertainties relating, among other things, to:

●

our ability to effectively commercialize Bylvay for its approved indications;

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●

the design, size, duration and endpoints for, and results from BOLD, our pivotal trial of Bylvay in biliary atresia or any other trials that will be required to obtain marketing approval for Bylvay to treat patients with progressive familial intrahepatic cholestasis, or PFIC, biliary atresia, Alagille syndrome, or ALGS, or any other pediatric cholestatic liver disease or for A3907 and A2342 as potential treatments for adult liver and viral diseases;

●

whether favorable findings from clinical trials of Bylvay to date, including findings in our completed Phase 3 clinical trial in PFIC, findings in our completed pivotal trial in ALGS and findings in indications other than PFIC and ALGS, will be predictive of results from future clinical trials, including our pivotal trial of Bylvay in biliary atresia;

●

the outcome and interpretation by regulatory authorities of an ongoing third-party study pooling and analyzing long-term PFIC patient data;

●

the timing for completion of, or for availability of data from, our pivotal trial of Bylvay in biliary atresia, and the outcome of the trial;

●

delays or other challenges in the recruitment of patients for the pivotal trial of Bylvay in biliary atresia;

●

the COVID-19 pandemic, which may negatively impact the conduct of, and the timing of initiation, enrollment, completion and reporting with respect to, our clinical trials; negatively impact the supply of drug product for our clinical and preclinical programs; and/or result in other adverse impacts on our business;

●

the competitive environment and commercial opportunity for a treatment for PFIC, ALGS or other pediatric cholestatic liver diseases, if approved in the future;

●

the conduct and results of clinical trials and nonclinical studies and assessments of Bylvay, A3907, A2342 or any of our other product candidates and programs, including the performance of third parties engaged to execute them and difficulties or delays in patient enrollment and data analysis;

●

the medical benefit that may be derived from Bylvay, A3907, A2342 or any of our other product candidates;

●

the extent to which our agreement with EA Pharma for elobixibat generates nondilutive income for us;

●

the timing and success of submission, acceptance and approval of regulatory filings and any related restrictions, limitations or warnings in the label of any approved product candidates;

●

whether we are able to effectively commercialize Bylvay in patients with PFIC and, if approved, in patients with ALGS or other pediatric cholestatic liver diseases;

●

our ability to fulfill our obligations under the Purchase Agreement with Sagard, including our ability to make royalty payments and our ability to buy out Sagard’s interest or at Sagard’s request, in certain circumstances, repurchase Sagard’s interest in the royalty interest payments;

●

the significant control or influence that EA Pharma has over the commercialization of elobixibat in Japan, and through its sublicensee in Thailand, and the development and commercialization of elobixibat in EA Pharma’s other licensed territories;

●

whether we elect to seek and, if so, our ability to establish a license or other partnering transaction with a third party for elobixibat in the United States or Europe;

●

the accuracy of our estimates regarding expenses, costs, revenues, uses of cash and capital requirements;

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●

our ability to obtain additional financing on reasonable terms, or at all;

●

our ability to establish and maintain additional licensing, collaboration or similar arrangements on favorable terms and our ability to attract collaborators with development, regulatory and commercialization expertise;

●

the success of competing third-party products or product candidates;

●

our ability to successfully commercialize any approved product candidates, including their rate and degree of market acceptance;

●

our ability to expand and protect our intellectual property estate;

●

regulatory developments in the United States and other countries;

●

the effectiveness of our internal control over financial reporting;

●

the performance of our third-party suppliers, manufacturers and contract research organizations and our ability to obtain alternative sources of raw materials;

●

our ability to attract and retain key personnel;

●

our ability to comply with regulatory requirements relating to our business, and the costs of compliance with those requirements, including those on data privacy and security; and

●

global economic uncertainty, rising inflation, rising interest rates, market disruptions and volatility in commodity prices.

These and other risks and uncertainties are described in greater detail under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, in Item 1A of Part II of this quarterly report, and in other filings that we make with the Securities and Exchange Commission, or SEC. As a result of the risks and uncertainties, the results or events indicated by the forward-looking statements may not occur. We caution you not to place undue reliance on any forward-looking statement.

