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

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information appearing in this Quarterly Report on Form 10-Q.  Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, operations, and product candidates, includes forward-looking statements that involve risks and uncertainties.  Factors that may cause actual results to differ materially from current expectations include, among other things, those described under the headings “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” and discussed elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a clinical-stage biopharmaceutical company focused on identifying, developing, and commercializing innovative therapies that change patients’ lives for the better.  We concentrate on small-molecule therapeutics with novel mechanisms of action for the treatment of severe, life-threatening diseases with few or no approved therapies.  Our lead programs are in rare forms of CKD and a rare neurological disease.  We have an NDA under review with the FDA for bardoxolone in patients with CKD caused by Alport syndrome and plan to file an NDA for omaveloxolone in patients with a neurological disorder called Friedreich’s ataxia (FA).  Both bardoxolone and omaveloxolone 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, we believe bardoxolone and omaveloxolone have many potential clinical applications.  We possess exclusive, worldwide rights to develop, manufacture, and commercialize bardoxolone, omaveloxolone, and our next-generation Nrf2 activators, excluding certain Asian markets for bardoxolone in certain indications, which are licensed to Kyowa Kirin.

Recent Key Developments

Bardoxolone in Patients with CKD Caused by Alport Syndrome

In April 2021, the FDA accepted for filing the NDA for bardoxolone for the treatment of patients with CKD caused by Alport syndrome, which is currently under review by the FDA.  The FDA completed a bioresearch monitoring inspection of Reata.  We did not receive any observations.

We also completed a mid-cycle communication meeting with the FDA and were advised that an Advisory Committee meeting is scheduled for December 8, 2021.  The Prescription Drug User Fee Act (PDUFA) date, the FDA action date for the application, is scheduled for February 25, 2022.

We are pursuing marketing approvals outside of the United States.  On October 28, 2021, we announced our submission of our Marketing Authorization Application (MAA) with the European Medicines Agency (EMA) for marketing approval of bardoxolone for the treatment of CKD caused by Alport syndrome in the European Union.  On July 27, 2021, Kyowa Kirin, our strategic collaborator in CKD in Japan, submitted an NDA in Japan to the Ministry of Health, Labour and Welfare (MHLW) for bardoxolone for improvement of renal function in patients with Alport syndrome, which is currently under review.

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Bardoxolone in Patients with Autosomal Dominant Polycystic Kidney Disease (ADPKD)

We are currently enrolling patients in FALCON, an international, multi-center, randomized, double-blind, placebo-controlled Phase 3 trial studying the safety and efficacy of bardoxolone in patients with ADPKD randomized one-to-one to active drug or placebo.  The study is enrolling patients in a broad range of ages, 18 to 70 years old, with an estimated glomerular filtration rate (eGFR) between 30 to 90 mL/min/1.73 m².  We are preparing a protocol amendment for FALCON following the Type B meeting with the FDA regarding the ADPKD development program as outlined in our Quarterly Report on Form 10-Q for the second quarter of 2021 and as follows.  The primary endpoint is the off-treatment eGFR change from baseline versus placebo at Week 104.  We increased the sample size from 550 to 700 patients to account for this dilution in the treatment effect.  

Patients will be treated with bardoxolone or placebo for 100 weeks followed by a four-week withdrawal period.  There will be no off-treatment period from Week 48 to Week 52.  The trial will remain blinded until study completion.  The key secondary endpoint is the eGFR change from baseline versus placebo at Week 100.

More than 450 patients are currently enrolled in the study, and we expect to complete enrollment by the middle of 2022.

Bardoxolone in Patients with CKD at Risk of Rapid Progression

MERLIN is a multi-center, double-blind, placebo-controlled, Phase 2 trial to evaluate the safety and efficacy of bardoxolone in patients at risk of rapidly progressing CKD due to multiple etiologies including IgA Nephropathy (IgAN), focal segmental glomerulosclerosis (FSGS), type 1 diabetic CKD (T1D CKD), type 2 diabetic CKD (T2D CKD), hypertensive CKD, and others.  The primary endpoint of the trial is change in eGFR from baseline to Week 12.  We have completed enrollment in the MERLIN trial and expect to have top-line data in the first quarter of 2022.  If the results of this study are positive, we would potentially proceed to a larger Phase 3 trial with similar eligibility criteria.  Patients at risk for rapid progression experience a significant risk of progressing to end-stage kidney disease (ESKD) and are a population with high unmet need across multiple forms of CKD.

