UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2020

OR

For the transition period from         to         

Commission File Number: 001-37785

Reata Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

(972) 865-2219

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, an emerging growth company, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

As of August 5, 2020, the registrant had 28,559,247 shares of Class A common stock, $0.001 par value per share, and 5,045,092 shares of Class B common stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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DEFINED TERMS

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

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Reata Pharmaceuticals, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

See accompanying notes.

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Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Operations

(in thousands, except share and per share data)

See accompanying notes.

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Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Stockholders’ Equity (Deficit)

(in thousands, except share and per share data)

See accompanying notes.

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Reata Pharmaceuticals, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

See accompanying notes.

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Reata Pharmaceuticals, Inc.

Notes to Unaudited Consolidated Financial Statements

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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 heading “Risk Factors” 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 chronic kidney disease (CKD) and a rare neurological disease.  We have announced positive topline data from registrational trials for both of our lead product candidates, bardoxolone methyl (bardoxolone) in patients with CKD caused by Alport syndrome and 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 KKC.

Regulatory Update

Bardoxolone for CKD Caused by Alport Syndrome

Following the announcement of positive, year one data from the Phase 3 CARDINAL study of bardoxolone in patients with CKD caused by Alport syndrome in November 2019, we have been engaged in discussions with the U.S. Food and Drug Administration (FDA) regarding the Year 1 efficacy and safety results.  We have had a Type C meeting where the FDA expressed concerns with basing an NDA for accelerated approval on the Year 1 data and recommended that we consider submitting the NDA with Year 2 data based, in part, on the assumption that there would not be much delay in NDA submission.  Following the Type C meeting, we provided written responses, and engaged in follow up informal meetings, that we believe addressed the FDA comments regarding the Year 1 results.  Accordingly, we recently requested and were granted a pre-NDA meeting by the FDA to discuss the NDA submission content and plans.

Our plan has been, and continues to be, to submit the NDA for bardoxolone in Alport syndrome during fourth quarter of 2020 for accelerated approval based on the one-year data from the Phase 3 portion of CARDINAL.  If the second-year results are available during an acceptable time frame, we may be able to submit the second-year data to the NDA during the review process and before the FDA makes a determination about accelerated approval.  This may extend the PDUFA date, but could also result in consideration of full approval, rather than accelerated approval.  Alternatively, the FDA could recommend that we wait for the second-year data from CARDINAL to file the NDA.  This would permit us to file for full approval but would delay the filing until the first quarter of 2021 compared to our current guidance of filing by the end of this year.  This timing assumes that we can complete the activities necessary to provide the Year 2 data to the FDA on a timely basis and is, of course, subject to uncertainty resulting from the COVID-19 pandemic.  As a result of the measures taken in response to the pandemic, and based on current operational metrics, at this time we believe that the timeline for Year 2 data availability is unlikely to be affected by COVID-19.

Omaveloxolone for Friedreich’s Ataxia

Following the announcement of the positive data from the MOXIe Part 2 study in October 2019, we have planned, subject to discussion with regulatory authorities, to proceed with a submission for marketing approval of

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omaveloxolone for the treatment of FA in the United States.  We recently completed a Type C meeting in which the FDA provided us with guidance that it does not have any concerns with the reliability of the modified Friedreich’s Ataxia Rating Scale (mFARS) primary endpoint results in the MOXIe Part 2 study.  Nevertheless, the FDA is not convinced that the MOXIe Part 2 results will support a single study approval without additional evidence that lends persuasiveness to the results.  In preliminary comments for the meeting, the FDA stated that we will need to conduct a second pivotal trial that confirms the mFARS results of the MOXIe Part 2 study with a similar magnitude of effect.  