In addition, any forward-looking statement in this quarterly report represents our views only as of the filing date of this quarterly report and should not be relied upon as representing our views as of any subsequent date. We anticipate that subsequent events and developments may cause our views to change. Although we may elect to update these forward-looking statements publicly at some point in the future, we specifically disclaim any obligation to do so, except as required by applicable law. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Albireo Pharma, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share data)


	September 30,		December 31,
	2022		2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	222,476	$	248,107
Accounts receivable, net		2,029		3,272
Inventory		3,149		194
Prepaid expenses		8,516		5,261
Other current assets		2,666		12,096
Total current assets		238,836		268,930
Restricted cash		50,000		—
Property and equipment, net		1,303		668
Goodwill		17,260		17,260
Other assets		13,823		15,193
Total assets	$	321,222	$	302,051
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	6,950	$	6,516
Accrued expenses		25,365		35,951
Other current liabilities		5,504		2,880
Total current liabilities		37,819		45,347
Liability related to sale of future royalties		62,053		60,132
Revenue interest liability, net		111,644		—
Note payable, net of discount		—		10,004
Other long-term liabilities		9,635		10,960
Total liabilities		221,151		126,443
Stockholders’ Equity:
Preferred stock, $0.01 par value per share — 50,000,000 shares authorized at September 30, 2022 and December 31, 2021; 0 and 0 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		—		—
Common stock, $0.01 par value per share — 60,000,000 shares authorized at September 30, 2022 and December 31, 2021; 20,700,458 and 20,692,698 shares issued and outstanding at September 30, 2022, respectively, and 19,304,312 and 19,296,552 shares issued and outstanding at December 31, 2021, respectively		207		193
Additional paid-in capital		512,915		475,390
Accumulated other comprehensive income		8,212		1,105
Accumulated deficit		(421,033)		(300,850)
Treasury stock at cost, 7,760 shares at September 30, 2022 and December 31 2021, respectively		(230)		(230)
Total stockholders’ equity		100,071		175,608
Total liabilities and stockholders’ equity	$	321,222	$	302,051

See accompanying notes to Condensed Consolidated Financial Statements.

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Albireo Pharma, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue:
Product revenue, net	$	7,543	$	1,060	$	18,090	$	1,060
Royalty revenue		2,289		2,604		6,780		6,998
Total revenue		9,832		3,664		24,870		8,058
Cost and operating expenses:
Cost of product revenue		612		431		1,622		431
Research and development		23,312		21,083		68,103		61,920
Selling, general and administrative		20,564		17,612		59,019		49,825
Other operating expense, net		1		3,719		7,544		7,873
Total cost and operating expenses		44,489		42,845		136,288		120,049
Operating loss		(34,657)		(39,181)		(111,418)		(111,991)
Other (loss) income:
Gain from sale of priority review voucher, net of transaction costs		—		103,387		—		103,387
Loss on extinguishment of note payable, net of discount		(613)		—		(613)		—
Interest expense, net		(2,530)		(3,331)		(8,152)		(10,675)
Net (loss) income before income taxes		(37,800)		60,875		(120,183)		(19,279)
Provision for income taxes		—		3,789		—		3,789
Net (loss) income	$	(37,800)	$	57,086	$	(120,183)	$	(23,068)
Net (loss) income per share attributable to holders of common stock:
Basic	$	(1.92)	$	2.96	$	(6.15)	$	(1.20)
Diluted	$	(1.92)	$	2.90	$	(6.15)	$	(1.20)
Weighted-average common shares outstanding:
Basic		19,655,350		19,258,905		19,541,044		19,197,536
Diluted		19,655,350		19,651,243		19,541,044		19,197,536

See accompanying notes to Condensed Consolidated Financial Statements.

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Albireo Pharma, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net (loss) income	$	(37,800)	$	57,086	$	(120,183)	$	(23,068)
Other comprehensive (loss) income:
Foreign currency translation adjustment		(40)		3,657		7,107		7,890
Total other comprehensive (loss) income		(40)		3,657		7,107		7,890
Total comprehensive (loss) income	$	(37,840)	$	60,743	$	(113,076)	$	(15,178)

See accompanying notes to Condensed Consolidated Financial Statements.

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Albireo Pharma, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(Unaudited)