Omaveloxolone in Patients with Friedreich’s Ataxia (FA)

On September 30, 2021, we announced that we completed our pre-NDA meeting with the FDA for omaveloxolone for the treatment of patients with FA.  The purpose of the pre-NDA meeting was to discuss the content of Reata’s planned NDA submission for full approval for omaveloxolone for the treatment of FA.  We are not planning to conduct a second pre-approval clinical study prior to the NDA submission.  In response to our questions about the contents of the filing, and because of the seriousness of the indication, the FDA exercised its discretion, subject to review, to permit us to submit the results of certain clinical pharmacology and nonclinical studies after approval.  We continue to work with the FDA as we finalize the NDA package for submission during the first quarter of 2022.

Update on Adjustments to Operations Due to COVID-19

We continue to closely monitor and adhere to COVID-19 guidance issued by local, state, and national authorities.  Since May 2021, we have permitted employees to voluntarily return to the office on flexible work schedules.  Due to the current Covid-19 pandemic situation, we have not committed to a formal return to the office date and are asking employees to continue to work with management on schedules that meet both Reata’s and the employee’s needs.  Pandemic management protocols remain in place for those who do attend either campus.

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Background: Our Programs

The following chart outlines each of our programs by indication and phase of development:

In addition, Kyowa Kirin, our strategic collaborator in CKD, is currently conducting its registrational trial of bardoxolone in diabetic (type 1 and 2) CKD in Japan.  Kyowa Kirin completed patient enrollment in this trial in June 2019.

*NDA under review.  NDA accepted for filing on April 26, 2021, with a PDUFA date of February 25, 2022.

**NDA submission planned for 1Q 2022.

***DPNP: Diabetic peripheral neuropathic pain

Programs in Chronic Kidney Disease

We are developing bardoxolone for the treatment of patients with CKD caused by Alport syndrome, ADPKD, and certain other forms of CKD that, in the aggregate, affect more than 700,000 patients in the United States.  CKD is characterized by a progressive worsening in glomerular filtration rate (GFR), which is the rate at which the kidney filters waste products from the blood.  When GFR drops below approximately 15 mL/min/1.73 m², patients develop ESKD and require dialysis or a kidney transplant to survive.  Dialysis leads to a reduced quality of life and increases the likelihood of serious and life-threatening complications.  The five-year survival rate for hemodialysis patients is approximately 42%.

eGFR is an estimate of GFR that nephrologists use to track the decline in kidney function and progression of CKD.  In 11 separate CKD clinical trials, bardoxolone has been shown to improve eGFR in patients with diverse etiologies of CKD.  We believe that bardoxolone treatment has the potential to delay or prevent GFR declines that cause the need for dialysis or a transplant in patients with Alport syndrome, ADPKD, and other rare forms of CKD.

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Bardoxolone in Patients with CKD Caused by Alport Syndrome

Alport syndrome is a rare, genetic form of CKD caused by mutations in the genes encoding type IV collagen, which is a major structural component of the glomerular basement membrane in the kidney.  The kidneys of patients with Alport syndrome progressively lose the capacity to filter waste products out of the blood, which can lead to ESKD and the need for chronic dialysis treatment or a kidney transplant.  Alport syndrome affects both children and adults.  In patients with the most severe forms of the disease, approximately 50% progress to dialysis by age 25, 90% by age 40, and nearly 100% by age 60.  

The Alport Syndrome Foundation estimates that Alport syndrome affects approximately 30,000 to 60,000 people in the United States.  According to data provided by IQVIA in April 2020, there are approximately 14,000 projected patients diagnosed with Alport syndrome in all stages of CKD in the United States.  However, recent literature suggests that a large number of patients with Alport syndrome are either undiagnosed or misdiagnosed with other forms of CKD.  To help nephrologists identify the genetic basis of various forms of CKD, including Alport syndrome, Reata and Invitae Corporation are sponsoring the KIDNEYCODE® genetic testing program.

In November 2020, we announced that the Phase 3 CARDINAL study met its primary and key secondary endpoints at the end of Year 2.  The Phase 3 portion of CARDINAL was an international, multi-center, double-blind, placebo-controlled, randomized registrational trial that enrolled 157 patients with CKD caused by Alport syndrome at approximately 50 study sites in the United States, Europe, Japan, and Australia.  Patients were randomized one-to-one to bardoxolone or placebo.

At Week 100, in the intent to treat (ITT) population, which included eGFR values for patients who either remained on or discontinued study drug, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean change from baseline in eGFR of 7.7 mL/min/1.73 m² (p=0.0005).  Patients treated with bardoxolone experienced a mean change from baseline in eGFR of -0.8 mL/min/1.73 m², while patients treated with placebo experienced a mean change from baseline in eGFR of -8.5 mL/min/1.73 m².