In response to the preliminary comments, the Friedreich’s Ataxia Research Alliance (FARA), key FA clinicians, and we provided the FDA with information to demonstrate that it will be difficult to conduct an additional, prospective clinical trial in FA because of the very slow progression rate of FA, the limited number of FA patients available for clinical research, the small number of clinical trial investigators who can conduct the mFARS exam, and the impact of the COVID-19 pandemic on the ability to conduct neuroscience clinical trials.  Thus, conducting an additional pivotal study would result in a long delay in the availability of a potentially effective therapy to patients with a progressive, life-threatening disease with no treatment options.  The FDA acknowledged the unmet need of patients with FA, reiterated its commitment to facilitate the development of omaveloxolone within the constraints of the regulatory standards, and emphasized its willingness to consider all available options to meet the regulatory standards.  The FDA also acknowledged that launching a new, neuroscience clinical trial now may not be possible because of the COVID-19 pandemic.

At the Type C meeting, to address the FDA’s requirement, FARA, key opinion leaders, and Reata proposed a second study (the “crossover study”) to provide additional evidence of effectiveness.  The study would measure the effect of omaveloxolone on mFARS in patients who were previously randomized to placebo in the MOXIe Part 2 study and are being treated with omaveloxolone in the MOXIe open-label extension study.  The FDA acknowledged that a study like the proposed crossover study could provide important additional information and asked us to submit a design for the crossover study for their consideration.

If the FDA accepts this approach, we expect to complete the crossover study as early as the fourth quarter of this year.  Assuming that the FDA views the crossover study data as sufficiently positive to provide confirmatory evidence, our plan would be to submit an NDA during the first quarter of 2021.  If the FDA rejects the proposal or if the data are not supportive, we will evaluate whether it is feasible to conduct a second pivotal study in FA patients as suggested by the FDA.  Regardless of the interaction with the FDA, we plan to pursue marketing approval outside of the United States.

Second Quarter 2020 Key Developments

Strategic Investment from Blackstone Life Sciences

On June 24, 2020, we closed a Development and Commercialization Funding Agreement (Development Agreement) with an affiliate of Blackstone Life Sciences, LLC (BXLS) that provides funding for the development and commercialization of bardoxolone for the treatment of CKD caused by Alport syndrome, autosomal dominant polycystic kidney disease (ADPKD), and certain other rare CKD indications. The Development Agreement includes a $300 million payment by the Blackstone affiliate in return for various percentage royalty payments on worldwide net sales of bardoxolone by Reata and its licensees, other than KKC.  The royalty percentage will initially be in the mid-single digits and in future years can vary between higher-mid single digit percentages to low-single digit percentages depending on various milestones, including indication approval dates, cumulative royalty payments, and cumulative net sales. Pursuant to the Development Agreement, we have granted BXLS a security interest in substantially all of our assets.

In addition, affiliates of BXLS paid us an aggregate of $50.0 million to purchase an aggregate of 340,793 shares of our Class A common stock, par value $0.001 per share, at $146.72 per share.

In connection with the closing of the Development Agreement, we fully paid off our senior loan with Oxford Finance LLC and Silicon Valley Bank that included $155.0 million in principal and $12.1 million in exit and prepayment fees.

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FALCON Trial Enrollment Resumed

In March 2020, we temporarily paused enrollment of new patients in the global Phase 3 FALCON trial of bardoxolone in patients with ADPKD due to the emergence of COVID-19 as a global public health threat. We expect to enroll a total of approximately 300 patients worldwide.  We began to lift the screening hold in FALCON in June 2020, and currently, all sites are able to screen patients and approximately half are able to randomize patients. The first patients have now reached the second year of the trial. The measures we implemented to the conduct of FALCON in response to COVID-19 have been effective, and we anticipate no meaningful impact on data integrity due to COVID-19.

Adjustments to Operations Due to COVID-19

Beginning in the first quarter of 2020, in accordance with recommendations from local, state, and national health authorities, we implemented and continue to enforce work-from-home measures and additional safety protocols to protect employees and the broader community and to ensure business continuity.  These measures include restricting on-site staff to only those required to execute their job responsibilities and limiting the number of staff working in our research and development laboratory.  We also continue to limit in-person meetings and business travel.  We will continue to monitor this dynamic situation closely and will take additional measures as required to preserve the safety of our employees and the broader community.