						Accumulated
				Additional		Other				Treasury Stock			Total
	Common Stock			Paid-In		Comprehensive		Accumulated		At Cost			Stockholders’
	Shares	Amount		Capital		Income (Loss)		Deficit		Shares	Amount		Equity
Balance--December 31, 2021	19,304,312	$	193	$	475,390	$	1,105	$	(300,850)	(7,760)	$	(230)	$	175,608
Stock-based compensation expense	—		—		3,508		—		—	—		—		3,508
Exercise of options and vesting of RSUs	223,683		2		4,378		—		—	—		—		4,380
Other comprehensive income	—		—		—		7,124		—	—		—		7,124
Net loss	—		—		—		—		(42,434)	—		—		(42,434)
Balance--March 31, 2022	19,527,995	$	195	$	483,276	$	8,229	$	(343,284)	(7,760)	$	(230)	$	148,186
Stock-based compensation expense	—		—		3,616		—		—	—		—		3,616
Exercise of options and vesting of RSUs	82,565		1		1,800		—		—	—		—		1,801
Other comprehensive income	—		—		—		23		—	—		—		23
Net loss	—		—		—		—		(39,949)	—		—		(39,949)
Balance--June 30, 2022	19,610,560	$	196	$	488,692	$	8,252	$	(383,233)	(7,760)	$	(230)	$	113,677
Stock-based compensation expense	—		—		3,547		—		—	—		—		3,547
Exercise of options and vesting of RSUs	17,872		—		70		—		—	—		—		70
Issuance of common stock under the at-the-market sales agreement, net of costs	1,072,310		11		20,606		—		—	—		—		20,617
Other comprehensive loss	—		—		—		(40)		—	—		—		(40)
Net loss	—		—		—		—		(37,800)	—		—		(37,800)
Balance--September 30, 2022	20,700,742	$	207	$	512,915	$	8,212	$	(421,033)	(7,760)	$	(230)	$	100,071


						Accumulated
				Additional		Other				Treasury Stock			Total
	Common Stock			Paid-In		Comprehensive		Accumulated		At Cost			Stockholders’
	Shares	Amount		Capital		Income (Loss)		Deficit		Shares	Amount		Equity
Balance--December 31, 2020	19,107,040	$	191	$	456,472	$	(8,612)	$	(266,820)	—	$	—	$	181,231
Stock-based compensation expense	—		—		3,062		—		—	—		—		3,062
Exercise of options and vesting of RSUs	85,765		1		403		—		—	—		—		404
Other comprehensive income	—		—		—		6,954		—	—		—		6,954
Net loss	—		—		—		—		(43,733)	—		—		(43,733)
Balance--March 31, 2021	19,192,805	$	192	$	459,937	$	(1,658)	$	(310,553)	—	$	—	$	147,918
Stock-based compensation expense	—		—		3,504		—		—	—		—		3,504
Exercise of options and vesting of RSUs	47,490		—		1,224		—		—	—		—		1,224
Other comprehensive loss	—		—		—		(2,721)		—	—		—		(2,721)
Net loss	—		—		—		—		(36,421)	—		—		(36,421)
Balance--June 30, 2021	19,240,295	$	192	$	464,665	$	(4,379)	$	(346,974)	—	$	—	$	113,504
Stock-based compensation expense	—		—		6,706		—		—	—		—		6,706
Exercise of options and vesting of RSUs	35,466		1		751		—		—	—		—		752
Issuance of common stock, net of costs	7,508				241		—		—	—		—		241
Other comprehensive income	—		—		—		3,657		—	—		—		3,657
Purchase of treasury stock, at cost	—		—		—		—		—	(7,760)		(230)		(230)
Net income	—		—		—		—		57,086	—		—		57,086
Balance--September 30, 2021	19,283,269	$	193	$	472,363	$	(722)	$	(289,888)	(7,760)	$	(230)	$	181,716

See accompanying notes to Condensed Consolidated Financial Statements.

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Albireo Pharma, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(120,183)	$	(23,068)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain from sale of priority review voucher, net of transaction costs		—		(103,387)
Accretion of liability related to sale of future royalties		8,250		9,428
Accretion of revenue interest liability, net		403		—
Accretion of debt discount and amortization of issuance costs		178		308
Depreciation and amortization		322		167
Extinguishment of note payable, net of discount		613		—
Share based compensation expense		10,671		13,272
Foreign currency adjustments		7,010		7,776
Changes in operating assets and liabilities:
Accounts receivable, net		1,018		(1,307)
Inventory		(3,103)		(196)
Prepaid expenses and other current assets		5,946		2,765
Other assets		93		293
Accounts payable		654		2,023
Accrued expenses		(9,832)		2,068
Other current and long-term liabilities		(3,471)		(3,810)
Net cash used in operating activities		(101,431)		(93,668)
Cash flows from investing activities:
Purchase of property and equipment		(960)		(465)
Proceeds from sale of priority review voucher, net of transaction costs		—		103,387
Net cash (used in) provided by investing activities		(960)		102,922
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		20,633		241
Proceeds from revenue interest liability, net of issuance costs		111,577		—
Payment of principal on borrowings		(10,795)		—
Proceeds from exercise of options		6,251		2,378
Payments related to repurchases of common stock		—		(230)
Net cash provided by financing activities		127,666		2,389
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(906)		(303)
Net increase in cash, cash equivalents and restricted cash		24,369		11,340
Cash, cash equivalents and restricted cash—beginning of period		248,107		251,272
Cash, cash equivalents and restricted cash—end of period	$	272,476	$	262,612
Supplemental disclosures of cash and non-cash activities
Unpaid transaction cost of revenue interest agreement	$	250	$	—
Unpaid royalty interest included in accrued expenses	$	87	$	—
Unpaid issuance costs related to common stock	$	16	$	—

See accompanying notes to Condensed Consolidated Financial Statements.