In the modified ITT (mITT) analysis, which assessed the effect of receiving treatment by excluding values after patients discontinued treatment, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean change from baseline in eGFR at Week 100 of 11.3 mL/min/1.73 m² (p<0.0001).  In the mITT analysis, patients treated with bardoxolone experienced a mean increase from baseline in eGFR of 1.7 mL/min/1.73 m², while patients treated with placebo experienced a mean decline from baseline in eGFR of -9.6 mL/min/1.73 m².

At Week 104 (four weeks after last dose in second year of treatment), patients in the ITT population treated with bardoxolone had a statistically significant improvement compared to placebo in mean change from baseline in eGFR of 4.3 mL/min/1.73 m² (p=0.023).  Patients treated with bardoxolone experienced a mean change from baseline in eGFR of -4.5 mL/min/1.73 m², while patients treated with placebo experienced a mean change from baseline in eGFR of -8.8 mL/min/1.73 m².  The primary endpoint was analyzed using mixed-model repeated measures with no imputation, and the key secondary endpoint was analyzed using analysis of covariance with treatment-based multiple imputation for missing data.

Bardoxolone was generally reported to be well tolerated in this study, and the safety profile was similar to that observed in prior trials.  Eight patients (10%) receiving bardoxolone and 15 patients (19%) receiving placebo experienced a treatment-emergent serious adverse event (SAE).  No SAEs were reported in pediatric patients treated with bardoxolone.  No fluid overload SAEs or major adverse cardiac events were reported in patients treated with bardoxolone.  Blood pressure, a sensitive measure of fluid status, was not significantly different between the two groups.  Weight loss was more pronounced in patients with a higher body mass index, and mean decreases in weight were not observed in pediatric patients.  The urinary albumin-to-creatinine ratio (UACR) was not significantly different between treatment groups at Week 100 or Week 104.

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The reported adverse events (AEs) were generally mild to moderate in intensity, and the most common AEs observed more frequently in patients treated with bardoxolone compared to patients treated with placebo were muscle spasms and increases in aminotransferases which are thought to be associated with the pharmacology of the drug.  Muscle spasms were generally transient and were associated with reductions of creatine kinase, which is evidence of improved energy metabolism and inconsistent with muscle injury.

Additionally, an update on results from EAGLE was provided during ASN Kidney Week 2021, which was held virtually from November 4 - 7, 2021.  EAGLE is an ongoing, international, multi-center, open-label, extended access trial evaluating the longer-term safety and tolerability of bardoxolone in patients with CKD caused by Alport syndrome who participated in the CARDINAL trial or patients with ADPKD who participated in the FALCON trial.

The change from baseline eGFR was evaluated for the patients with Alport syndrome who were treated with bardoxolone for up to three years (two years in CARDINAL and one year in EAGLE), with four-week off-treatment periods occurring at Weeks 48 and 100.  Mean increases in eGFR were observed in patients who previously received placebo and initiated treatment with bardoxolone in EAGLE.  Patients who previously received bardoxolone for two years in CARDINAL also continued to experience mean increases in eGFR in their third year of treatment.

For the 19 patients randomized to bardoxolone in CARDINAL who completed 48 weeks in EAGLE (bardoxolone-to-bardoxolone group), bardoxolone treatment resulted in a mean change from baseline in eGFR (relative to original CARDINAL Phase 3 baseline) of 7.8 mL/min/1.73 m² at Year 1, 8.6 mL/min/1.73 m² at Year 2, and 6.2 mL/min/1.73 m² at Year 3.  This sustained improvement of kidney function is notable when compared to the CARDINAL study population’s expected yearly eGFR decline of 5.1 mL/min/1.73 m², which was calculated based on five-year historical eGFR data collected before patients entered the study.

The change from baseline eGFR was also evaluated at Week 12, Week 24, and Week 48 relative to Day 0 (before treatment) in EAGLE.  The bardoxolone-to-bardoxolone and placebo-to-bardoxolone groups experienced similar increases in eGFR at all time points.

In April 2021, the FDA accepted for filing the NDA for bardoxolone for the treatment of patients with CKD caused by Alport syndrome, which is currently under review by the FDA.  The FDA completed a bioresearch monitoring inspection of Reata.  We did not receive any observations.

We also completed a mid-cycle communication meeting with the FDA and were advised that an Advisory Committee meeting is scheduled for December 8, 2021.  The PDUFA date, the FDA action date for the application, is scheduled for February 25, 2022.  

Ex-U.S. Updates for Bardoxolone in Patients with CKD Caused by Alport Syndrome

We are pursuing marketing approvals outside of the United States.  On October 28, 2021, we announced our submission of our MAA with the EMA for marketing approval of bardoxolone for the treatment of CKD caused by Alport syndrome in the European Union.

On July 27, 2021, Kyowa Kirin, our partner in Japan, submitted an NDA in Japan to the MHLW for bardoxolone for improvement of renal function in patients with Alport syndrome.  Based on this submission, we earned a $5 million milestone payment under the Kyowa Kirin Agreement related to this event, which we received and recognized in the third quarter of 2021.  If approved for commercial sales, Kyowa Kirin is required to pay us royalties on net sales of bardoxolone in its territory ranging from the low teens to the low 20% range depending on the country of sale and the amount of annual net sales.

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Bardoxolone in Patients with Autosomal Dominant Polycystic Kidney Disease (ADPKD)

ADPKD is a rare and serious hereditary form of CKD caused by a genetic defect in PKD1 or PKD2 genes leading to the formation of fluid-filled cysts in the kidneys and other organs.  Cyst growth can cause the kidneys to expand up to five to seven times their normal volume, leading to pain and progressive loss of kidney function.  ADPKD affects both men and women of all racial and ethnic groups and is the leading inheritable cause of kidney failure with an estimated diagnosed population of 140,000 patients in the United States.  Despite current standard of care treatment, an estimated 50% of ADPKD patients progress to ESKD and require dialysis or a kidney transplant by 60 years of age.

We are currently enrolling patients in FALCON, an international, multi-center, randomized, double-blind, placebo-controlled Phase 3 trial studying the safety and efficacy of bardoxolone in patients with ADPKD randomized one-to-one to active drug or placebo.  The study is enrolling patients in a broad range of ages, 18 to 70 years old, with an eGFR between 30 to 90 mL/min/1.73 m².  We are preparing a protocol amendment for FALCON following the Type B meeting with the FDA regarding the ADPKD development program as outlined in our Quarterly Report on Form 10-Q for the second quarter of 2021 and as follows.  The primary endpoint is the off-treatment eGFR change from baseline versus placebo at Week 104.  The changed primary endpoint includes data at Week 104 for all patients irrespective of time off-treatment, instead of the off-treatment value four weeks after last dose.  Patients who discontinue treatment early will have shortened treatment exposure and longer off-treatment duration, which, therefore is expected to dilute the treatment effect.  We increased the sample size from 550 to 700 patients to account for this dilution in the treatment effect.

Patients will be treated with bardoxolone or placebo for 100 weeks followed by a four-week withdrawal period.  There will be no off-treatment period from Week 48 to Week 52.  The trial will remain blinded until study completion.  The key secondary endpoint is the eGFR change from baseline versus placebo at Week 100.  We will also add a Week 108 off-treatment eGFR analysis to the study.

More than 450 patients are currently enrolled in the study, and we expect to complete enrollment by the middle of 2022.  

Bardoxolone in Patients with CKD at Risk of Rapid Progression

MERLIN is a multi-center, double-blind, placebo-controlled, Phase 2 trial to evaluate the safety and efficacy of bardoxolone in patients at risk of rapidly progressing CKD due to multiple etiologies including IgAN, FSGS, T1D CKD, T2D CKD, hypertensive CKD, and others.  The study includes patients with eGFR between 20 and 60 mL/min/1.73 m², and patients must meet at least one of the following criteria: UACR ≥ 300 mg/g; eGFR decline at a rate of ≥ 4 mL/min/1.73 m² in prior year; or hematuria defined as > 5-10 red blood cells per high power field (manual method), documented history of positive urinary dipstick for blood in prior year, or macroscopic hematuria in prior 3 years.  The primary endpoint of the trial is change in eGFR from baseline to Week 12.  

We have completed enrollment in the MERLIN trial.  We expect to have top-line data in the first quarter of 2022.  If the results of this study are positive, we would potentially proceed to a larger Phase 3 trial with similar eligibility criteria.  Patients at risk for rapid progression experience a significant risk of progressing to ESKD and are a population with high unmet need across multiple forms of CKD.

Both the FALCON and MERLIN trials draw from the results of our Phase 2 study called PHOENIX, an open-label, multi-center Phase 2 trial evaluating the safety and efficacy of bardoxolone in patients with ADPKD, IgAN, T1D CKD, or FSGS completed in 2019.  In each of these cohorts, patients treated with bardoxolone experienced a statistically significant mean increase from baseline in eGFR after 12 weeks of treatment.  The most commonly reported AE across all cohorts was muscle spasms, which were not associated with clinical signs or symptoms of muscle injury.  The overall rate of SAEs was low, with three patients reporting treatment-emergent SAEs, none of which were reported as related to bardoxolone.  We plan to pursue development opportunities in each of these rare and serious forms of CKD, maintaining our intent to expand the commercial indications for bardoxolone.

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Programs in Neurological Diseases

Omaveloxolone in Patients with Friedreich’s Ataxia (FA)

We are developing omaveloxolone for the treatment of patients with FA, an inherited, debilitating, and degenerative neuromuscular disorder that is normally diagnosed during adolescence and can lead to premature death.  Patients with FA experience progressive loss of coordination, muscle weakness, and fatigue, which commonly leads to motor incapacitation and wheelchair reliance.  Symptoms generally occur in children, with patients requiring a wheelchair by their teens or early twenties.  FA affects approximately 5,000 children and adults in the United States and 22,000 individuals globally.  There are currently no approved therapies to treat FA.

Our Phase 2 trial, called MOXIe, was a two-part, international, multi-center, randomized, double-blind, placebo-controlled registrational trial that studied the safety and efficacy of omaveloxolone in patients with FA.  Additionally, patients who completed the study and met eligibility requirements could participate in the MOXIe Extension during which investigators and patients remained blinded to prior treatment assignments.  In October 2019, we announced that Part 2 in patients with FA met its primary endpoint of change in Modified Friedreich’s Ataxia Rating Scale (mFARS) relative to placebo after 48 weeks of treatment.  Patients treated with omaveloxolone (150 mg/day) demonstrated a statistically significant, placebo-corrected 2.40 point mean improvement (decrease) in mFARS after 48 weeks of treatment (p=0.014).  Patients treated with omaveloxolone demonstrated improvement relative to placebo in every subcategory measured under mFARS.  Omaveloxolone treatment was generally reported to be well-tolerated.  

The FDA provided us guidance that, although it did not have concerns with the reliability of the mFARS primary endpoint results from MOXIe Part 2, it was not convinced that the results from MOXIe Part 2, as a single study, were sufficient to support approval.  The FDA stated that we would need to conduct a second pivotal trial that confirms the mFARS results of MOXIe Part 2 with a similar magnitude of effect.  As an alternative, to increase the persuasiveness of MOXIe Part 2 results, we completed additional analyses, including the Delayed-Start Analyses.

During the first quarter of 2021, we submitted results from the Delayed-Start Analyses to the FDA.  These additional exploratory analyses analyzed data from MOXIe Part 2 and the MOXIe Extension.  In these analyses, parallel trajectories between the patients randomized to placebo (placebo-to-omaveloxolone group) and those randomized to omaveloxolone (omaveloxolone-to-omaveloxolone group) in the double-blind period from MOXIe Part 2 through 48 weeks in the MOXIe Extension could provide evidence of disease-modifying activity.  A total of 73 out of 75 (97%) patients without pes cavus who completed MOXIe Part 2 enrolled in the MOXIe Extension.  On September 10, 2021, we presented a poster at the International Parkinson and Movement Disorder Society Virtual Congress with an update to the Delayed-Start Analyses increasing from 9 to 13 patients in the placebo-to-omaveloxolone group and increasing from 11 to 17 patients in the omaveloxolone-to-omaveloxolone group.  A longitudinal analysis used to calculate annualized slopes incorporating all available data from the MOXIe Extension showed similar slopes in mFARS for the placebo-to-omaveloxolone group (0.29 ± 0.68 points per year) when compared to the omaveloxolone-to-omaveloxolone group (0.17 ± 0.61 points per year) with no significant difference between slopes (p=0.85).  The resulting parallel trajectories between both treatment groups are consistent with disease-modifying activity.

On September 30, 2021, we announced that we completed our pre-NDA meeting with the FDA for omaveloxolone for the treatment of patients with FA.  The purpose of the pre-NDA meeting was to discuss the content of Reata’s planned NDA submission for full approval for omaveloxolone for the treatment of FA. We are not planning to conduct a second pre-approval clinical study prior to the NDA submission. In response to our questions about the contents of the filing, and because of the seriousness of the indication, the FDA exercised its discretion, subject to review, to permit us to submit the results of certain clinical pharmacology and nonclinical studies after approval.  We continue to work with the FDA as we finalize the NDA package for submission during the first quarter of 2022.

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Omaveloxolone in Other Potential Indications

Omaveloxolone is a promising platform molecule.  Because mitochondrial dysfunction is a key feature of many neurological and neuromuscular diseases, we believe omaveloxolone may be broadly applicable to treat such diseases by activating Nrf2 to normalize and improve mitochondrial function and ATP production.

Based on our understanding of the pathophysiology of neurological diseases, characterized by mitochondrial dysfunction, inflammation, and oxidative stress, we believe omaveloxolone may be applicable to diseases such as progressive supranuclear palsy, Parkinson’s disease, frontotemporal dementia, Huntington’s disease, Amyotrophic lateral sclerosis (ALS), Alzheimer’s disease, and epilepsy.  Consistent with this, we have observed compelling activity of omaveloxolone and our other Nrf2 activators in preclinical models of many of these diseases.

Our Nrf2 activators reduced seizure frequency in refractory, progressive epilepsy models and restored mitochondrial function in patient biopsy samples and preclinical models of FA, ALS, familial and sporadic Parkinson’s disease, and frontotemporal dementia.  In clinical trials, improvements in neuromuscular function have been observed in FA patients treated with omaveloxolone as assessed by mFARS, and improvements in mitochondrial function, as measured by reductions in blood lactate and heart rate, have been observed in patients with primary mitochondrial disease.  Accordingly, we believe that omaveloxolone has the potential to treat a number of neurological and neuromuscular diseases that currently have few or no effective therapies, and we plan to pursue the development of omaveloxolone and our other Nrf2 activators for one or more of these diseases.

RTA 901 in Neurodegeneration and Neuroprotection Diseases

RTA 901 is the lead product candidate from our Hsp90 modulator program, which includes highly potent and selective C-terminal modulators of Hsp90.  We have observed favorable activity of RTA 901 in a range of preclinical models of neurological disease, including models of diabetic neuropathy, neuroinflammation, and neuropathic pain.

Historically, other companies have explored N-terminal Hsp90 inhibitors for cancer therapeutics; however, this approach has been associated with multiple adverse effects including peripheral neuropathy and ocular toxicity.  Binding at the C-terminus of Hsp90 leads to increased transcription of Hsp70, a cytoprotective and molecular chaperone gene, which facilitates cell survival in response to stress without the deleterious activities of N-terminal inhibition.

In preclinical rodent disease models, we observed that RTA 901 administered orally once-daily rescued existing nerve function, restored thermal and mechanical sensitivity within four weeks, and improved nerve conductance velocity and mitochondrial function.  These effects are dose-dependent, reversible, and Hsp70-dependent.

We completed a Phase 1 single and multiple ascending dose trial of oral, once-daily RTA 901 in healthy adult volunteers to evaluate the safety, tolerability, and pharmacokinetic (PK) profile.  The PK was linear up to the highest doses evaluated with a half-life ranging from two to nine hours, and exposures were easily achievable in 10-fold excess of those necessary for efficacy in multiple animal models.  No safety or tolerability concerns were reported.  Due to additional delays in clinical drug supply, we now plan to initiate additional Phase 1 studies to evaluate the PK and drug-drug interaction potential of RTA 901 in the first half of 2022 and a randomized, placebo-controlled Phase 2 study in diabetic peripheral neuropathic pain (DPNP) in the second half of 2022.

There are about four million patients with moderate to severe DPNP in the United States, and about two million adult patients diagnosed with DPNP seek treatment annually.  We are the exclusive licensee of RTA 901 and maintain worldwide commercial rights.

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U.S. Commercial Readiness

We are actively building the necessary commercial infrastructure in the United States to effectively support the commercialization of our product candidates, bardoxolone for the treatment of patients with CKD caused by Alport syndrome and omaveloxolone for the treatment of patients with FA.  Our ability to launch bardoxolone and omaveloxolone is dependent on the acceptance and successful defense of an NDA and approval by the FDA.  

The FDA has granted a PDUFA date of February 25, 2022 for bardoxolone for the treatment of patients with CKD caused by Alport syndrome. If approved, we anticipate that bardoxolone will be our first US product launch, and our commercial readiness efforts align with this date. In the United States, our commercial leadership team is in place. We are expanding quality and compliance functions to support commercialization and are building the organization, infrastructure, systems, and processes necessary for the launch of bardoxolone, including sales, marketing, market access, patient support, and distribution.  We recently hired a team of payer account directors focused on educating private and public payers about Alport syndrome, disease severity, and the need to treat diagnosed patients.  Their role is to facilitate coverage and reimbursement of bardoxolone for Alport syndrome upon approval.  We have hired our regional business directors who will be responsible for hiring our clinical sales specialists and for driving sales at approval.

Launch readiness efforts are underway for omaveloxolone for the treatment of patients with FA in the United States.  We are efficiently building core functions for our bardoxolone program to also support the planned launch of omaveloxolone for FA, including shared distribution, access and patient hub services, IT, insights, and analytics functions. Disease awareness efforts to help providers more quickly identify FA patients are underway, and we continue to engage with the patient community through multiple digital and social platforms.

If and when we receive regulatory approval for our product candidates, we plan to utilize a specialty pharmacy distribution model to support product availability to patients, with a patient-centered hub to support on-label utilization, ease of access, and patient education and compliance.  We also completed preliminary field force sizing and structure for our sales teams and have launched disease awareness campaigns to educate physicians about Alport syndrome and FA.  Trade names for bardoxolone and omaveloxolone have been selected.

Corporate Overview

To date, we have focused most of our efforts and resources on developing our product candidates and conducting preclinical studies and clinical trials.  We have historically financed our operations primarily through revenue generated from our collaborations with AbbVie and Kyowa Kirin, from sales of our securities, secured loans, and a strategic financing from BXLS.  We have not received any payments or revenue from collaborations other than nonrefundable upfront, milestone, and cost sharing payments from our collaborations with AbbVie and Kyowa Kirin, from the Development Agreement with BXLS, and from reimbursements of expenses under the terms of our agreement with Kyowa Kirin.  We have incurred losses in each year since our inception, other than in 2014. As of September 30, 2021, we had $713.2 million of cash and cash equivalents and an accumulated deficit of $1,170.2 million. We continue to incur significant research and development and other expenses related to our ongoing operations.  Despite contractual product development commitments and the potential to receive future payments from Kyowa Kirin, we anticipate that we will continue to incur losses for the foreseeable future, and we anticipate that our losses will increase as we continue our development of, seek regulatory approval for, and potentially commercialize our product candidates.  If we do not successfully develop and obtain regulatory approval of our existing product candidates or any future product candidates and effectively manufacture, market, and sell any products that are approved, we may never generate revenue from product sales.  Furthermore, even if we do generate revenue from product sales, we may never again achieve or sustain profitability on a quarterly or annual basis.  Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.  Our failure to become and remain profitable could depress the market price of our Class A common stock and could impair our ability to raise capital, expand our business, diversify our product offerings, or continue our operations.

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Financial Operations Overview

Revenue

Our revenue to date has been generated primarily from licensing fees received under our collaborative license agreements and reimbursements for expenses.  We currently have no approved products and have not generated any revenue from the sale of products to date.  In the future, we may generate revenue from product sales, royalties on product sales, reimbursements for collaboration services under our current collaboration agreements, or license fees, milestones, or upfront payments if we enter into any new collaborations or license agreements.  We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such payments and sales.

Our license and milestone revenue has been generated primarily from the Kyowa Kirin Agreement, the AbbVie License Agreement, and the Collaboration Agreement and consists of upfront payments and milestone payments.  License revenue recorded with respect to the Kyowa Kirin Agreement, the AbbVie License Agreement, and the Collaboration Agreement consists solely of the recognition of deferred revenue.  Under our revenue recognition policy, collaboration revenue associated with upfront, non-refundable license payments received under our license and collaboration agreements are deferred and recognized ratably over the expected term of the performance obligations under each agreement.  Under the Reacquisition Agreement, we no longer have performance obligations under the AbbVie License Agreement and the Collaboration Agreement.  Under the Kyowa Kirin Agreement, we only expect to recognize the deferred revenue through mid-2022.

On July 27, 2021, Kyowa Kirin submitted an NDA in Japan to the MHLW for bardoxolone for improvement of renal function in patients with Alport syndrome.  Based on this submission, we earned a $5.0 million milestone payment, variable consideration previously considered constrained, under the Kyowa Kirin Agreement. As a result, we 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.

Research and Development Expenses

The largest component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our product candidates.  From our inception through September 30, 2021, we have incurred a total of $1,048.3 million in research and development expense, a majority of which relates to the development of bardoxolone and omaveloxolone. We expect our research and development expense to continue to increase in the future as we advance our product candidates through clinical trials and expand our product candidate portfolio.  The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and we consider the active management and development of our clinical pipeline to be crucial to our long-term success.  The actual probability of success for each product candidate and preclinical program may be affected by a variety of factors, including the safety and efficacy data for product candidates, investment in the program, competition, manufacturing capability, and commercial viability.

Research and development expenses include:

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Research and development costs are expensed as incurred.  Costs for certain development activities such as clinical trials are highly judgmental and are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.

We base our expense accruals related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our behalf.  The financial terms of these agreements vary from contract to contract and may result in uneven payment flows.  Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.  In accruing costs, we estimate the time period over which services will be performed and the level of effort to be expended in each period.  If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.

To date, we have not experienced material changes in our estimates of accrued research and development expenses after a reporting period.  However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities.

Currently, Kyowa Kirin has allowed us to conduct clinical studies of bardoxolone in certain rare forms of kidney diseases in Japan and has reimbursed us the majority of the costs for our CARDINAL study in Japan and is paying for the costs of a certain number of patients as the in-country caretaker in our FALCON study in Japan.

The following table summarizes our research and development expenses incurred:

The program-specific expenses summarized in the table above include costs that we directly allocate to our product candidates.  Our other research and development expenses include research and development salaries, benefits, stock-based compensation and preclinical, research, and discovery costs, which we do not allocate on a program-specific basis.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses for executive, operational, finance, legal, compliance, and human resource functions.  Other general and administrative expenses include personnel expense, facility-related costs, professional fees, accounting and legal services, depreciation expense, other external services, and expenses associated with obtaining and maintaining our intellectual property rights.

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We anticipate that our general and administrative expenses will increase in the future as we prepare for our potential commercialization of our product candidates.  We have also incurred, and anticipate incurring in the future, increased expenses associated with being a public company, including exchange listing and SEC requirements, director and officer insurance premiums, legal, audit and tax fees, compliance with the Sarbanes-Oxley Act of 2002, regulatory compliance programs, and investor relations costs.  Additionally, if and when we believe the first regulatory approval of one of our product candidates appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially for the sales and marketing of our product candidates.

Other Income (Expense), Net

Other income (expense) includes interest and gains earned on our cash and cash equivalents, interest expense on our Term Loans, amortization of debt issuance costs, imputed interest on long term payables, loss on extinguishment of debt, gain on termination of lease, foreign currency exchange gains and losses, gains and losses on sales of assets, and non-cash interest expense on liability related to the sale of future royalties.

Benefit from Taxes on Income

Benefit from taxes on income consists of net loss, taxed at federal tax rates and adjusted for certain permanent differences. Realization of deferred tax assets is generally dependent upon future earnings by jurisdiction, of which the timing and amount are uncertain for the majority of our deferred tax assets, and valuation allowances are maintained against them.  Changes in valuation allowances also affect the tax provision.

Revenue

License and milestone revenue represented approximately 75% and 84% of total revenue for the three months ended September 30, 2021 and 2020, respectively, and consisted of the recognition of Kyowa Kirin deferred revenue.  The increase in license and milestone revenue is primarily due to the achievement of a regulatory milestone, variable consideration previously considered constrained, under the Kyowa Kirin Agreement.  As a result, we recorded $4.7 million in collaboration revenue, a cumulative catch-up for the portion of this milestone that was satisfied in prior periods.

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Other revenue increased during the three months ended September 30, 2021, compared to the three months ended September 30, 2020, primarily due to an increase in reimbursements of expenses from Kyowa Kirin for manufacturing expenses incurred.

Research and Development Expenses

Research and development expenses increased by $2.2 million, or 6%, for the three months ended September 30, 2021, compared to the three months ended September 30, 2020.  The increase was primarily due to increased personnel and personnel-related costs to support the product development activities, offset by a decrease in spend related to manufacturing activities of omaveloxolone.

Research and development expenses, as a percentage of total expenses, was 60% and 66% for the three months ended September 30, 2021 and 2020, respectively.  The decrease of 6% was due to the proportionately larger increase in general and administrative expenses, which was primarily due to increased commercial readiness activities.

General and Administrative Expenses

General and administrative expenses increased by $7.4 million, or 41%, for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. The increase was primarily due to increased spend related to commercial readiness activities and personnel and personnel-related costs to support growth in our development activities.

General and administrative expenses, as a percentage of total expenses, was 39% and 33%, for the three months ended September 30, 2021 and 2020, respectively. The increase of 6% was due to the proportionately larger increase in general and administrative expenses, compared to research and development expenses.

Other Income (Expense), Net

Other income (expense), net increased by $2.6 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020.  The increase was primarily due to an increase in non-cash interest expense on liability related to the sale of future royalties.

Benefit from Taxes on Income

Benefit from taxes on income was immaterial for the three months ended September 30, 2021 and 2020.

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