CARDINAL and EAGLE Trials Adapted for Continuity

The Phase 3 CARDINAL trial of bardoxolone in patients with CKD caused by Alport syndrome is fully enrolled and ongoing.  As previously announced, we are in the process of completing the Year 2 portion of our CARDINAL Phase 3 study.  As COVID-19 emerged as a pandemic with serious public health implications during the first quarter of 2020, we undertook a series of measures to protect the health and safety of patients and health care workers involved in our ongoing clinical studies, while maintaining the conduct of our studies in accordance with guidance provided by the FDA and the European Medicines Agency.  For example, we have implemented the use of at-home visits as an alternative to in-clinic visits when necessary to collect blood draws and to assess patient safety.  We also arranged for home delivery of the study drug to patients.  

At this time, approximately 60% of the 157 patients randomized to the CARDINAL Phase 3 cohort have completed the Year 2 final off-treatment visit.  The last study visits are anticipated to occur during the fourth quarter of 2020, which is consistent with our pre-COVID-19 timeline.  Currently, almost all sites are allowing on-site or remote monitoring.  

Patients who participated in the CARDINAL study may be eligible to enroll in an open-label extension study known as EAGLE.  We are implementing procedures for the conduct of EAGLE that are similar to those being used in CARDINAL to ensure continued access to bardoxolone and appropriate safety monitoring.

MOXIe Extension Study Advanced with Modifications

The MOXIe Part 2 trial was completed prior to the onset of the COVID-19 pandemic.  Patients who participated in MOXIe Part 1 or 2 were eligible to enroll in an open-label extension portion of the study.  We are implementing procedures for the conduct of the MOXIe extension study that are similar to those being used in our other ongoing studies to ensure continued access to omaveloxolone and appropriate safety monitoring.

BARCONA Study of Bardoxolone in Patients with COVID-19

Researchers at NYU Grossman School of Medicine (NYU) are initiating an Investigator-Sponsored Trial (IST), known as BARCONA, to study the effect of bardoxolone in patients suffering from COVID-19.  Serious complications of COVID-19 are caused by excessive, systemic inflammation, which can result in dysfunction of the lungs, kidneys, and other organs.  Acute kidney injury has been reported to occur in up to 28% of all hospitalized COVID-19 patients, and in up to 72% of patients who do not survive COVID-19.  Bardoxolone and its analogs have demonstrated anti-inflammatory activity in animal models of acute lung and kidney injury, have increased survival in models of systemic inflammation, suppress replication of several types of viruses and have shown improvements in kidney function in multiple clinical trials that enrolled over 3,000 patients with various forms of chronic kidney disease.  

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The Phase 2 BARCONA study is a randomized, placebo-controlled, double-blind trial that will enroll 40 patients with a primary endpoint of safety and treatment duration of up to 29 days in hospitalized patients.  Major exclusion criteria include patients who are intubated and on invasive mechanical ventilation for three or more days, prior hospitalization for heart failure, or estimated glomerular filtration rate (eGFR) <30 ml/min/1.73 m².  To further mitigate any safety risk, enrollment will be paused after enrollment of the initial five patients to assess safety.  As with all trials conducted at NYU, the trial will be overseen by a Data Safety Monitoring Board that meets every other week.

We were involved in the design of the trial, have a representative on the study’s executive steering committee, and are providing drug supply, as requested by NYU.  Any further enrollment in a potential Phase 3 trial will be gated based on an assessment of Phase 2 safety and activity, as well as feasibility of conducting a Phase 3 trial.

Background: Our Programs

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

In addition, KKC, our strategic collaborator in CKD, is currently conducting its registrational trial of bardoxolone in diabetic (type 1 and 2) CKD in Japan.  KKC completed patient enrollment in this trial in June 2019 and expects to have topline data in the first half of 2022.

NYU has initiated an IST (Phase 2/3 trial) of bardoxolone in COVID-19 patients called BARCONA.  

*The CARDINAL study reported one-year data in November 2019 and is an ongoing two-year study.

**See discussion above under “Regulatory Update-Omaveloxolone for Friedreich's Ataxia”.

Programs in CKD

We are developing bardoxolone for the treatment of patients with certain rare forms of CKD.  CKD is characterized by a progressive worsening in the rate at which the kidney filters waste products from the blood, called the glomerular filtration rate (GFR). When GFR gets too low, patients develop end-stage kidney disease (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 only approximately 42%.