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Albireo Pharma, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Summary of significant accounting policies and basis of presentation

Organization

Albireo Pharma, Inc. (the Company), is a commercial-stage biopharmaceutical company focused on the development and commercialization of novel bile acid modulators to treat orphan pediatric liver diseases and other liver and gastrointestinal diseases and disorders. The Company’s product pipeline includes Bylvay (odevixibat) approved in the United States and Europe, elobixibat, approved in Japan and Thailand for the treatment of chronic constipation, A3907, our Phase 1 lead candidate for the treatment of adult liver diseases, A2342, our lead preclinical candidate for the treatment of adult viral and liver diseases, and multiple other preclinical candidates. Bylvay was approved by the U.S. Food and Drug Administration (FDA) on July 20, 2021 for the treatment of pruritus in patients with progressive familial intrahepatic cholestasis (PFIC) ages 3 months or older, and authorized by the European Medicines Agency on July 16, 2021 for the treatment of PFIC in patients 6 months or older. Bylvay was also granted marketing authorization by the UK Medicines and Healthcare Products Regulatory Agency (MHRA) in September 2021 for the treatment of PFIC in patients 6 months or older. In October 2022 the Company announced positive results from its Phase 3 trial of Bylvay for the treatment of patients with Alagille syndrome (ALGS), and Bylvay is also in Phase 3 development for the treatment of biliary atresia. ALGS and biliary atresia are each a rare, life-threatening disorder affecting young children.

Since its inception, the Company has devoted substantially all of its resources to its research and development efforts, including activities to develop its product candidates, to commercialize Bylvay in PFIC, to prepare for the commercialization of Bylvay in other indications, if approved, and to provide general and administrative support for these operations.

The Company has primarily funded its operations with proceeds from the sales of common stock, the sale of future royalties, upfront and milestone payments for regional agreements, proceeds from the issuance of debt, and the sale of a Priority Review Voucher (PRV). As of September 30, 2022, the Company has raised an aggregate of $377.5 million through the issuance of common stock, net of issuance costs, $59.3 million from the sale of its future royalties, net of issuance costs, $111.3 million from the revenue interest liability, net of issuance costs, and net proceeds of $103.4 million, after deducting commission costs, from the sale of the PRV.

The Company has incurred significant operating losses and negative cash flows from operations since inception. The Company expects to continue to incur significant expenses and operating losses for the foreseeable future. In addition, the Company anticipates that its expenses will increase significantly in connection with ongoing activities to support the commercialization of Bylvay for PFIC, and if approved, for ALGS and the advancement of Bylvay in clinical trials and providing administrative support.

As a result, the Company will need substantial additional funding to support its continued operations and growth strategy. Until such a time as the Company can generate significant revenue from product sales, if ever, the Company expects to finance its operations through the sale of equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may be unable to raise additional funds or enter into such other agreements on favorable terms, or at all. If the Company fails to raise capital or enter into such agreements as, and when, needed, the Company may have to significantly delay, scale back or discontinue the development and commercialization of one or more of its product candidates or delay its pursuit of potential in-licenses or acquisitions.

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As of September 30, 2022, the Company had cash, cash equivalents and restricted cash of $272.5 million. Management believes that its unrestricted cash and cash equivalents at September 30, 2022 will be sufficient to allow the Company to fund its current operating plan through at least the next twelve months from the issuance of these financial statements.

The Company is subject to those risks associated with any biopharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants. If the Company fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and be forced to reduce its operations.

Basis of presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. In the opinion of management, all adjustments (including normal recurring adjustments) considered necessary for fair presentation have been included in the Condensed Consolidated Financial Statements. The results of operations for the three and nine months ended September 30, 2022 and 2021 are not necessarily indicative of the results that may be expected for the full fiscal year, any other interim period or any future fiscal year. The Condensed Consolidated Financial Statements are prepared on a basis consistent with prior periods.

Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).

Principles of consolidation

The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its direct or indirect wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each subsidiary are measured using the currency of the primary economic environment in which the entity operates (the functional currency).

Transactions and balances

Foreign currency transactions in each entity comprising the Company are remeasured into the functional currency of the entity using the exchange rates prevailing at the respective transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized within other operating expense, net except for changes in the liability related to the sale of future royalties which are recorded in interest expense, net in the Condensed Consolidated Statements of Operations.

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The results and financial position of the Company’s subsidiaries’ that have a functional currency different from the USD are translated into the presentation currency as follows:

assets and liabilities presented are translated at the closing exchange rate as of September 30, 2022 and December 31, 2021;

income and expenses for the statement of operations and comprehensive loss are translated at the average exchange rates that are relevant for the respective periods for which the income and expenses occur; and

significant transactions use the exchange rate on the date of the transaction.

All resulting exchange differences arising from such translations are recognized directly in accumulated other comprehensive income and presented as a separate component of equity.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements and accompanying notes. Management must apply significant judgment in this process. On an ongoing basis, the Company evaluates its estimates and assumptions, including but not limited to accruals, including its clinical trial accruals and revenue deductions related to rebates, chargebacks and other discounts, realizability of deferred tax assets and the accretion of interest on the monetization liability. Actual results could materially differ from these estimates.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments that are readily convertible into cash without penalty and with original maturities of 90 days or less at the date of purchase to be cash equivalents.

Restricted cash consists of deposits placed in a segregated bank account required under the terms of the Company’s Purchase Agreement with Sagard Healthcare Partners (Delaware) LP (“Sagard”).

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets that together reflect the same amounts shown in the unaudited condensed consolidated statements of cash flows (in thousands):


	September 30, 2022		December 31, 2021
Cash and cash equivalents	$	222,476	$	248,107
Restricted cash		50,000		—
Total cash, cash equivalents and restricted cash	$	272,476	$	248,107

Revenue recognition

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services in accordance with ASC 606 Revenue from Contracts with Customers. To determine revenue recognition for contracts with its customers, the Company performs the following five step assessment: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines which goods and services are performance obligations, and

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assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Product Revenue, net

The Company recognizes revenue on sales of Bylvay when a customer obtains control of the product, which occurs at a point in time and upon delivery. The Company sells Bylvay to a limited number of specialty pharmacies and a specialty distributor in the United States which dispense the product directly to patients. The specialty pharmacies and specialty distributor are referred to as the Company’s customers. The Company also sells Bylvay to its customers in the European Union, which includes a limited number of pharmacies.

The Company provides the right of return to its customers for unopened product for a limited time before and after its expiration date. We currently estimate product returns using available industry data as well as the Company’s visibility into the inventory remaining in the distribution channel.

The Company has written contracts with each of its customers that have a single performance obligation to deliver products upon receipt of a customer order and these obligations are satisfied when delivery occurs and the customer receives Bylvay. The Company evaluates creditworthiness of each of its customers to determine whether collection is reasonably assured. The wholesale acquisition cost that the Company charges its customers for Bylvay is adjusted to arrive at the Company’s estimated net product revenues by deducting components of variable consideration which include (i) estimated government rebates and discounts related to Medicaid and other government programs, (ii) estimated costs of incentives offered to certain indirect customers including patients, (iii) trade allowances, such as invoice discounts for prompt payment and customer fees, and (iv) allowance for sales returns. Product revenue, net was $4.1 million in the United States and $3.4 million in international markets for the three months ended September 30, 2022. Product revenue, net was $10.4 million in the United States and $7.7 million in international markets for the nine months ended September 30, 2022. Product revenue, net was $0.8 million in the United States and $0.3 million in international markets for the three and nine months ended September 30, 2021.

Rebates and Discounts

The Company contracts with the Centers for Medicare & Medicaid Services and other government agencies in the U.S. to make Bylvay available to eligible patients. As a result, the Company estimates any rebates and discounts, including chargebacks related to Section 340B of the Public Health Service Act, and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. The Company’s estimates of rebates and discounts are based on the government mandated discounts, which are statutorily-defined and applicable to these government funded programs and assumptions developed using historical experience with actual payments and redemptions. The Company recorded $1.1 million and $0.7 million in such estimates as of September 30, 2022 and December 31, 2021, respectively, in accounts receivable, net and other current liabilities on the consolidated balance sheets.

The Company contracts with national authorities in Europe to make Bylvay available to eligible patients. In jurisdictions in which final pricing is subject to ongoing negotiations with the government, the Company estimates the rebate expected to be due and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. The Company’s estimates of such liabilities are based on current invoice pricing and total prior units sold and assumptions developed using benchmarks of Bylvay pricing approved in other relevant European jurisdictions. The Company recorded $0.6 million and $0.2 million in such estimates as of September 30, 2022 and December 31, 2021, respectively, in other current liabilities on the consolidated balance sheets.

Other Incentives

Other incentives that the Company offers to indirect customers include co-pay assistance cards provided by the Company for patients who reside in states that permit co-pay assistance programs. The Company’s co-pay assistance program is intended to reduce each participating patient’s portion of the financial responsibility for Bylvay’s purchase

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price to a specified dollar amount. The Company estimates the amount of co-pay assistance provided to eligible patients based on the terms of the program when product is dispensed by the specialty pharmacies to the patients. These estimates are based on redemption information provided by third-party claims processing organizations. The Company funds this incentive program through upfront payments. There were no upfront payments made during the quarter ended September 30, 2022. The Company recorded less than $0.1 million in such estimates as of September 30, 2022 and December 31, 2021 in prepaid expenses on the consolidated balance sheets.

Trade Allowances

The Company provides invoice discounts on Bylvay sales to its customers for prompt payment and records these discounts as a reduction to gross product revenues. These discounts are based on contractual terms. The Company also pays fees to its distributors for their services as well as data that they provide to the Company. Prompt payment allowances are recorded in accounts receivable, net on the consolidated balance sheets. Prompt payment allowances were less than $0.1 million at September 30, 2022 and December 31, 2021. The other distributor fees are recorded as other current liabilities on the consolidated balance sheets and was $0.1 million as of September 30, 2022 and December 31, 2021.

Milestone Payments

At the inception of each arrangement that includes development milestone payments or upfront payment, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price, which includes any upfront payments, using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Once the estimated transaction price is established, the associated consideration is allocated to the performance obligations that have been identified in the respective agreement. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

Royalties

For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and in which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

In 2012, the Company entered into a license agreement (the Agreement) with EA Pharma Co., Ltd. (EA Pharma, formerly Ajinomoto Pharmaceuticals Co., Ltd.) to develop a select product candidate (elobixibat) for registration and subsequent commercialization in select markets. In conjunction with the Agreement, the Company granted EA Pharma an exclusive license to its intellectual property for development and commercialization activities in the designated field and territories. The Company has completed all of its performance obligations under the Agreement.

As of September 30, 2022, the Company is eligible to receive an additional regulatory-based milestone payment under the Agreement of $4.2 million if a specified regulatory event is achieved for elobixibat. The cash payments and any other payments for milestones and royalties from EA Pharma are non-refundable, non-creditable and not subject to set-off.

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The Agreement will continue until the last royalty period for any product in the territory, which is defined as the period when there are no remaining patent rights or regulatory exclusivity in place for any products subject to royalties. EA Pharma may terminate the Agreement upon 180 days’ prior written notice to the Company. Either party may terminate the Agreement for the other party’s uncured material breach or insolvency and in certain other circumstances agreed to by the parties.

Monetization of Future Royalties

Royalty Interest Acquisition Agreement with HCR

In December 2017, the Company entered into a royalty interest acquisition agreement (RIAA) with HealthCare Royalty Partners III, L.P. (HCR) pursuant to which it sold to HCR the right to receive all royalties from sales in Japan and sales milestones achieved from any covered territory potentially payable to the Company under the Agreement, up to a specified maximum “cap” amount of $78.8 million, based on the funds the Company received from HCR. In January 2018, the Company received $44.5 million from HCR, net of certain transaction expenses, under the RIAA. On June 8, 2020, the parties entered into an amendment to the RIAA pursuant to which HCR agreed to pay the Company an additional $14.8 million, net of certain transaction expenses, in exchange for the elimination of (i) the $78.8 million cap amount on HCR’s rights to receive royalties on sales in Japan and sales milestones for elobixibat in certain other territories that may become payable by EA Pharma and (ii) the $15.0 million payable to the Company if a specified sales milestone is achieved for elobixibat in Japan. The Company is obligated to make royalty interest payments to HCR under the RIAA only to the extent it receives future Japanese royalties, sales milestones or other specified payments from EA Pharma. Although the Company sold its rights to receive royalties from the sales of elobixibat in Japan, as a result of its ongoing involvement in the cash flows related to these royalties, the Company will continue to account for these royalties and milestones as revenue. Upon receipt of the payments from HCR the Company recorded net cash totaling $59.3 million as a liability related to sale of future royalties (royalty obligation). The royalty obligation will be amortized using the effective interest rate method.