Estimated glomerular filtration rate (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

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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.

Bardoxolone in CKD Caused by Alport Syndrome

We are developing bardoxolone for the treatment of patients with CKD caused by Alport syndrome, ADPKD, and other rare forms of CKD that, in the aggregate, affect more than 700,000 patients in the United States.  

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.  According to the Alport Syndrome Foundation, Alport syndrome affects approximately 30,000 to 60,000 people in the United States.  There are currently no approved therapies to treat CKD caused by Alport syndrome.

In November 2019, we announced that the Phase 3 portion of the CARDINAL study of bardoxolone in patients with CKD caused by Alport syndrome met its primary and key secondary Year 1 endpoints.  After 48 weeks of treatment, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean eGFR of 9.50 mL/min/1.73 m² (p<0.0001).  At Week 52, after 48 weeks of treatment and four weeks of off-treatment period, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean eGFR of 5.14 mL/min/1.73 m² (p=0.0012), while patients in the placebo arm of CARDINAL lost an average of 6.1 mL/min/1.73 m².  The retained benefit of kidney function during the off-treatment period is a key regulatory endpoint for the CARDINAL and FALCON studies.  Based on these positive results, and subject to discussions with regulatory authorities, we plan to proceed with the submission of regulatory filings this year for marketing approval in the United States.

Bardoxolone in 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.

In a Phase 2 study called PHOENIX, bardoxolone demonstrated a statistically significant increase from baseline in mean eGFR of 9.3 mL/min/1.73 m² (p<0.0001) after 12 weeks of treatment in 31 patients with ADPKD.  Available historical data for 29 of these patients showed an average annual decline in eGFR of 4.8 mL/min/1.73 m² in the three-year period prior to study entry.  The United States Food and Drug Administration (FDA) has provided us with written guidance that, in patients with ADPKD, an analysis of eGFR during the off-treatment period demonstrating an improvement versus placebo after one year of bardoxolone treatment may support accelerated approval, and an improvement versus placebo after two years of treatment may support full approval.  In May 2019, we began enrollment in FALCON, an international, multi-center, randomized, double-blind, placebo-controlled Phase 3 trial studying the safety and efficacy of bardoxolone in approximately 300 patients with ADPKD.  The enrollment of new patients was temporarily paused in March of 2020 due to safety concerns related to the COVID-19 global pandemic, and the screening hold in FALCON was lifted in June 2020 at some sites.  The trial will enroll a broad range of patients from 18 to 70 years old with an eGFR between 30 to 90 mL/min/1.73 m².  

Bardoxolone in Other Rare Forms of CKD

Three additional rare forms of CKD were studied in PHOENIX, including IgA nephropathy (IgAN), type 1 diabetic CKD (T1D CKD), and focal segmental glomerulosclerosis (FSGS).  In each of these Phase 2 cohorts, bardoxolone demonstrated a statistically significant increase from baseline in mean eGFR after 12 weeks of treatment.  We plan to pursue each of these rare and serious forms of CKD as commercial indications.

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The FDA has granted orphan drug designation to bardoxolone for the treatment of Alport syndrome and ADPKD, and the European Commission has granted orphan drug designation to bardoxolone for the treatment of Alport syndrome.

Historical Development of Bardoxolone

Prior to our CARDINAL Phase 3 trial, clinical trials enrolling over 2,000 patients exposed to bardoxolone have demonstrated consistent, clinically meaningful improvement in kidney function across several disease states as measured by eGFR and other markers of kidney function.  Specifically, we have observed statistically significant increases in eGFR in all Phase 2 and Phase 3 clinical trials in numerous patient populations treated with bardoxolone, including patients with CKD caused by type 2 diabetes (T2D CKD), Alport syndrome, ADPKD, IgAN, T1D CKD, and FSGS.  