The following table shows the activity within the liability account for the nine-month period ended September 30, 2022:


	September 30, 2022
	(in thousands)
Liability related to sale of future royalties—beginning balance	$	71,667
Accretion of interest expense on liability related to royalty monetization		8,250
Repayment of the liability		(15,595)
Liability related to sale of future royalties—ending balance	$	64,322
Less current portion classified within accrued expenses		(2,269)
Long-term liability related to sale of future royalties	$	62,053

The Company records estimated royalties due for the current period in accrued expenses until the payment is received from EA Pharma at which time the Company then remits payment to HCR. As royalties are remitted to HCR, the balance of the royalty obligation will be effectively repaid over the life of the RIAA. In order to determine the accretion of the royalty obligation, the Company is required to estimate the total amount of future royalty payments to be received and submitted to HCR. The sum of these amounts less the $59.3 million proceeds the Company received will be recorded as interest expense over the life of the royalty obligation. At September 30, 2022, the Company’s estimate of its total interest expense resulted in an annual effective interest rate of approximately 18.0%.

The Company periodically assesses the estimated royalty payments to HCR and to the extent such payments are greater or less than its initial estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the accretion of interest on the royalty obligation. There are a number of factors that could materially affect the amount and the timing of royalty payments, most of which are not within the Company’s control. Such factors include, but are not limited to, the rate of elobixibat prescriptions, the number of doses administered, the introduction of competing products, manufacturing or other delays, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in

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foreign exchange rates as the royalties remitted to HCR are in U.S. dollars while sales of elobixibat are in Japanese yen, and sales never achieving forecasted numbers, which would result in reduced royalty payments and reduced non-cash interest expense over the life of the royalty obligation. To the extent future royalties result in an amount less than the liability, the Company is not obligated to fund any such shortfall.

Purchase Agreement with Sagard

In September 2022, the Company and Albireo AB entered into a purchase and sale agreement with Sagard Healthcare Partners (Delaware) LP (Sagard) for the sale of a revenue interest generated from Bylvay (odevixibat) (the Purchase Agreement) for an aggregate purchase price of $115.0 million payable upon the closing of the transaction, which occurred on September 22, 2022. In consideration for the payment of such purchase price, the Company is obligated to pay to Sagard a revenue interest on the worldwide annual consolidated net revenues of Bylvay (the Included Product Revenue) at a rate of (A) 12.5% for Included Product Revenue up to and including $250.0 million, (B) 5% for Included Product Revenue in excess of $250.0 million but less than or equal to $350.0 million, and (C) prior to approval of a New Drug Application by the U.S. Food and Drug Administration of Bylvay for the treatment of biliary atresia (the Marketing Approval), 5% for Included Product Revenue in excess of $350.0 million and, from and after Marketing Approval, the rate is decreased to 1% for Included Product Revenue in excess of $350.0 million (such payments, collectively, the Revenue Interest Payments). These obligations payable to Sagard are capped at $184.0 million, but the cap will be increased to $230.0 million if Sagard has not received aggregate Revenue Interest Payments of $184.0 million by December 31, 2028 (the applicable cap, the Revenue Interest Cap). In addition, if the aggregate amount of Revenue Interest Payments received by Sagard as of December 31, 2036 is less than $230.0 million, the Company has agreed to pay Sagard the difference between the Revenue Interest Cap and the aggregate amount of all Revenue Interest Payments received by Sagard as of December 31, 2036 (such difference, the True-Up Payment).

In addition, the Company has the right, but not the obligation (the Call Option), to buy out Sagard’s interest in the Revenue Interest Payments at a repurchase price (the Put/Call Payment) equal to the difference between (a) a specified amount ranging from $149.5 million up to $230.0 million, based on the period of time between the Closing and the exercise of the Call Option, and (b) the aggregate amount of Revenue Interest Payments that have been received by Sagard. Further, Sagard has the right, but not the obligation, to require the Company to make the Put/Call Payment at any time during the 180 days following the occurrence of certain specified events, including, but not limited to, a sale or merger of the Company resulting in a change of control, certain uncured material breaches of the Purchase Agreement by the Company, the withdrawal or suspension of marketing approval for Bylvay, or any sale or other disposition of Bylvay by the Company within the United States. The Company has also agreed that the Put/Call Payment will be automatically payable upon the occurrence of a bankruptcy event.

As of September 30, 2022 $111.6 million, was recorded as a revenue interest liability, net of issuance costs on the accompanying unaudited condensed consolidated balance sheet. The Company imputes interest expense associated with this liability using the effective interest rate method. The effective interest rate is calculated based on the rate that would enable the debt to be repaid in full over the anticipated life of the arrangement. The interest rate on this liability may vary during the term of the agreement depending on a number of factors, including changes in the estimated level of forecasted product sales and the amount of product sales, net. The Company evaluates the interest rate quarterly based on its current product sales, net forecasts utilizing the prospective method. A significant increase or decrease in product sales, net will materially impact the revenue interest liability, interest expense and the time period for repayment. The Company recorded interest expense related to this arrangement of $0.4 million for three months ended September 30, 2022.

The Company incurred $3.4 million of issuance costs in connection with the purchase and sale agreement with Sagard, which reduced the carrying amount of the revenue interest liability and will be amortized to interest expense over the estimated term of the debt.

Revenue Interest Payments made as a result of the Company’s product sales, net reduce the revenue interest liability.

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The following table shows the activity within the revenue interest liability account for the nine-month period ended September 30, 2022:


	September 30, 2022
	(in thousands)
Revenue interest liability—beginning balance	$	111,327
Interest expense recognized		403
Revenue interest liability—ending balance	$	111,730
Less current portion classified within accrued expenses		(86)
Long-term revenue interest liability	$	111,644

Trade Receivables, net

Accounts receivable, net related to product sales, which are recorded in accounts receivable, net on the consolidated balance sheets, were approximately $2.0 million and $3.3 million as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022 and December 31, 2021, we had no allowance for doubtful accounts. An allowance for doubtful accounts is determined based on the Company’s assessment of the credit worthiness and financial condition of its customers, aging of receivables, as well as the general economic environment. Any allowance would reduce the net receivables to the amount that is expected to be collected. Payment terms for U.S. customers are typically 31 - 36 days from receipt of invoice and for European customers are typically 45 days from receipt of invoice.

Inventory

The Company commenced capitalizing inventory for Bylvay upon FDA approval on July 20, 2021. All commercial manufacturing expenses were expensed as research and development expenses prior to FDA approval. Manufacturing costs incurred prior to FDA approval totaled approximately $1.6 million and were not capitalized, and instead were expensed as research and development expenses from 2020 to 2021. All manufacturing subsequent to FDA approval is capitalized in inventory.

Recent accounting pronouncements

There are no recently issued accounting pronouncements the Company has not yet adopted that will materially impact the Company’s consolidated financial statements.

2. Fair Value of financial instruments

When measuring the fair value of financial instruments, the Company evaluates valuation techniques such as the market approach, the income approach and the cost approach. A three-level valuation hierarchy, which prioritizes the inputs to valuation techniques that are used to measure fair value, is based upon whether such inputs are observable or unobservable.

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1—Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;

Level 2—Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-derived valuations whose significant inputs are observable for substantially the full term of the assets or liabilities; and

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Level 3—Unobservable inputs that reflect the reporting entity’s estimate of assumptions that market participants would use in pricing the asset or liability.

The following tables represent information about the Company’s financial assets that are measured at fair value on a recurring basis (in thousands):


	September 30, 2022
	Level 1		Level 2		Level 3
Cash Equivalents:
Money market funds	$	214,999	$	—	$	—
Total	$	214,999	$	—	$	—


	December 31, 2021
	Level 1		Level 2		Level 3
Cash Equivalents:
Money market funds	$	243,180	$	—	$	—
Total	$	243,180	$	—	$	—

The Company’s financial instruments consist mainly of cash, cash equivalents and restricted cash, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities. The carrying amounts of cash, cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses, and other current liabilities approximate their estimated fair value due to their short-term maturities. The carrying amount of restricted cash as of September 30, 2022 approximates its fair value based on the contractual terms of the purchase and sale agreement with Sagard. The carrying amount of the revenue interest liability, net as of September 30, 2022 approximates its fair value and is based on the Company’s contractual repayment obligation based on the current estimates of future revenues, over the life of the purchase and sale agreement with Sagard. The carrying amount of liability related to sale of future royalties as of September 30, 2022 and December 31, 2021 approximates its fair value and is based on the Company’s contractual repayment obligation based on the current estimates of future revenues, over the life of the RIAA.

3. Commitments and contingencies

Agreements with CROs and CMOs

As of September 30, 2022, the Company had various agreements with CROs and CMOs for the conduct of specified research and development activities and based on the terms of the respective agreements, the Company is contractually obligated to make future payments of up to $13.0 million upon the completion of contracted work.

4. Net (loss) income per share

Basic net (loss) income per share, is calculated by dividing the net (loss) income attributable to holders of common stock by the weighted average number of shares of common stock outstanding. When the Company is in a net loss position, diluted net loss per share is calculated by dividing the net loss attributable to holders of common stock by the weighted average number of shares of common stock outstanding, excluding common stock equivalents outstanding. When the Company is in a net income position, diluted net income per share would be calculated by dividing the net income attributable to holders of common stock by the weighted-average number of shares of common stock plus dilutive common stock equivalents outstanding.

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The following table sets forth the computation of basic and diluted net (loss) income per share (in thousands, except for share and per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Basic and Diluted net (loss) income per share:
Numerator
Net (loss) income	$	(37,800)	$	57,086	$	(120,183)	$	(