We believe these data, in addition to the CARDINAL Phase 3 one-year data, support the potential for bardoxolone to delay or prevent dialysis, kidney transplant, and death in patients with Alport syndrome and other forms of CKD.  

Additional observations from the prior clinical trials of bardoxolone include the following:

Programs in Neurological Diseases

Omaveloxolone in FA

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We are developing omaveloxolone for the treatment of patients with FA, an inherited, debilitating, and degenerative neuromuscular disorder that is typically diagnosed during adolescence and typically leads to premature death.  Patients with FA experience progressive loss of coordination, muscle weakness, and fatigue, which commonly progresses to motor incapacitation and wheelchair reliance.  Symptoms generally occur in children, with patients requiring a wheelchair by their teens or early 20s.  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.

In October 2019, we announced that the registrational part 2 portion of the MOXIe Phase 2 trial of omaveloxolone in patients with FA met its primary endpoint of change in 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 in every subcategory measured under mFARS.  Omaveloxolone treatment was generally reported to be well-tolerated.  The FDA and the European Commission have granted orphan drug designation to omaveloxolone for the treatment of FA.  

As discussed above under “Regulatory Update-Omaveloxolone for Friedreich’s Ataxia,” the FDA will consider whether a crossover study of omaveloxolone using placebo patients from MOXIe Part 2 who were crossed over to omaveloxolone treatment in the MOXIe extension study could serve as additional confirmatory evidence.  If the FDA accepts the proposal, we could have completed data from the crossover study in the fourth quarter of this year.  Assuming that the crossover study data are sufficiently positive to provide confirmatory evidence, our plan would be to submit an NDA during the first quarter of 2021.  If the FDA rejects the proposal or if the data are not supportive, we will evaluate whether it is feasible to conduct a second pivotal study on FA patients as suggested by the FDA.  Regardless of the interaction with the FDA, we plan to pursue marketing approval outside of the United States.

Omaveloxolone in Other Potential Indications

In addition, we have observed compelling activity of omaveloxolone and our other Nrf2 activators in preclinical models of Parkinson’s disease, dementia, epilepsy, Huntington’s disease, and amyotrophic lateral sclerosis (ALS), 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

We are also developing RTA 901 in neurological indications.  RTA 901 is the lead product candidate from our Hsp90 modulator program.  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.  We have completed a Phase 1 trial to evaluate the safety, tolerability, and pharmacokinetic profile of RTA 901 administered orally, once-daily in healthy adult volunteers, and no safety or tolerability concerns were reported.  We plan to continue development for RTA 901 in neurological diseases, such as diabetic neuropathy.  We are the exclusive licensee of RTA 901 and have worldwide commercial rights.

Other Clinical Programs

In addition, we are developing RTA 1701, the lead product candidate from our proprietary series of RORγt inhibitors, for the potential treatment of a broad range of autoimmune, inflammatory, and fibrotic diseases.  We have completed a Phase 1 trial to evaluate the safety, tolerability, and pharmacokinetic profile of RTA 1701 in healthy adult volunteers.  No safety or tolerability concerns were reported, and we observed an acceptable pharmacokinetic profile.  We plan to continue development for RTA 1701 in autoimmune, inflammatory, or fibrotic diseases.  We retain all rights to our RORγt inhibitors, which are not subject to any existing commercial collaborations.

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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 KKC, from sales of our securities, with secured loans, and most recently from 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 KKC, from the Development Agreement with BXLS, and from reimbursements of expenses under the terms of our agreement with KKC.  We have incurred losses in each year since our inception, other than in 2014. As of June 30, 2020, we had $610.4 million of cash and cash equivalents and an accumulated deficit of $827.0 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 KKC, 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 potential commercialization of 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.

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 other 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 KKC Agreement, the AbbVie License Agreement, and the AbbVie Collaboration Agreement and consists of upfront payments and milestone payments.  License revenue recorded with respect to the KKC Agreement, the AbbVie License Agreement, and the AbbVie 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 AbbVie Collaboration Agreement.  We only expect to recognize revenue under the KKC Agreement, which extends through 2021.

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 June 30, 2020, we have incurred a total of $859.4 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

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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: