BridgeBio Pharma, Inc. 10-Q

10-Q 1 bbio-10q_20200630.htm 10-Q bbio-10q_20200630.htm UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38959 BridgeBio Pharma, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 84-1850815 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 421 Kipling Street Palo Alto, CA 94301 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (650) 391-9740 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 BBIO The Nasdaq Global Select Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 August 5, 2020, the registrant had 122,361,644 shares of common stock, $0.001 par value per share, outstanding. Table of Contents Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Comprehensive Loss 5 Condensed Consolidated Statements of Redeemable Convertible Noncontrolling Interests and Stockholders’ Equity 6 Condensed Consolidated Statements of Cash Flows 8 Notes to Condensed Consolidated Financial Statements 9 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 3. Quantitative and Qualitative Disclosures About Market Risk 47 Item 4. Controls and Procedures 47 PART II. OTHER INFORMATION Item 1. Legal Proceedings 48 Item 1A. Risk Factors 48 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 102 Item 3. Defaults Upon Senior Securities 102 Item 4. Mine Safety Disclosures 102 Item 5. Other Information 102 Item 6. Exhibits 103 Signatures 104 2 BRIDGEBIO PHARMA , INC. Condensed Consolidated Balance Sheets (in thousands, except shares and per share amounts) June 30, December 31, 2020 2019 (Unaudited) (1) Assets Current assets: Cash and cash equivalents $ 540,919 $ 363,773 Short-term marketable securities 300,020 182,220 Prepaid expenses and other current assets 20,996 22,629 Total current assets 861,935 568,622 Property and equipment, net 15,573 5,625 Operating lease right-of-use assets, net 10,465 — Long-term marketable securities — 31,144 Other assets 17,254 26,288 Total assets $ 905,227 $ 631,679 Liabilities, Redeemable Convertible Noncontrolling Interests and Stockholders’ Equity Current liabilities: Accounts payable $ 12,835 $ 8,852 Accrued compensation and benefits 13,590 13,317 Accrued research and development liabilities 37,241 20,896 Accrued professional services 8,609 2,222 LEO call option liability 5,276 4,078 Build-to-suit lease obligation — 8,000 Operating lease liabilities, current portion 3,627 — Other accrued liabilities 11,462 3,020 Total current liabilities 92,640 60,385 Term loans, noncurrent 92,908 91,791 2027 Notes 373,651 — Operating lease liabilities, net of current portion 9,117 — Other liabilities 9,399 3,527 Total liabilities 577,715 155,703 Commitments and contingencies (Note 8) Redeemable convertible noncontrolling interests 1,906 2,243 Stockholders’ equity: Undesignated preferred stock, $0.001 par value; 25,000,000 shares authorized; no shares issued and outstanding — — Common stock, $0.001 par value; 500,000,000 shares authorized; 124,665,939 shares issued and 122,251,258 shares outstanding as of June 30, 2020, 123,658,287 shares issued and outstanding as of December 31, 2019 125 124 Treasury stock, at cost; 2,414,681 shares as of June 30, 2020, nil as of December 31, 2019 (75,000 ) — Additional paid-in capital 992,691 848,107 Accumulated other comprehensive income 858 254 Accumulated deficit (652,915 ) (440,031 ) Total BridgeBio stockholders' equity 265,759 408,454 Noncontrolling interests 59,847 65,279 Total stockholders' equity 325,606 473,733 Total liabilities, redeemable convertible noncontrolling interests and stockholders’ equity $ 905,227 $ 631,679 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. (1) The condensed consolidated balance sheet as of December 31, 2019 is derived from the audited consolidated financial statements as of that date. 3 BRIDGEBIO PHARMA , INC. Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except shares and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Operating expenses: Research and development $ 86,598 $ 52,331 $ 154,823 $ 97,184 General and administrative 37,969 16,987 72,231 35,886 Total operating expenses 124,567 69,318 227,054 133,070 Loss from operations (124,567 ) (69,318 ) (227,054 ) (133,070 ) Other income (expense), net: Interest income 934 1,662 2,875 3,769 Interest expense (10,754 ) (1,941 ) (14,764 ) (3,612 ) Share in net loss of an equity method investment — (4,956 ) — (9,555 ) Other income (expense) (1,827 ) 219 (1,353 ) (1,302 ) Total other income (expense), net (11,647 ) (5,016 ) (13,242 ) (10,700 ) Net loss (136,214 ) (74,334 ) (240,296 ) (143,770 ) Net loss attributable to redeemable convertible noncontrolling interests and noncontrolling interests 15,180 8,370 27,412 16,621 Net loss attributable to common stockholders of BridgeBio $ (121,034 ) $ (65,964 ) $ (212,884 ) $ (127,149 ) Net loss per share, basic and diluted $ (1.03 ) $ (0.71 ) $ (1.81 ) $ (1.37 ) Weighted-average shares used in computing net loss per share, basic and diluted (2) 117,012,062 92,893,303 117,407,750 92,613,243 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. (2) The weighted-average shares used in computing net loss per share, basic and diluted for the three and six months ended June 30, 2019 were retroactively adjusted as a result of the 2019 Reorganization. See Note 13 to the condensed consolidated financial statements for additional details. 4 BRIDGEBIO PHARMA, INC. Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Net loss $ (136,214 ) $ (74,334 ) $ (240,296 ) $ (143,770 ) Other comprehensive income: Unrealized gain on available-for-sale securities 132 — 604 — Comprehensive loss (136,082 ) (74,334 ) (239,692 ) (143,770 ) Comprehensive loss attributable to redeemable convertible noncontrolling interests and noncontrolling interests 15,180 8,370 27,412 16,621 Comprehensive loss attributable to common stockholders of BridgeBio $ (120,902 ) $ (65,964 ) $ (212,280 ) $ (127,149 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 BRIDGEBIO PHARMA , INC. Condensed Consolidated Statements of Redeemable Convertible Noncontrolling Interests and Stockholders’ Equity ( Unaudited ) (in thousands, except shares and per share amounts) Six Months Ended June 30, 2020 Redeemable Accumulated Total Convertible Additional Other BridgeBio Noncontrol- Total Noncontrolling Common Stock Treasury Stock Paid-In Comprehensive Accumulated Stockholders' ling Stockholders’ Interests Shares Amount Shares Amount Capital Income Deficit Equity Interests Equity Balances as of December 31, 2019 (3) $ 2,243 123,658,287 $ 124 — $ — $ 848,107 $ 254 $ (440,031 ) $ 408,454 $ 65,279 $ 473,733 Issuance of shares under equity compensation plans — 116,249 — — — 529 — — 529 — 529 Stock-based compensation — — — — — 8,063 — — 8,063 — 8,063 Equity component of 2027 Notes, net of issuance costs and deferred tax liability — — — — — 167,726 — — 167,726 — 167,726 Purchase of capped calls — — — — — (49,280 ) — — (49,280 ) — (49,280 ) Repurchase of common stock — (2,414,681 ) — 2,414,681 (75,000 ) — — — (75,000 ) — (75,000 ) Issuance of noncontrolling interests 1,102 — — — — — — — — 26,565 26,565 Transfers from (to) noncontrolling interests 574 — — — — 11,601 — — 11,601 (12,175 ) (574 ) Unrealized gains on available-for-sale securities — — — — — — 472 — 472 — 472 Net loss (866 ) — — — — — — (91,850 ) (91,850 ) (11,366 ) (103,216 ) Balances as of March 31, 2020 3,053 121,359,855 124 2,414,681 (75,000 ) 986,746 726 (531,881 ) 380,715 68,303 449,018 Issuance of shares under equity compensation plans — 264,583 — — — 691 — — 691 — 691 Issuance of shares under the 2020 Stock and Equity Exchange Program — 626,820 1 — — 1,069 — — 1,070 (1,070 ) — Stock-based compensation — — — — — 7,295 — — 7,295 — 7,295 Issuance of noncontrolling interests — — — — — — — — — 3,537 3,537 Transfers from (to) noncontrolling interests 431 — — — — (3,110 ) — — (3,110 ) 2,679 (431 ) Unrealized gains on available-for-sale securities — — — — — — 132 — 132 — 132 Net loss (1,578 ) — — — — — — (121,034 ) (121,034 ) (13,602 ) (134,636 ) Balances as of June 30, 2020 $ 1,906 122,251,258 $ 125 2,414,681 $ (75,000 ) $ 992,691 $ 858 $ (652,915 ) $ 265,759 $ 59,847 $ 325,606 6 Six Months Ended June 30, 2019 Redeemable Total Convertible Additional BridgeBio Noncontrol- Total Noncontrolling Common Stock Paid-In Accumulated Stockholders' ling Stockholders’ Interests Shares Amount Capital Deficit Equity Interests Equity Balances as of December 31, 2018 (3) $ 122 92,057,704 $ 92 $ 494,231 $ (179,444 ) $ 314,879 $ 62,361 $ 377,240 Issuance of shares under equity compensation plans — 518,511 — — — — — — Stock-based compensation — — — 1,236 — 1,236 — 1,236 Repayment of nonrecourse notes — — — 179 — 179 — 179 Issuance of noncontrolling interests — — — — — — 1,320 1,320 Transfers from (to) noncontrolling interests 870 — — (2,968 ) — (2,968 ) 2,098 (870 ) Net loss (790 ) — — — (61,185 ) (61,185 ) (7,461 ) (68,646 ) Balances as of March 31, 2019 202 92,576,215 92 492,678 (240,629 ) 252,141 58,318 310,459 Issuance of shares under equity compensation plans — 604,144 — — — — — — Stock-based compensation — — — 2,188 — 2,188 — 2,188 Repurchase of noncontrolling interests — — — — — — (27,024 ) (27,024 ) Transfers from (to) noncontrolling interests 658 — — (25,440 ) — (25,440 ) 24,782 (658 ) Net loss (685 ) — — — (65,964 ) (65,964 ) (7,685 ) (73,649 ) Balances as of June 30, 2019 $ 175 93,180,359 $ 92 $ 469,426 $ (306,593 ) $ 162,925 $ 48,391 $ 211,316 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ( 3 ) The consolidated balances as of December 31, 2019 and 2018 are derived from the audited consolidated financial statements as of that date. The consolidated balances as of December 31, 2018 were retroactively adjusted, including shares and per share amounts, as a result of the 2019 Reorganization. See Note 13 to the condensed consolidated financial statements for additional details. 7 BRIDGEBIO PHARMA , INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Six Months Ended June 30, Operating activities: 2020 2019 Net loss $ (240,296 ) $ (143,770 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 28,614 5,590 Share in net loss of equity method investments — 9,555 Accretion of 2027 Notes and term loans 6,980 702 Acquired in-process research and development assets — 2,500 LEO call option expense 1,198 1,288 Other noncash adjustments 2,480 472 Changes in operating assets and liabilities: Prepaid expenses and other current assets 1,634 (3,345 ) Other assets (965 ) (2,077 ) Accounts payable 3,983 146 Accrued compensation and benefits (2,051 ) 689 Accrued research and development liabilities 16,345 505 Accrued professional services 6,388 996 Operating lease liabilities (1,418 ) — Other accrued and other liabilities 5,339 (639 ) Net cash used in operating activities (171,769 ) (127,388 ) Investing activities Purchases of marketable securities (168,801 ) — Maturities of marketable securities 82,516 — Cash paid for in-process research and development assets acquired — (2,500 ) Proceeds from disposal of property and equipment 147 Purchases of property and equipment (4,823 ) (510 ) Net cash used in investing activities (90,961 ) (3,010 ) Financing activities Proceeds from issuance of 2027 Notes 550,000 — Issuance costs and discounts associated with issuance of 2027 Notes (13,039 ) — Purchase of capped calls (49,280 ) — Repurchase of common stock (75,000 ) — Proceeds from repayment of nonrecourse notes — 179 Proceeds from at-the-market issuance of noncontrolling interest by Eidos, net 24,094 — Proceeds from term loans, net of issuance costs — 19,787 Proceeds from issuance of redeemable convertible noncontrolling interests to third-party investors 1,000 — MyoKardia distributions — (997 ) Repurchase of noncontrolling interest — (28,628 ) Payment of deferred offering costs — (2,499 ) Proceeds from stock option exercises, net of repurchases 2,101 538 Net cash provided by (used in) financing activities 439,876 (11,620 ) Net increase (decrease) in cash, cash equivalents and restricted cash 177,146 (142,018 ) Cash, cash equivalents and restricted cash at beginning of period 364,197 436,245 Cash, cash equivalents and restricted cash at end of period $ 541,343 $ 294,227 Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 4,122 $ 2,583 Supplemental Disclosures of Non-Cash Investing and Financing Information: Deferred offering costs included in accounts payable and other accrued liabilities $ — $ 3,961 Recognition of property and equipment previously classified in other assets $ 10,000 $ — Operating lease right-of-use assets obtained in exchange for operating lease obligations $ 11,814 $ — Transfers from (to) noncontrolling interest (Note 6) $ 8,492 $ (28,408 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization and Description of Business BridgeBio Pharma, Inc. (“BridgeBio”) was established to identify and advance transformative medicines to treat patients who suffer from Mendelian diseases, which are diseases that arise from defects in a single gene, and cancers with clear genetic drivers. BridgeBio’s pipeline of programs spans early discovery to late-stage development. On July 1, 2019, BridgeBio completed the 2019 Reorganization and closed the Initial Public Offering (“IPO”) of its common stock (see Note 13). Since inception, BridgeBio has either created wholly-owned subsidiaries or has made investments in certain controlled entities, including partially-owned subsidiaries for which BridgeBio has a majority voting interest, and variable interest entities (“VIEs”) for which BridgeBio is the primary beneficiary (collectively, “we”, “our”, “us”). Our condensed consolidated financial statements include the accounts of our majority-owned affiliate, Eidos Therapeutics, Inc. (“Eidos”), which completed an IPO in June 2018. BridgeBio is headquartered in Palo Alto, California. The results of operations and cash flows prior to the IPO closing on July 1, 2019 relate to BridgeBio Pharma LLC (“BBP LLC”), its subsidiaries and controlled entities. Subsequent to the IPO closing, the information relates to BridgeBio, its subsidiaries and controlled entities. All share and per share amounts in these condensed consolidated financial statements and related notes have been retroactively adjusted, where applicable, for the comparable periods presented to give effect to the exchange ratio applied in connection with the 2019 Reorganization. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The condensed consolidated financial statements include the accounts of BridgeBio Pharma, Inc., its wholly owned subsidiaries and controlled entities, all of which are denominated in U.S. dollars. All intercompany balances and transactions have been eliminated in consolidation. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net loss attributable to noncontrolling interests in our condensed consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. In determining whether an entity is considered a controlled entity, we applied the Variable Interest Entity (“VIE”) and Voting Interest Entity (“VOE”) models. We assess whether we are the primary beneficiary of a VIE based on our power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Entities that do not qualify as a VIE are assessed for consolidation under the VOE model. Under the VOE model, BridgeBio consolidates the entity if it determines that it has a controlling financial interest in the entity through its ownership of greater than 50% of the outstanding voting shares of the entity and that other equity holders do not have substantive voting, participating or liquidation rights. We assess whether we are the primary beneficiary of a VIE or whether we have a majority voting interest for entities consolidated under the VOE model at the inception of the arrangement and at each reporting date. Refer to Note 5. The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC. The condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of our financial position, our results of operations and comprehensive loss, and our cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim periods. 9 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Risks an d Uncertainties In light of recent developments relating to the coronavirus (COVID-19) global pandemic, the focus of healthcare providers and hospitals on fighting the virus, and consistent with the U.S. Food and Drug Administration’s updated industry guidance for conducting clinical trials issued on March 18, 2020, we have experienced delays in or temporary suspension of the enrollment of patients in our subsidiaries’ ongoing clinical trials. We additionally may experience delays in certain ongoing key program activities, including commencement of planned clinical trials, as well as non-clinical experiments and investigational new drug application-enabling good laboratory practice toxicology studies. The exact timing of delays and their overall impact on our business are currently unknown, and we are monitoring the COVID-19 outbreak as it continues to rapidly evolve. We are continuing to actively monitor the situation and may take further precautionary and preemptive actions as may be required by federal, state or local authorities or that we determine are in the best interests of public health and safety and that of our patient community, employees, partners, suppliers and stockholders. We cannot predict the effects that such actions, or the impact of COVID-19 on global business operations and economic conditions, may have on our business or strategy, including the effects on our ongoing and planned clinical development activities and prospects, or on our financial and operating results. Cash, Cash Equivalents and Restricted Cash We consider all highly liquid investments purchased with original maturities of 90 days or less from the purchase date to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market instruments, such as money market funds and repurchase agreements collateralized with securities issued by the U.S. government or its agencies. Our restricted cash balance relates to cash and cash equivalents that we have pledged as collateral under certain lease agreements and letters of credit. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the amounts shown in the condensed consolidated statements of cash flows: June 30, 2020 June 30, 2019 (in thousands) Cash and cash equivalents $ 540,919 $ 293,803 Restricted cash (1) 424 424 Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 541,343 $ 294,227 (1) Included in “Other assets” in the condensed consolidated balance sheets as of the date presented. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to, fair value of the liability component of our 2.50% convertible senior notes due 2027 (the “2027 Notes”, see Note 9), the fair value of the LEO call option liability (see Note 7), the fair value of Eidos’ derivative liability, the present value of lease payments of our leases on the respective lease commencement dates, the valuation of our stock-based awards, accounting for stock-based award modifications, accruals for certain employees’ performance-based milestone awards, accruals for research and development activities and accruals for contingent milestone payments in our license agreements. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable. Actual results may differ from those estimates or assumptions. 10 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Capped Call Transactions In March 2020, in connection with the issuance of the 2027 Notes (see Note 9) , BridgeBio entered into Capped Call Transactions. The Capped Call Transactions are expected generally to reduce the potential dilution to the holders of BridgeBio’s common stock upon any conversion of the 2027 Notes and/or offset any cash payments BridgeBio is required to make in excess of the principal amount of converted 2027 Notes, with such reduction and/or offset subject to a cap based on the cap price (see Note 9). The capped calls meet the conditions outlined in Accounting Standards Codification (“ASC”) 815-40, Derivatives and Hedging , to be classified in stockholders’ equity as a reduction to additional paid-in capital and are not subsequently remeasured as long as the conditions for equity classification continue to be met. Debt Issuance Costs Debt issuance costs are amortized to interest expense over the estimated life of the related debt based on the effective interest method. In accordance with ASC 835, Interest , we present debt issuance costs on the condensed consolidated balance sheets as a direct deduction from the associated debt. A portion of debt issuance costs incurred in connection with the 2027 Notes issued in March 2020 was deemed to relate to the equity component and was recorded as a reduction to additional paid in capital and is not amortized to interest expense over the estimated life of the related debt. The 2027 Notes are more fully described in Note 9. Treasury Stock Repurchased treasury stock is recorded at cost, including any commissions and fees. Leases Our lease portfolio as of January 1, 2020 and June 30, 2020 includes leases for our headquarters, office spaces and laboratory facility. We determine if an arrangement is a lease at the inception of the contract. The asset component of our operating leases is recorded as operating lease right-of-use assets, and the liability component is recorded as current portion of operating lease liabilities and operating lease liabilities, net of current portion in our condensed consolidated balance sheet. As of June 30, 2020, we have not recorded any finance leases. Right-of-use assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at the lease commencement date. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, we use an incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. Operating lease right-of-use assets are adjusted for incentives expected to be received. On the lease commencement date, we estimate and include in our lease payments any lease incentive amounts based on future events when (1) the events are within our control and (2) the event triggering the right to receive the incentive is deemed reasonably certain to occur. If the lease incentive received is greater or less than the amount recognized at lease commencement, we recognize the difference as an adjustment to right-of-use asset and/or lease liability, as applicable. Right-of-use assets and operating lease liabilities are remeasured upon certain modifications to leases using the present value of remaining lease payments and estimated incremental borrowing rate upon lease modification. Lease cost is recognized on a straight-line basis over the lease term, and includes amounts related to short-term leases. We recognize variable lease payments as operating expenses in the period in which the obligation for those payments is incurred. Variable lease payments primarily include common area maintenance, utilities, real estate taxes, insurance, and other operating costs that are passed on from the lessor in proportion to the space we lease. Net Loss per Share Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of BridgeBio’s common stock outstanding for the period, without consideration for potential dilutive shares of common stock, such as stock options, unvested restricted stock units and awards, shares issuable under the employee stock purchase plan and assumed conversion of our 2027 Notes. Shares of common stock subject to repurchase are excluded from the weighted-average shares. Since we were in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share since the effects of potentially dilutive securities are antidilutive. 11 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) No adjustment for cumulative returns on BBP LLC’s redeemable convertibl e preferred units has been applied to the calculation of basic and diluted net loss per share , since such units were retroactively adjusted as if the 2019 Reorganization occurred at the beginning of the earliest period to be presented in our financial stat ements . See Note 1 3 for additional details. Emerging Growth Company (“EGC”) Status We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. As described in “Recently Adopted Accounting Pronouncements” below, we early adopted certain accounting standards, as the JOBS Act does not preclude an EGC from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company. We will cease to be an EGC on December 31, 2020 because our aggregate worldwide market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2020, our most recently completed second fiscal quarter, was greater than $700 million. Effective January 1, 2021, we will no longer be able to use the exemptions from certain reporting requirements available to EGCs. Recently Adopted Accounting Pronouncements ASU 2016-02 Leases (Topic 842). In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) (“ASU 2016-02” or “ASC 842” ), which, for operating leases, requires the lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The guidance also requires a lessee to recognize single lease costs, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases . Additionally, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements , which offers a practical expedient for transitioning at the adoption date. ASU 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates , issued in November 2019, delayed the effective date of Topic 842 for non-public business entities to January 1, 2021 but early adoption is still permitted. Effective January 1, 2020, we adopted ASC 842 using the optional transition method and applied the standard only to leases that existed at that date. Under the optional transition method, we do not need to restate the comparative periods in transition and will continue to present financial information and disclosures for periods before January 1, 2020 in accordance with ASC 840. As part of the ASC 842 adoption, we elected certain practical expedients outlined in the guidance. We have also chosen to apply the package of practical expedients for existing leases, which provides relief from reassessing: (i) whether a contract is or contains a lease, (ii) lease classification, and (iii) whether initial direct costs can be capitalized. Upon transition, we also elected to use hindsight with respect to determining the lease term and in assessing any impairment of right-of-use assets for existing leases. We have also made some accounting policy elections for post-transition to: (i) account for leases at the portfolio level, where applicable, (ii) allow us not to separate nonlease components from lease components, and instead to account for those as a single lease component for the asset class of operating lease right-of-use real estate assets, and (iii) elect not to recognize a right-of-use asset and a lease liability for all of our leases with a term of 12 months or less (“short-term leases”). The adjustments due to the adoption of ASC 842 primarily related to the recognition of right-of-use assets of $9.2 million and lease liabilities of $11.5 million at January 1, 2020 for our operating leases. The lease liabilities were determined based on the present value of the remaining minimum lease payments. The right-of-use assets were determined based on the value of the lease liabilities, adjusted for the deferred rent balances of approximately $2.3 million. Upon adoption of ASC 842, we also (i) derecognized the build-to-suit lease asset of $10.0 million previously presented in other assets as of December 31, 2019, and recognized a construction-in-progress asset for the same amount, and (ii) derecognized the build-to-suit lease liability of $8.0 million as of December 31, 2019 and recognized a liability presented in other accrued liabilities (see Note 11). The adoption did not have a material impact on our accumulated deficit and on our condensed consolidated statements of operations and cash flows. 12 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) ASU 2016-13 Financial Instruments - Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. This update requires immediate recognition of management’s estimates of current expected credit losses. Under the prior model, losses were recognized only as they were incurred. The new model is applicable to most financial assets and certain other instru ments that are not measured at fair value through net income. The standard is effective for fiscal years beginning after December 15, 2019 for public entities. Early adoption is permitted. The delay in effective date for certain entities of ASU 2016-13 by the issuance of ASU 2019-10 in November 2019 does not apply to filers with the SEC that are not smaller reporting companies . The adoption of this guidance did not materially impact our condensed consolidated financial statements. ASU 2018-13 Fair Value Measurement – Disclosure Framework (Topic 820) . In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820) (“ASU 2018-13”). The updated guidance improves the disclosure requirements on fair value measurements and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption of this guidance did not significantly impact our financial statement disclosures. ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We early adopted ASU 2019-12 effective January 1, 2020 and the adoption did not materially impact our financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 81 5. The guidance is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2020-01 amends ASU 2016-01, which made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments in ASU 2020-01 clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 31, 2020, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of ASU 2020-01 to have a material impact on our condensed consolidated financial statements. ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity . The guidance simplifies the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently in the process of determining the effect that the adoption will have on our condensed consolidated financial statements. 13 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 3. Fair Value Measurement The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation: June 30, 2020 Total Level 1 Level 2 Level 3 (in thousands) Assets Cash equivalents: Money market funds $ 436,388 $ 436,388 $ — $ — Commercial paper 6,999 — 6,999 — Total cash equivalents 443,387 436,388 6,999 — Short-term marketable securities: U.S. treasury notes 135,932 — 135,932 — Commercial paper 59,806 — 59,806 — Corporate debt securities 104,282 — 104,282 — Total short-term marketable securities 300,020 — 300,020 — Total cash equivalents and marketable securities $ 743,407 $ 436,388 $ 307,019 $ — Liabilities: LEO call option liability $ 5,276 $ — $ — $ 5,276 Embedded derivative 1,123 — — 1,123 Total financial liabilities $ 6,399 $ — $ — $ 6,399 December 31, 2019 Total Level 1 Level 2 Level 3 (in thousands) Assets Cash equivalents: Money market funds $ 248,736 $ 248,736 $ — $ — Repurchase agreements 59,000 59,000 — — Total cash equivalents 307,736 307,736 — — Short-term marketable securities: U.S. treasury notes 45,280 — 45,280 — Commercial paper 65,626 — 65,626 — Corporate debt securities 71,314 — 71,314 — Total short-term marketable securities 182,220 — 182,220 — Long-term marketable securities: U.S. treasury notes 15,307 — 15,307 — Corporate debt securities 15,837 — 15,837 — Total long-term marketable securities 31,144 — 31,144 — Total cash equivalents and marketable securities $ 521,100 $ 307,736 $ 213,364 $ — Liabilities: LEO call option liability $ 4,078 $ — $ — $ 4,078 Embedded derivative 1,165 — — 1,165 Total financial liabilities $ 5,243 $ — $ — $ 5,243 There were no transfers between Level 1, Level 2 or Level 3 during the periods presented. 14 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Marketable Securities The fair value of our marketable securities classified within Level 2 is based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. LEO Call Option Liability The valuation of the LEO call option (see Note 7) contains unobservable inputs that reflect our own assumptions for which there is little, if any, market activity at the measurement date. Accordingly, the LEO call option liability is remeasured to fair value on a recurring basis using unobservable inputs that are classified as Level 3 inputs. We estimated the fair value of the LEO call option by estimating the fair value of various clinical, regulatory, and sales milestones based on the estimated risk and probability of achievement of each milestone, and allocated the value using a Black-Scholes option pricing model with the following assumptions: June 30, December 31, 2020 2019 Probability of milestone achievement 12.0%-84.0% 12.0%-84.0% Discount rate 0.2%-15.3% 1.6%-13.1% Expected term (in years) 1.25-6.25 0.67-5.25 Expected volatility 70.0%-78.0% 60.0%-68.0% Risk-free interest rate 2.00%-2.24% 2.34%-2.46% Dividend yield — — The following table sets forth a summary of the change in the estimated fair value of the LEO call option: Total (in thousands) Balance as of December 31, 2019 $ 4,078 Change in fair value upon remeasurement recognized as other expense 1,198 Balance as of June 30, 2020 $ 5,276 Eidos Embedded Derivative Liability in Loan Agreement For the SVB and Hercules Loan entered in November 2019 (see Note 9), Eidos determined that the requirement to pay a fee (“Success Fee”) upon certain events is an embedded derivative liability to be measured at fair value. The fair value of the derivative was determined based on an income approach that identified the cash flows using a “with-and-without” valuation methodology. The inputs used to determine the estimated fair value of the derivative instrument were based primarily on the probability of an underlying event triggering the embedded derivative occurring and the timing of such event. 2027 Notes The fair value of the 2027 Notes (see Note 9), which differs from its carrying value is determined by prices for the 2027 Notes observed in market trading. The market for trading of the 2027 Notes is not considered to be an active market and therefore the estimate of fair value is based on Level 2 inputs. As of June 30, 2020, the estimated fair value of the 2027 Notes, which have an aggregate face value of $550.0 million, was $559.8 million based on the market price on the last trading day for the period. Term Loans The fair value of our outstanding term loans (see Note 9) is estimated using the net present value of the payments, discounted at an interest rate that is consistent with a market interest rate, which is a Level 2 input. The estimated fair value of our outstanding term loans approximates the carrying amount, as the term loan bears a floating rate that approximates the market interest rate. 15 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 4 . Cash Equivalents and Marketable Securities We invest in certain money market funds, commercial paper and repurchase agreements, classified as cash equivalents, which are collateralized by deposits in the form of U.S. treasury securities for an amount no less than 102% of their value. We do not record an asset or liability for the collateral as we do not intend to sell or re-pledge the collateral. The collateral has the prevailing credit rating of at least the U.S. government treasuries and agencies. We utilize a third-party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the reverse repurchase agreements on a daily basis. Cash equivalents and marketable securities classified as available-for-sale consisted of the following: June 30, 2020 Amortized Cost Basis Unrealized Gains Unrealized Losses Estimated Fair Value (in thousands) Cash equivalents: Money market funds $ 436,388 $ — $ — $ 436,388 Commercial paper 6,999 — — 6,999 Total cash equivalents 443,387 — — 443,387 Short-term marketable securities: U.S. treasury notes 135,442 491 (1 ) 135,932 Commercial paper 59,806 — — 59,806 Corporate debt securities 103,914 369 (1 ) 104,282 Total short-term marketable securities 299,162 860 (2 ) 300,020 Total cash equivalents and marketable securities $ 742,549 $ 860 $ (2 ) $ 743,407 December 31, 2019 Amortized Cost Basis Unrealized Gains Unrealized Losses Estimated Fair Value (in thousands) Cash equivalents: Money market funds $ 248,736 $ — $ — $ 248,736 Repurchase agreements 59,000 — — 59,000 Total cash equivalents 307,736 — — 307,736 Short-term marketable securities: U.S. treasury notes 45,224 56 — 45,280 Commercial paper 65,626 — — 65,626 Corporate debt securities 71,231 83 — 71,314 Total short-term marketable securities 182,081 139 — 182,220 Long-term marketable securities: U.S. treasury notes 15,248 59 — 15,307 Corporate debt securities 15,781 56 — 15,837 Total long-term marketable securities 31,029 115 — 31,144 Total cash equivalents and marketable securities $ 520,846 $ 254 $ — $ 521,100 There have been no significant realized gains or losses on available-for-sale securities for the periods presented. As of June 30, 2020, our short-term marketable securities have an average contractual maturity of approximately 8.5 months. As of June 30, 2020, we do not intend to sell our marketable securities and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost bases. 5. Variable Interest and Voting Interest Entities Consolidated VIEs We have either created or made investments in entities that are either wholly or partially-owned subsidiaries and VIEs. Our consolidated VIEs currently in the clinical phase of development are Phoenix Tissue Repair, Inc. (“PTR”), QED Therapeutics, Inc. (“QED”), Origin Biosciences, Inc. (“Origin”) and ML Bio Solutions, Inc. (“ML Bio”). 16 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) During the six months ended June 30 , 2020 , BridgeBio made investments in QED of $ 5 0 .0 million, Origin of $1 6 .0 million, PTR of $1 1 .0 million, ML Bio of $ 6 . 5 million an d all other consolidated VIEs of $ 66.1 million in exchange for shares of redeemable convertible preferred stock of the respective entities. The investments made in these VIEs are for the progression of research and development programs as well as for comme rcial launch readiness activities. As of June 30, 2020 and December 31, 2019, there were no significant restrictions on the VIE assets or liabilities except for cash and certain property and equipment held by our VIEs presented below, which is generally restricted for use by the respective VIEs. For VIEs, BridgeBio calculates the maximum exposure to loss to be equal to the amount invested in the equity of the VIE and the amount of outstanding convertible notes. The following table provides the assets and liabilities for all consolidated VIEs as of June 30, 2020: Origin ML Bio QED PTR All Other Total (in thousands) Assets: Current assets: Cash and cash equivalents $ 10,036 $ 9,565 $ 40,224 $ 9,532 $ 45,355 $ 114,712 Prepaid expenses and other current assets 662 28 6,247 1,748 4,230 12,915 Total current assets 10,698 9,593 46,471 11,280 49,585 127,627 Property and equipment, net 15 88 224 54 13,743 14,124 Operating lease right-of-use assets — — 1,186 399 1,797 3,382 Other assets 52 — 11,357 302 1,697 13,408 Total assets $ 10,765 $ 9,681 $ 59,238 $ 12,035 $ 66,822 $ 158,541 Liabilities: Current liabilities: Accounts payable $ 758 $ 145 $ 4,311 $ 208 $ 4,075 $ 9,497 Accrued compensation and benefits 560 170 3,314 944 1,397 6,385 Accrued research and development liabilities 2,929 1,904 17,769 1,150 5,396 29,148 Accrued professional services 59 55 221 70 624 1,029 Operating lease liabilities, current portion — — 1,050 128 276 1,454 Other accrued liabilities 920 1 788 22 4,262 5,993 Total current liabilities 5,226 2,275 27,453 2,522 16,030 53,506 Operating lease liabilities, net of current portion — — 231 287 2,557 3,075 Other liabilities 12 19 3,033 65 341 3,470 Total liabilities $ 5,238 $ 2,294 $ 30,717 $ 2,874 $ 18,928 $ 60,051 17 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) The following table provides t he assets and liabilities for all consolidated VIEs as of December 31, 201 9 : Adrenas Aspa ML Bio QED Theras All Other Total (in thousands) Assets: Current assets: Cash and cash equivalents $ 6,453 $ 1,695 $ 7,432 $ 27,781 $ 6,351 $ 31,600 $ 81,312 Prepaid expenses and other current assets 906 758 17 7,282 2,555 2,416 13,934 Total current assets 7,359 2,453 7,449 35,063 8,906 34,016 95,246 Property and equipment, net 3,189 274 98 281 3 325 4,170 Other assets — 10,000 — 11,313 — 637 21,950 Total assets $ 10,548 $ 12,727 $ 7,547 $ 46,657 $ 8,909 $ 34,978 $ 121,366 Liabilities: Current liabilities: Accounts payable $ 526 $ 219 $ 19 $ 1,443 $ 23 $ 1,341 $ 3,571 Accrued compensation and benefits 923 156 67 3,396 243 3,352 8,137 Accrued research and development liabilities 757 567 — 8,931 212 5,293 15,760 Accrued professional services 83 280 7 435 4 363 1,172 Build-to-suit lease obligation — 8,000 — — — — 8,000 Other accrued liabilities 290 38 — 180 33 592 1,133 Total current liabilities 2,579 9,260 93 14,385 515 10,941 37,773 Other liabilities 951 — — 161 — 24 1,136 Total liabilities $ 3,530 $ 9,260 $ 93 $ 14,546 $ 515 $ 10,965 $ 38,909 VIEs included in the “All Other” category of the above tables are not significant individually for separate presentation as of the respective dates presented. Going forward, BridgeBio may not provide any further investment in certain of these VIEs. Eidos From the date of BridgeBio’s initial investment until June 22, 2018, the Eidos IPO closing date, Eidos was determined to be a VIE and BridgeBio consolidated Eidos as the primary beneficiary. Subsequent to the Eidos IPO, BridgeBio determined that Eidos was no longer a VIE due to it having sufficient equity at risk to finance its activities without additional subordinated financial support. From June 22, 2018 through June 30, 2020, BridgeBio determined that it held greater than 50% of the voting shares of Eidos and there were no other parties with substantive participating, liquidation or kick-out rights. BridgeBio consolidated Eidos under the VOE model during all periods presented. In May 2019, BridgeBio purchased 1,103,848 shares of Eidos common stock from an existing Eidos stockholder for $28.6 million in a private purchase transaction. In July 2019, BridgeBio purchased 882,353 shares of Eidos common stock from an existing Eidos stockholder for $26.4 million in a private purchase transaction. In September 2019, Eidos issued 556,173 shares of Eidos common stock to a third party. On August 2, 2019, Eidos filed a shelf registration statement on Form S-3 (the “2019 Shelf”) with the SEC in relation to the registration of common stock, preferred stock, warrants and units of any combination thereof. Eidos also simultaneously entered into an Open Market Sale Agreement with Jefferies LLC and SVB Leerink LLC (the “Sales Agents”), to provide for the offering, issuance and sale by Eidos of up to an aggregate offering price of $100.0 million of its common stock from time to time in “at-the-market” offerings under the 2019 Shelf and subject to the limitations thereof (the “2019 Sales Agreement”). Eidos will pay to the applicable Sales Agent cash commissions of up to 3.0 percent of the gross proceeds of sales of common stock under the 2019 Sales Agreement. Eidos issued 385,613 shares under this offering and received $23.9 million of net proceeds through December 31, 2019. Eidos issued 448,755 shares under this offering and received $24.1 million of net proceeds in February 2020. 18 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 6. Noncontrolling Interests As of June 30, 2020 and December 31, 2019, we had both redeemable convertible noncontrolling interests and noncontrolling interests in consolidated partially-owned entities, for which BridgeBio has a majority voting interest under the VOE model and for which BridgeBio is the primary beneficiary under the VIE model. These balances are reported as separate components outside stockholders’ equity in “Redeemable convertible noncontrolling interests” and as part of stockholders’ equity in “Noncontrolling interests” in the condensed consolidated balance sheets. We adjust the carrying value of noncontrolling interest to reflect the book value attributable to noncontrolling stockholders of consolidated partially-owned entities when there is a change in the ownership during the respective reporting periods. During the three and six months ended June 30, 2020, such adjustments in the aggregate amounts of $3.1 million and $(8.5) million , respectively, are recorded to additional paid-in capital. During the three and six months ended June 30, 2019, such adjustments in the aggregate amounts of $25.4 million and $28.4 million are recorded to additional paid-in capital. All such adjustments are disclosed within the “Transfers from (to) noncontrolling interest” line item in the condensed consolidated statements of redeemable convertible noncontrolling interests and stockholders’ equity. As a result of the Exchange Program, which is further discussed in Note 14, we have increased our ownership in certain of our VIEs and, as a result, ownership of noncontrolling interests have decreased. The following table provides a rollforward of the redeemable convertible noncontrolling interests balance: QED ML Bio All Other Total (in thousands) Balance as of December 31, 2019 $ 612 $ 1,557 $ 74 $ 2,243 Issuance of redeemable convertible noncontrolling interest — 1,000 102 1,102 Net loss attributable to redeemable convertible noncontrolling interest (468 ) (338 ) (60 ) (866 ) Transfers to redeemable convertible noncontrolling interest 316 258 — 574 Balance as of March 31, 2020 460 2,477 116 3,053 Net loss attributable to redeemable convertible noncontrolling interest (480 ) (1,077 ) (21 ) (1,578 ) Transfers to redeemable convertible noncontrolling interest 421 10 — 431 Balance as of June 30, 2020 $ 401 $ 1,410 $ 95 $ 1,906 19 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) The following table provides a rollforward of the noncontrolling interests balance: Adrenas Aspa Eidos PTR Venthera All Other Total (in thousands) Balance as of December 31, 2019 $ 696 $ 250 $ 59,722 $ 1,298 $ 140 $ 3,173 $ 65,279 Issuance of noncontrolling interest 6 9 26,248 1 16 285 26,565 Transfers to (from) noncontrolling interest 883 649 (15,329 ) 4 513 1,105 (12,175 ) Net loss attributable to noncontrolling interest (316 ) (195 ) (8,078 ) (1,238 ) (324 ) (1,215 ) (11,366 ) Balance as of March 31, 2020 1,269 713 62,563 65 345 3,348 68,303 Issuance of noncontrolling interest 3 4 3,308 1 1 220 3,537 Issuance of BridgeBio shares under the Exchange Program (23 ) (29 ) — — (22 ) (996 ) (1,070 ) Transfers to (from) noncontrolling interest (194 ) (188 ) (1,850 ) 2,868 453 1,590 2,679 Net loss attributable to noncontrolling interest (541 ) (185 ) (10,332 ) (591 ) (207 ) (1,746 ) (13,602 ) Balance as of June 30, 2020 $ 514 $ 315 $ 53,689 $ 2,343 $ 570 $ 2,416 $ 59,847 7. PellePharm Investment PellePharm is a clinical-stage biopharmaceutical company developing BBP-009, a topical gel formulation of patidegib, a hedgehog inhibitor, for the treatment of Gorlin Syndrome and High-Frequency Basal Cell Carcinoma. In July 2015, BridgeBio made an initial investment of $4.5 million in PellePharm and in a series of transactions through December 2016, BridgeBio increased its ownership interest to greater than 50%. BridgeBio determined that its initial investment in PellePharm represented a variable interest, but that BridgeBio was not the primary beneficiary until December 2016. On November 19, 2018, PellePharm entered into the LEO Agreement, pursuant to which LEO was granted an exclusive, irrevocable option to acquire PellePharm. The LEO call option is exercisable by LEO on or before the occurrence of certain events relating to PellePharm’s clinical development programs and no later than July 30, 2021. We account for the LEO call option as a current liability in our condensed consolidated financial statements because BridgeBio is obligated to sell its shares in PellePharm to LEO at a pre-determined price, if the option is exercised. We remeasure the LEO call option to fair value at each subsequent balance sheet date until the LEO call option either is exercised or expires. The date the LEO Agreement was entered into was determined to be a VIE reconsideration event. Based on our assessment, BridgeBio concluded that PellePharm remains a VIE after the reconsideration event as it does not have sufficient equity at risk to finance its activities without additional subordinated financial support. However, based on changes to PellePharm’s governance structure and Board of Directors composition as a result of the LEO Agreement, BridgeBio is no longer the primary beneficiary as it no longer has the power over the key decisions that most significantly impact PellePharm’s economic performance. Accordingly, BridgeBio deconsolidated PellePharm on November 19, 2018. After the deconsolidation in November 2018, PellePharm is considered a related party of BridgeBio. Subsequent to the deconsolidation of PellePharm, we accounted for our retained common stock investment as an equity method investment and our retained preferred stock investment as a cost method investment. Subsequent to the adoption of ASU No. 2016-01 in 2019, we account for the investment in PellePharm preferred stock as an equity security without a readily determinable fair value. As of each of June 30, 2020 and December 31, 2019, the aggregate carrying amount of our investments in PellePharm was zero. After the equity method investment was reduced to zero during the three months ended March 31, 2019, BridgeBio has subsequently recorded its percentage of net losses consistent with its preferred stock ownership percentage of 61.9% until the equity security investment was also reduced to zero during the remaining period of 2019. The carrying amount of BridgeBio’s investment in PellePharm in the condensed consolidated balance sheets represents its maximum loss exposure related to its VIE investment in PellePharm. There have been no impairments related to our PellePharm investment. 20 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 8. Commitments and Contingencies Milestone Compensation Arrangements with Employees We have performance-based milestone compensation arrangements with certain employees, whose vesting is contingent upon meeting various regulatory and development milestones, with fixed monetary amounts known at inception that can be settled in the form of cash or equity at our sole election, upon achievement of each contingent milestone. We recognize such contingent compensation as stock-based compensation when it is probable of achievement. As of June 30, 2020, the potential milestone compensation amount under these arrangements is up to $222.2 million. This amount includes the performance-based milestone awards that were granted as part of the 2020 Stock and Equity Award Exchange Program (the “Exchange Program”) further discussed in Note 14. We have recognized compensation expense of $0.5 million for the three and six months ended June 30, 2020 to be settled in cash. We have recognized stock-based compensation expense of $8.0 million for the three and six months ended June 30, 2020 to be settled in equity, which primarily relate to the Exchange Program. We have recognized stock-based compensation expense of $0.2 million for the three and six months ended June 30, 2020 to be settled in either cash or equity at our sole election. There were no such expenses in the comparative periods in 2019. There was no compensation expense recognized for performance milestones assessed to be not probable of achievement. Other Research and Development Agreements We may also enter into contracts in the normal course of business with clinical research organizations for clinical trials, with contract manufacturing organizations for clinical supplies and with other vendors for preclinical studies, supplies and other services and products for operating purposes. These contracts generally provide for termination on notice with potential termination charges. As of June 30, 2020 and December 31, 2019, there were no amounts accrued related to termination charges. Indemnification In the ordinary course of business, we may provide indemnifications of varying scope and terms to vendors, lessors, business partners, board members, officers and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by us, our negligence or willful misconduct, violations of law, or intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No material demands have been made upon us to provide indemnification under such agreements, and thus, there are no claims that we are aware of that could have a material effect on our condensed consolidated balance sheets, statements of operations and comprehensive loss, or statements of cash flows. We also maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors. To date, we have not incurred any material costs and have not accrued any liabilities in the condensed consolidated financial statements as a result of these provisions. 9. Debt 2027 Notes On March 9, 2020, BridgeBio issued an aggregate principal amount of $550.0 million of its 2.50% Convertible Senior Notes due 2027 (the “2027 Notes”), pursuant to an Indenture dated March 9, 2020 (the “Indenture”), between BridgeBio and U.S. Bank National Association, as trustee (the “Trustee”), in a private offering to qualified institutional buyers (the “Note Offering”) pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The 2027 Notes issued in the Note Offering include $75.0 million in aggregate principal amount of 2027 Notes sold to the initial purchasers (the “Initial Purchasers”) resulting from the exercise in full of their option to purchase additional 2027 Notes. 21 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) The 2027 Notes are senior, unsecured obligations of BridgeBio and will accrue interest payable semiannually in arrears on March 15 and September 15 of each year, beginning on Sep tember 15, 2020, at a rate of 2.50% per year. The 2027 Notes will mature on March 15, 2027, unless earlier converted or repurchased. Upon maturity, the 2027 Notes are convertible into cash, shares of BridgeBio’s common stock or a combination of cash and sh ares of BridgeBio’s common stock, at BridgeBio’s election. BridgeBio received net proceeds from the Note Offering of approximately $537.0 million, after deducting the Initial Purchasers’ discount and offering expenses. BridgeBio used approximately $49.3 million of the net proceeds from the Note Offering to pay for the cost of the Capped Call Transactions described below, and approximately $75.0 million to pay for the repurchase of shares of its common stock described below. BridgeBio intends to use the remainder of the net proceeds from the Note Offering for working capital and other general corporate purposes, including for its commercial organization and launch preparations. BridgeBio may also use any remaining net proceeds to fund possible acquisitions of, or investments in, complementary businesses, products, services and technologies. A holder of 2027 Notes may convert all or any portion of its 2027 Notes at its option at any time prior to the close of business on the business day immediately preceding December 15, 2026 in multiples of $1,000 only under the following circumstances: • During any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price of BridgeBio’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; • During the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the Indenture) per $1,000 principal amount of 2027 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of BridgeBio’s common stock and the conversion rate on each such trading day; or, • Upon the occurrence of specified corporate events. On or after December 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2027 Notes at any time, regardless of the foregoing. The conversion rate will initially be 23.4151 shares of BridgeBio’s common stock per $1,000 principal amount of 2027 Notes (equivalent to an initial conversion price of approximately $42.71 per share of BridgeBio’s common stock, for a total of approximately 12,878,305 shares). The conversion rate is subject to adjustment in some events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, BridgeBio will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2027 Notes in connection with such a corporate event. The maximum number of shares issuable should there be an increase in the conversion rate is 17,707,635 shares of BridgeBio’s common stock. BridgeBio may not redeem the 2027 Notes prior to the maturity date, and no sinking fund is provided for the 2027 Notes. If BridgeBio undergoes a fundamental change (as defined in the Indenture), holders may require BridgeBio to repurchase for cash all or any portion of their 2027 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2027 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the 2027 Notes then outstanding may declare the entire principal amount of all the Notes plus accrued special interest, if any, to be immediately due and payable. The 2027 Notes are BridgeBio’s general unsecured obligations and rank senior in right of payment to all of BridgeBio’s indebtedness that is expressly subordinated in right of payment to the 2027 Notes; equal in right of payment with all of BridgeBio’s liabilities that are not so subordinated; effectively junior to any of BridgeBio’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of BridgeBio’s subsidiaries. 22 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) In accounting for the issuance of the 2027 Notes, we separately accounted for the liability and equity components of the 2027 Notes by allocating the proceeds between the liability component and the embedded conversion options, or equity component, due to BridgeBio’s ability to settle the 2027 Notes in cash, its common stock, or a combination of cash and common stock at BridgeBio’s option. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The allocation was performed in a manner that reflected BridgeBio’ s non-convertible debt borrowing rate for similar debt. The equity component of the 2027 Notes was recognized as a debt discount and represents the difference between the gross proceeds from the issuance of the 2027 Notes and the fair value of the liabilit y of the 2027 Notes on the date of issuance. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The outstanding 2027 Notes balances consisted of the following: June 30, 2020 (in thousands) Liability component Principal $ 550,000 Unamortized debt discount (167,707 ) Unamortized debt issuance costs (8,642 ) Net carrying amount $ 373,651 Equity component, net of issuance costs $ 169,173 In connection with the issuance of the 2027 Notes, BridgeBio incurred approximately $13.0 million of debt issuance costs, which primarily consisted of initial purchasers’ discounts and legal and other professional fees. We allocated these costs to the liability and equity components based on the allocation of the proceeds. The portion of these costs allocated to the equity component totaling approximately $4.1 million was recorded as a reduction to additional paid-in capital. The portion of these costs allocated to the liability component totaling approximately $8.9 million was recorded as a reduction in the carrying value of the debt on the condensed consolidated balance sheet and is amortized to interest expense using the effective interest method over the expected life of the 2027 Notes or approximately their seven-year term. The effective interest rate on the liability component of the 2027 Notes for the period from the date of issuance through June 30, 2020 was 8.8%. The following table sets forth the total interest expense recognized related to the 2027 Notes: Three Months Ended March 9, 2020 Through June 30, 2020 June 30, 2020 (in thousands) Contractual interest expense $ 3,475 $ 4,354 Amortization of debt discount 4,495 5,574 Amortization of debt issuance costs 233 289 Total interest and amortization expense $ 8,203 $ 10,217 Future minimum payments under the 2027 Notes as of June 30, 2020, are as follows: Amount (in thousands) Remainder of 2020 $ 7,104 Year ending December 31: 2021 13,750 2022 13,750 2023 13,750 2024 13,750 Thereafter 584,375 Total future payments 646,479 Less amounts representing interest (96,479 ) Total principal amount $ 550,000 23 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Capped Call and Share Repurchase Transactions with Respect to the 2027 Notes On March 4, 2020, concurrently with the pricing of the 2027 Notes, BridgeBio entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions (the “Capped Call Counterparties”). BridgeBio used approximately $49.3 million of the net proceeds from the Note Offering to pay for the cost of the Capped Call Transactions. The Capped Call Transactions are expected generally to reduce the potential dilution to BridgeBio’s common stock upon any conversion of 2027 Notes and/or offset any cash payments BridgeBio is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap initially equal to $62.12 (which represents a premium of 100% over the last reported sale price of BridgeBio’s common stock on March 4, 2020) and is subject to certain adjustments under the terms of the Capped Call Transactions. The Capped Calls cover 12,878,305 shares of our common stock (subject to anti-dilution and certain other adjustments), which is the same number of shares of common stock that initially underlie the 2027 Notes. The Capped Calls have an initial strike price of approximately $42.71 per share, which corresponds to the initial conversion price of the 2027 Notes. The Capped Call Transactions are separate transactions, entered into by BridgeBio with the Capped Call Counterparties, and are not part of the terms of the 2027 Notes. These Capped Call instruments meet the conditions outlined in ASC 815-40 to be classified in stockholders’ equity and are not subsequently remeasured as long as the conditions for equity classification continue to be met. We recorded a reduction to additional paid-in capital of approximately $49.3 million during the three months ended March 31, 2020 related to the premium payments for the Capped Call Transactions. Additionally, BridgeBio used approximately $75.0 million of the net proceeds from the Note Offering to repurchase 2,414,681 shares of its common stock concurrently with the closing of the Note Offering from certain of the Initial Purchasers in privately negotiated transactions. The agreed to purchase price per share of common stock in the Repurchases is equal to $31.06, which was the last reported sale price per share of BridgeBio’s common stock on the Nasdaq Global Select Market on March 4, 2020. The shares repurchased are recorded as treasury stock. Hercules Loan and Security Agreement In June 2018, we executed a Loan and Security Agreement with Hercules Capital, Inc. (“Hercules”), under which we borrowed $35.0 million (“Tranche I”). The term of the loan was approximately 42 months, with a maturity date of January 1, 2022 (the “Maturity Date”). No principal payments were due during an interest-only period, commencing on the initial borrowing date and continuing through July 1, 2020 (the “Amortization Date”). In December 2018, we executed the First Amendment to the Loan and Security Agreement, whereby we borrowed an additional $20.0 million (“Tranche II”) to increase the total principal balance outstanding to $55.0 million. Upon draw of the additional $20.0 million, the interest-only period on the entire facility was extended until January 1, 2021 and the maturity date for the entire facility was July 1, 2022. In May 2019, we executed the Second Amendment to the Loan and Security Agreement whereby we borrowed an additional $20.0 million (“Tranche III”) to increase the total principal balance outstanding to $75.0 million. In July 2019, the completion of BridgeBio’s IPO triggered certain provisions of the Hercules Term Loan. BridgeBio received an option to pay up to 1.5% of scheduled cash pay interest on the entire facility as payment in kind, or PIK Interest, with such cash pay interest paid as PIK Interest at a 1:1.2 ratio. The interest-only period will continue through July 1, 2021 (the “Modified Amortization Date”) and the entire facility received a maturity date of January 1, 2023 (the “Modified Maturity Date”). The outstanding balance of the Hercules Term Loan is to be repaid by BridgeBio monthly beginning on the Modified Amortization Date and extending through the Modified Maturity Date. Prior to the Fourth Amendment to the Loan and Security Agreement (the “Amended Hercules Term Loan”) described below, the interest rate for the Hercules Term Loan was established as follows: (1) Tranche I bears interest at a floating rate equal to the greater of: (i) the prime rate as reported in the Wall Street Journal plus 3.85% and (ii) 8.85%, payable monthly; (2) Tranche II bears interest at a floating rate equal to the greater of: (i) the prime rate as reported in the Wall Street Journal plus 2.85% and (ii) 8.60%, payable monthly; and (3) Tranche III bears interest at a floating rate equal to the greater of: (i) the prime rate as reported in the Wall Street Journal plus 3.10% and (ii) 9.10%, payable monthly. In March 2020, we executed the Third Amendment to the Loan and Security Agreement primarily to allow us to issue our 2027 Notes and to enter into the Capped Call and Share Repurchase Transactions. 24 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) I n April 2020, we entered into the Amended Hercules Term Loan , which among other things, (1) extended the interest-only period under the Loan and Security Agreement to July 1, 2022 (the “Amended Amortization Date” which may be further extended to January 1, 2023 and July 1, 2023, in each case, subject to certain conditions set forth in the Amended Hercules Term Loan), (2) extended the maturity date for the term loans under the Loan and Security Agreement to November 1, 2023 (the “Amended Maturity Date”, which may be further extended to May 1, 2024, subject to certain conditions set forth in the Amended Hercules Term Loan), (3) provided for an interest rate on the Tranche I equal to the greater of (x) a floating interest rate linked to the prime rate as reported in the Wall Street Journal plus 3.85% and (y) 8.75% (8.75% as of June 30, 2020), payable monthly, (4) provided for an interest rate on the Tranche II equal to the greater of (x) a floating interest rate linked to the prime rate as reported in the Wall Street Journal plus 2.85% and (y) 8.60% (8.60% as of June 30, 2020), payable monthly, (5) provided for an interest rate on the Tranche III equal to the greater of (x) a floating interest rate linked to the prime rate as reported in the Wall Street Journal plus 3.10% and (y) 8.85% (8.85% as of June 30, 2020), payable monthly, and (6) provided for, subject to Hercules’ approval in its sole and absolute discretion, an additional increase in available loan facilities aggregating to $125.0 million as follows: (a) an additional incremental loan in the amount of $25.0 million, available no later than December 15, 2020, (b) an additional incremental loan in the amount of $25.0 million, available no later than December 15, 2021, (c) an additional incremental loan following the achievement of certain performance milestones in the amount of $25.0 million, available no later than December 15, 2021 and (d) an additional $50.0 million discretionary incremental tranche, available no later than December 15, 2022. The Amended Hercules Term Loan also provides us with more flexibility to consummate acquisitions and investments, incur additional debt, dispose of assets and repurchase and/or redeem stock, each subject to certain conditions set forth in the Amended Hercules Term Loan. There were no gains or losses arising from the amendment, which is considered a debt modification. There have not been any additional draws on the $125.0 million additional available facilities as of June 30, 2020. During the three and six months ended June 30, 2020, we recognized interest expense related to the Hercules Term Loan of $3.9 million and $5.4 million, respectively, of which $0.3 million and $0.7 million, respectively, relate to amortization of debt discount and issuance costs. During the three and six months ended June 30, 2019, we recognized interest expense related to the Amended Hercules Term Loan of $1.9 million and $3.6 million, of which $0.3 million and $0.7 million, respectively, relate to amortization of debt discount. 25 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Silicon Valley Bank (“SVB”) and Hercules Loan Agreement On November 13, 2019, Eidos entered into a Loan and Security Agreement with SVB and Hercules Capital, Inc. (the “SVB and Hercules Loan Agreement”). The SVB and Hercules Loan Agreement provides for up to $55.0 million in term loans to be drawn in three tranches as follows: (i) Tranche A loan of $17.5 million, (ii) Tranche B loan of up to $22.5 million which is available to be drawn until October 31, 2020, and (iii) Tranche C loan of up to $15.0 million available to be drawn upon the achievement of a clinical data milestone. The Tranche C loan is available to be drawn until September 30, 2021. The Tranche A loan of $17.5 million was drawn on November 13, 2019. There have not been any additional draws on the other tranches as of June 30, 2020. The Tranche A loan bears interest at a fixed rate equal to the greater of either (i) 8.50% or (ii) 3.25% plus the prime rate as reported in The Wall Street Journal (8.50% as of June 30, 2020). The Tranche A loan repayment schedule provides for interest only payments until November 1, 2021, followed by consecutive equal monthly payments of principal and interest commencing on this date continuing through the maturity date of October 2, 2023. The Tranche A loan also provides for a $0.3 million commitment fee that was paid at closing and a final payment charge equal to 5.95% multiplied by the amount funded to be paid when the loan becomes due or upon prepayment of the facility. If Eidos elects to prepay the Tranche A loan, there is also a prepayment fee of between 0.75% and 2.50% of the principal amount being prepaid depending on the timing and circumstances of prepayment. The Tranche A loan is secured by substantially all of Eidos’ assets, except Eidos’ intellectual property, which is the subject of a negative pledge. As of June 30, 2020, the net carrying value of the Tranche A loan is $16.5 million. As of June 30, 2020, there are unamortized debt discounts of $2.0 million. Eidos recorded interest expense and amortization of the debt discount in the amount of $0.7 million and $1.2 million on the Tranche A loan for the three and six months ended June 30, 2020, respectively. 10. License Agreements Stanford License Agreement In April 2016, Eidos entered into a license agreement with the Board of Trustees of the Leland Stanford Junior University relating to Eidos’ drug discovery and development initiatives. Under this agreement, Eidos has been granted certain worldwide exclusive licenses to make, use and sell products that are covered by licensed patent rights. During the three and six months ended June 30, 2020, Eidos did not recognize research and development expenses in connection with this agreement. During the three and six months ended June 30, 2019, Eidos recognized research and development expenses of zero and $0.2 million in connection with this agreement. The Regents of the University of California License Agreement In September 2016, TheRas entered into a license agreement with The Regents of the University of California (“UCSF”) relating to TheRas’ drug discovery and development initiatives. Under this agreement, TheRas has been granted certain worldwide exclusive licenses to use the licensed compounds (the “UCSF License”). During the three and six months ended June 30, 2020, TheRas did not recognize research and development expenses in connection with this agreement. Nominal expense was recognized in connection with this agreement during the three and six months ended June 30, 2019. Leidos Biomedical Research License and Cooperative Research and Development Agreements In March 2017, TheRas entered into a cooperative research and development agreement (“Leidos CRADA”) with Leidos Biomedical Research, Inc. (“Leidos”). In December 2018, TheRas and Leidos entered into a license agreement (“Leidos License,” and together with the Leidos CRADA, the “Leidos Agreements”) under which TheRas has been granted certain worldwide exclusive licenses to use the licensed compounds. The Leidos Agreements are related to TheRas’ drug discovery and development initiatives. During the three and six months ended June 30, 2020, TheRas recognized research and development expenses of $0.1 million and $1.0 million, respectively, in connection with the Leidos Agreements. During the three and six months ended June 30, 2019, TheRas recognized research and development expenses of $0.4 million and $0.6 million in connection with the Leidos Agreements. 26 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Foundation Medicine Diagnostics Agreement In November 2018, QED and Foundation Medicine, Inc. entered into a diagnostics agreement relating to QED’s drug discovery and development initiatives. During the three and six months ended June 30, 2020, QED recognized research and development expenses of zero and $1.8 million, respectively, in connection with this agreement. During the three and six months ended June 30, 2019, QED recognized research and development expenses of $0.3 million and $0.3 million in connection with this agreement. Other License and Collaboration Agreements In addition to the agreements described above, we have also entered into other license and collaboration agreements with various institutions and business entities on terms similar to those described above, none of which are material individually or in the aggregate. 1 1 . Leases Operating Leases We have operating leases for our corporate headquarters, office spaces and a laboratory facility with a weighted average remaining lease term of approximately 5.28 years. Certain leases include renewal options at our discretion and we include the extension options when we determine the lease term for our operating leases, if we are reasonably certain that the extension option would be exercised. The lease liabilities were measured using a weighted average discount rate of 5.87% based on the most recent borrowing rate as of the calculation of the respective lease liability, adjusted for the remaining lease term and aggregate amount of the lease. Cash paid for amounts included in the measurement of operating lease liabilities was $1.7 million and $1.0 million for the three and six months ended June 30, 2020, respectively. The components of lease cost for the three and six months ended June 30, 2020 are as follows: Three Months Ended June 30, 2020 Six Months Ended June 30, 2020 (in thousands) Straight line lease cost $ 995 $ 1,689 Variable lease payments 142 301 Total lease cost $ 1,137 $ 1,990 27 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) As of June 30, 2020, future minimum lease payments for our noncancelable operating leases under ASC 842 are as follows: Amount (in thousands) Remainder of 2020 $ 2,140 Year ending December 31: 2021 3,895 2022 2,399 2023 1,485 2024 1,224 Thereafter 3,798 Total future minimum lease payments 14,941 Imputed interest (2,197 ) Total $ 12,744 Reported as of June 30, 2020 Operating lease liabilities, current portion $ 3,627 Operating lease liabilities, net of current portion 9,117 Total operating lease liabilities $ 12,744 As of December 31, 2019, future minimum lease payments for our noncancelable operating leases under ASC 840 were as follows: Amount (in thousands) Year Ending December 31: 2020 $ 2,811 2021 2,515 2022 1,812 2023 1,485 2024 1,272 Thereafter 1,816 Total future minimum lease payments $ 11,711 Manufacturing Agreement In December 2019, we entered into a manufacturing agreement to secure clinical and commercial scale manufacturing capacity for the manufacture of batches of active pharmaceutical ingredients for product candidates of certain subsidiaries of BridgeBio. Unless terminated as allowed within the manufacturing agreement, the agreement will expire five years from when qualified operations begin. Under the terms of the agreement, we are assigned a dedicated manufacturing suite for certain months in each calendar year for a one-time fee of $10.0 million, which will be applied to the buildout, commissioning, qualification, validation, equipping and exclusive use of the dedicated manufacturing suite. Prior to the adoption of ASC 842, we were deemed to be the owner, for accounting purposes, during the construction phase of the dedicated manufacturing suite because of our exposure to substantially all of the construction period risks and our other commitments under the arrangement. As of December 31, 2019, we recorded the $10.0 million one-time fee as a non-current asset and the remaining build-to-suit lease liability of $8.0 million within our consolidated balance sheets. As of January 1, 2020, upon adoption of ASC 842, we derecognized the build-to-suit lease asset of $10.0 million as we do not control the dedicated manufacturing suite during the construction phase. Under the new lease guidance, we recorded a construction-in-progress asset of $10.0 million for the payments directly associated with the dedicated manufacturing suite as these payments are deemed to represent a non-lease component. The construction phase of the dedicated manufacturing suite is expected to be completed 28 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) later in 2020. The remaining $4.0 million payable related to the dedicated manufacturing suite is recorded as part of other current liabilities as of June 30 , 2020 . 1 2 . Related Party Transactions Reimbursements from an equity method investee During the three and six months ended June 30, 2020, we received reimbursements for research and development expenses amounting to $0 and $2.8 million, respectively, from one of our equity method investees in connection with a license and exclusivity agreement entered into with the same investee. 13. 2019 Reorganization and Initial Public Offering On June 13, 2019, BridgeBio formed BridgeBio Pharma Merger Sub LLC (“Merger Sub LLC”), a Delaware limited liability company and direct wholly-owned subsidiary. The 2019 Reorganization was executed on July 1, 2019, immediately prior to completion of the IPO of the BridgeBio’s common stock. As part of the 2019 Reorganization, the existing ownership interest in BBP LLC held by all BBP LLC unitholders was transferred to Merger Sub LLC, and all outstanding units of BBP LLC were cancelled and exchanged for shares of common stock of BridgeBio. Merger Sub LLC was then merged with and into BBP LLC, the surviving entity, which became a wholly-owned subsidiary of BridgeBio. Subsequent to the 2019 Reorganization, as the sole managing member, BridgeBio operates and controls all of BBP LLC’s businesses and affairs. Included in the exchange were the unvested outstanding management incentive units and common units of BBP LLC that were converted to 6,819,455 shares of BridgeBio’s unvested restricted stock, subject to the same time-based vesting conditions as the original management incentive units and common units terms and conditions. At the conclusion of the 2019 Reorganization, BridgeBio became the reporting entity. The 2019 Reorganization was accounted for as a reverse acquisition and recapitalization for financial reporting purposes. The assets and liabilities of BridgeBio, the legal acquirer, were nominal and there were no material pre-combination activities. Therefore, BBP LLC, the legal acquiree, was determined to be the accounting acquirer. Accordingly, the historical financial statements of BBP LLC became BridgeBio’s historical financial statements, including the comparative prior periods. All share and per share amounts in these condensed consolidated financial statements and related notes had been retroactively adjusted, where applicable, for all periods presented. The shares of BridgeBio’s common stock for periods prior to July 1, 2019 represent the outstanding BBP LLC units recalculated to give effect to the exchange ratio applied in connection with the 2019 Reorganization. All BBP LLC units that were previously reported as temporary equity and were converted to common stock of BridgeBio upon the completion of the 2019 Reorganization have been reclassified to equity for all periods presented, as if the Reorganization occurred at the beginning of the earliest period presented in our financial statements. The following provides the reconciliation of previously reported amounts as of June 30, 2019: 29 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) June 30, 2019 As Reported Adjustment As Adjusted (in thousands) Redeemable convertible preferred units $ 479,044 $ (479,044 ) $ — Redeemable founder units 1,754 (1,754 ) — Redeemable common units 1,672 (1,672 ) — Management incentive units 6,523 (6,523 ) — Redeemable convertible noncontrolling interests 175 — 175 Stockholders' equity (Members’ deficit): Undesignated preferred stock — — — Common stock — 92 92 Additional paid-in capital — 469,426 469,426 Accumulated deficit (326,137 ) 19,544 (306,593 ) Total BridgeBio stockholders' equity (Members' deficit) (326,137 ) 489,062 162,925 Noncontrolling interests 48,391 — 48,391 Total stockholders' equity (Members' deficit) $ (277,746 ) $ 489,062 $ 211,316 At that the time of the 2019 Reorganization, the consolidation assessment on all consolidated entities was updated on behalf of BridgeBio resulting in no change in the treatment of the consolidated entities. On July 1, 2019, BridgeBio closed the IPO of its common stock. As part of the IPO, BridgeBio issued and sold 23,575,000 shares of its common stock, which included 3,075,000 shares sold pursuant to the exercise of the underwriters’ over-allotment option, at a public offering price of $17.00 per share. BridgeBio received net proceeds of approximately $366.2 million from the IPO, after deducting underwriters’ discounts and commissions of $28.1 million and offering costs of $6.5 million. 1 4 . Equity-Based Compensation Under each of the legal entity’s equity plans, we recorded stock-based compensation in the following expense categories in our condensed consolidated statements of operations for employees and non-employees: Three Months Ended June 30, 2020 Six Months Ended June 30, 2020 BridgeBio Equity Plan Eidos Equity Plan Other Subsidiaries Equity Plan Total BridgeBio Equity Plan Eidos Equity Plan Other Subsidiaries Equity Plan Total (in thousands) Research and development $ 7,617 $ 1,448 $ 106 $ 9,171 $ 8,220 $ 2,363 $ 228 $ 10,811 General and administrative 7,905 1,270 46 9,221 15,365 2,282 156 17,803 Total stock-based compensation $ 15,522 $ 2,718 $ 152 $ 18,392 $ 23,585 $ 4,645 $ 384 $ 28,614 Three Months Ended June 30, 2019 Six Months Ended June 30, 2019 BridgeBio Equity Plan Eidos Equity Plan Other Subsidiaries Equity Plan Total BridgeBio Equity Plan Eidos Equity Plan Other Subsidiaries Equity Plan Total (in thousands) Research and development $ — $ 552 $ 2 $ 554 $ — $ 1,004 $ 19 $ 1,023 General and administrative 2,188 614 2 2,804 3,424 1,126 17 4,567 Total stock-based compensation $ 2,188 $ 1,166 $ 4 $ 3,358 $ 3,424 $ 2,130 $ 36 $ 5,590 30 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Equity-Based Awards of BridgeBio On June 22, 2019, we adopted the 2019 Stock Option and Incentive Plan (the “2019 Plan”), which became effective on June 25, 2019. The 2019 Plan provides for the grant of stock-based incentive awards, including common stock options and other stock-based awards. We were authorized to issue 11,500,000 shares of common stock for issuance of awards under the 2019 Plan, which may be allocated among stock options, awards of restricted common stock, restricted common units and other stock-based awards. On June 2, 2020, our stockholders approved an amendment and restatement of the 2019 Plan (the “A&R 2019 Plan”) to, among other things, increase the number of shares of common stock reserved for issuance thereunder by 2,500,000 shares. The A&R 2019 Plan provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2020, by 5% of the issued and outstanding number of shares of common stock on the immediately preceding December 31, or such lesser number of shares as determined by the Compensation Committee of the Board of Directors. On November 13, 2019, we adopted the 2019 Inducement Equity Plan (the “2019 Inducement Plan”). The 2019 Inducement Plan provides for the grant of stock-based awards to induce highly-qualified prospective officers and employees who are not currently employed by BridgeBio or its Subsidiaries to accept employment and to provide them with a proprietary interest in BridgeBio, including common stock options and other stock-based awards. We were authorized to issue 1,000,000 shares of common stock for inducement awards under the 2019 Inducement Plan, which may be allocated among stock options, awards of restricted common stock, restricted common units and other stock-based awards. The following table summarizes our share activity under the A&R 2019 Plan and the 2019 Inducement Plans (the “Plans”): A&R 2019 Plan 2019 Inducement Plan Balance as of December 31, 2019 53,067 489,064 Authorized 8,682,914 — Granted — Stock options (2,114,083 ) (250,206 ) Granted — Stock options — Exchange Program (1,268,110 ) — Granted — Restricted stock units (686,104 ) (70,056 ) Granted — Restricted stock awards — Exchange Program (50,145 ) — Granted — Common stock (8,491 ) — Granted — Common stock — Exchange Program (554,064 ) — Granted — Market-based restricted stock units — (2,380 ) Granted — Performance-based restricted stock units — (14,450 ) Granted — Performance-based restricted stock awards — Exchange Program (22,611 ) — Cancelled — Stock options 3,146 2,832 Cancelled — Stock options — Exchange Program 4,676 — Cancelled — Restricted stock units 16,359 1,098 Balance as of June 30, 2020 4,056,554 155,902 2020 Stock and Equity Award Exchange Program (Exchange Program) On April 22, 2020, we completed our 2020 Stock and Equity Award Exchange Program (the “Exchange Program”), which was an opportunity for eligible controlled entities’ employees and consultants to exchange their subsidiary equity (including common stock, vested and unvested stock options and restricted stock awards (RSAs)) for BridgeBio equity (including common stock, vested and unvested stock options and RSAs) and/or performance-based milestone awards tied to the achievement of certain development and regulatory milestones. The Exchange Program aligns our incentive compensation structure for employees and consultants across the BridgeBio group of companies to be consistent with the achievement of our overall corporate goals. In connection with the Exchange Program, we issued awards of BridgeBio equity under the 2019 A&R Plan to 149 grantees covering 554,064 shares of common stock, 1,268,110 stock options to purchase common stock, 50,145 shares of RSAs and 22,611 shares of performance-based RSAs. The exchange also included performance-based milestone awards of up to $183.4 million to be settled in shares of BridgeBio’s 31 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) common stock in the future upon achievement of the milestones (collectively the “New Awards”) . In consideration for all the subsidiaries’ shares tendered, BridgeBio will increase its ownership in controlled en tities included in the Exchange Program and the corresponding noncontrolling interest will decrease (see Note 6) . We evaluated the exchange of the controlled entities’ outstanding common stock and equity awards for BridgeBio awards as a modification under ASC 718, Share Based Payments . Under ASC 718, a modification is a change in the terms or conditions of a stock-based compensation award. In assessing the accounting treatment, we consider the fair value, vesting conditions and classification as an equity or liability award of the controlled entity equity before the exchange, compared to the BridgeBio equity received as part of the exchange to determine whether modification accounting must be applied. When applying modification accounting, we considered the type of modification to determine the appropriate stock-based compensation cost to be recognized on April 22, 2020, (the “Modification Date”), and subsequent to the Modification Date. We considered the total shares of common stock and equity awards, whether vested or unvested, held by each participant in each controlled entity as the unit of account. The controlled entity’s common stock and equity awards in each unit of account was exchanged for a combination of BridgeBio’s common stock, time-based vesting equity awards and/or performance-based milestone awards. Other than the exchange of the controlled entity equity awards for performance-based milestone awards, all other exchanged BridgeBio equity awards retained the original vesting conditions. As a result, there was no incremental stock-based compensation expense resulting from the exchange of time-based equity awards. At the completion of the Exchange Program, we determined $17.4 million of the performance-based milestone awards is probable of achievement and represents the incremental stock-based compensation cost resulting from the modification of time-based equity awards to performance-based milestone awards. These performance-based milestone awards will be recognized over a period ranging from 0.7 year to 1.7 years. Under ASC 718, we account for such performance-based milestone awards as a liability in “Accrued compensation and benefits” and in “Other liabilities” in the condensed consolidated balance sheet as of June 30, 2020 due to the fixed milestone amount that will be converted into a variable number of shares of BridgeBio common stock to be granted upon the achievement date. For the three and six months ended June 30, 2020, we recognized $8.0 million of such performance-based milestone awards. There were no such compensation awards in the comparative periods in 2019. Stock Option Grants of BridgeBio The following table summarizes BridgeBio’s stock option activity under the Plans for the six months ended June 30, 2020: Options Outstanding Weighted- Average Exercise Price per Option Weighted- Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding as of December 31, 2019 4,626,777 $ 20.10 9.6 $ 70,348 Granted 2,364,289 $ 29.84 Granted — Exchange Program 1,268,110 $ 1.65 Exercised (44,243 ) $ 17.00 Exercised — Exchange Program (249,760 ) $ 1.87 Cancelled (5,978 ) $ 25.44 Cancelled — Exchange Program (4,676 ) $ 3.46 Outstanding as of June 30, 2020 6,940,845 $ 23.43 9.4 $ 66,542 Outstanding as of June 30, 2020 — Exchange Program 1,013,674 $ 1.59 8.6 $ 31,446 Exercisable as of June 30, 2020 967,644 $ 17.98 9.0 $ 14,207 Exercisable as of June 30, 2020 — Exchange Program 713,908 $ 1.34 8.6 $ 22,327 The options granted to employees and non-employees are exercisable at the price of BridgeBio’s common stock at the respective grant dates. The options granted have a service condition and generally vest over a period of four years. 32 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) The aggregate intrinsic value of options outstanding and exercisable as of June 3 0 , 2020 and December 31, 2019 is calculated based on the difference between the exercise price and the current fair value BridgeBio ’s common stock. During the three and six months ended June 30, 2020, we recognized stock-based compensation expense of $3.1 million and $6.0 million, respectively, related to stock options under the Plans. As of June 30, 2020, there was $52.4 million of total unrecognized compensation cost related to stock options under the Plans that is expected to be recognized over a weighted-average period of 3.0 years. Restricted Stock Units (RSUs) of BridgeBio The following table summarizes BridgeBio’s RSU activity under the Plans for the six months ended June 30, 2020: Unvested Shares of RSUs Outstanding Weighted- Average Grant Date Fair Value Balance at December 31, 2019 362,163 $ 31.98 Granted 756,160 $ 32.52 Vested (1,701 ) $ 33.18 Cancelled (17,457 ) $ 37.15 Balance at June 30, 2020 1,099,165 $ 32.27 During the three and six months ended June 30, 2020, we recognized stock-based compensation expense of $2.0 million and $2.7 million, respectively, related to RSUs under the Plans. As of June 30, 2020, there was $32.7 million of total unrecognized compensation cost related to RSUs under the Plans that is expected to be recognized over a weighted-average period of 3.6 years. Restricted Stock Awards (RSAs) of BridgeBio As disclosed in Note 13, upon the 2019 Reorganization, all unvested outstanding management incentive units and common units of BBP LLC were cancelled and converted into shares of BridgeBio’s RSAs. The following table summarizes our RSA activity under the Plans for the six months ended June 30, 2020: Unvested Shares of RSAs Outstanding Weighted- Average Grant Date Fair Value Balance at December 31, 2019 5,603,452 $ 3.63 Granted — Exchange Program 50,145 $ 0.18 Vested (1,193,102 ) $ 2.43 Balance at June 30, 2020 4,460,495 $ 3.91 During the three and six months ended June 30, 2020, we recognized stock-based compensation expense of $1.8 million and $4.8 million, respectively, related to RSAs under the Plans. As of June 30, 2020, there was $20.1 million of total unrecognized compensation cost related to RSAs under the Plans that is expected to be recognized over a weighted-average period of 3.2 years. The 4,460,495 and 5,603,452 unvested RSAs as of June 30, 2020 and December 31, 2019, respectively, are included as outstanding shares disclosed in the condensed consolidated balance sheets as the shares were actually issued but are subject to forfeiture per the terms of the awards. Market-Based RSUs of BridgeBio During the year ended December 31, 2019, the Board of Directors of BridgeBio (the “Board of Directors”) approved and granted market-based RSUs. One such market-based RSU award includes a market condition based on the Total Shareholders’ Return (“TSR”) of BridgeBio’s common stock as compared to the TSR of the Nasdaq Biotechnology Index and the vesting percentage of the award is calculated based on the three-year performance period from vesting commencement date. The other market-based RSU 33 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) award includes a market condition based on BridgeBio ’s market capitalization reaching $5.0 billion and vests immediately at 100% upon achievement of said market capitalization. The market-based RSUs require continuous emplo yment at the time of achievement . The respective grant date fair values of these awards, which aggregate to $3.8 million for the year ended December 31, 2019, were determined using a Monte Carlo valuation model and are recognized as compensation expense over the implied service period of the awards. The following table summarizes our market-based RSU activity under the Plans for the six months ended June 30, 2020: Unvested Shares of Market-based RSUs Outstanding Weighted- Average Grant Date Fair Value Balance at December 31, 2019 129,871 $ 28.98 Granted 2,380 $ 34.81 Vested (76,637 ) $ 41.54 Balance at June 30, 2020 55,614 $ 11.92 For the three and six months ended June 30, 2020, we recognized stock-based compensation of $0.1 million and $1.1 million, respectively, related to market-based RSU awards. As of June 30, 2020, there was $0.5 million of total unrecognized compensation cost related to market-based RSUs under the Plans. 2019 Employee Stock Purchase Plan (ESPP) of BridgeBio During the three and six months ended June 30, 2020, we recognized stock-based compensation expense of $0.3 million and $0.4 million, respectively, related to our ESPP. As of June 30, 2020, 3,172,865 shares were reserved for future issuance under the ESPP. Valuations Assumptions We used the Black-Scholes model to estimate the fair value of stock options and stock purchase rights under the ESPP. For the six months ended June 30, 2020, we used the following weighted-average assumptions in the Black-Scholes calculations: Six Months Ended June 30, 2020 Stock Options ESPP Expected term (in years) 5.00 - 6.08 0.40 Expected volatility 36.3% - 46.4% 32.5 % Risk-free interest rate 0.41% - 1.50% 1.57 % Dividend yield — — Weighted-average fair value of stock-based awards granted $ 11.04 $ 10.34 Equity-Based Awards of BBP LLC Up until the 2019 Reorganization, BBP LLC has historically issued management incentive units and common units (collectively, “BBP LLC equity-based awards”). As described in Note 13, BBP LLC equity-based awards were cancelled and exchanged for shares of BridgeBio restricted common stock. For the three and six months ended June 30, 2019, equity-based compensation from BBP LLC equity-based awards was $2.2 million and $3.4 million, respectively. 34 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Equity Awards of Eidos Eidos Common Stock Eidos has reserved shares of common stock for issuance as follows: As of June 30, 2020 2019 Options issued and outstanding 1,832,415 1,454,461 Options available for future grants 1,375,223 537,345 Eidos ESPP shares available for future grants 89,398 104,540 3,297,036 2,096,346 Eidos stock options The following table summarizes Eidos’s stock option activity for the six months ended June 30, 2020: Weighted- Weighted- Average Average Aggregate Options Exercise Remaining Intrinsic Available for Options Price per Contractual Value Grant Outstanding Option Life (years) (in thousands) Outstanding—December 31, 2019 1,935,054 1,335,755 $ 16.91 8.77 $ 54,071 Options granted (567,123 ) 567,123 $ 46.77 Options exercised — (63,171 ) $ 6.28 Options cancelled 7,292 (7,292 ) $ 16.88 Outstanding—June 30, 2020 1,375,223 1,832,415 $ 26.52 8.76 $ 38,756 Options exercisable—June 30, 2020 483,345 $ 16.70 8.25 $ 14,969 Options vested and expected to vest— June 30, 2020 1,832,415 $ 26.52 8.76 $ 38,756 Eidos Stock Options Valuation The fair value of employee, non-employee and non-employee director stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions: Six Months Ended June 30, 2020 Employee Non-employee Expected term (in years) 6.06 6.06 Expected volatility 72.3 % 72.5 % Risk-free interest rate 0.57 % 0.44 % Dividend yield — — Stock-based Compensation As of June 30, 2020, there was $25.7 million of total unrecognized compensation cost related to unvested equity-based compensation arrangements under the Eidos 2016 and 2018 Plans. The unrecognized equity-based compensation cost is expected to be recognized over a weighted-average period of 2.98 years. 1 5 . Income Taxes BridgeBio is subject to U.S. federal and state income taxes as a corporation. BridgeBio ’s tax provision and the resulting effective tax rate for interim periods is determined based upon its estimated annual effective tax rate adjusted for the effect of discrete items arising in that quarter. Prior to the tax-free reorganization, BBP LLC was treated as a pass‑through entity for U.S. federal 35 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) income tax purposes, and as such, was generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to its taxable income was passed through to its unitholders . Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. As a result of the issuance of our 2027 Notes on March 9, 2020 (see Note 9), there was a basis difference in the face value of the 2027 Notes resulting in a net deferred tax liability of $1.4 million. This amount is included as part of Other liabilities in our condensed consolidated balance sheet as of June 30, 2020. Due to the uncertainty surrounding the realization of the favorable tax attributes in future tax returns, we have recorded a full valuation allowance against our otherwise recognizable net deferred tax assets. Our policy is to recognize interest and penalties associated with uncertain tax benefits as part of the income tax provision and include accrued interest and penalties with the related income tax liability on the condensed consolidated balance sheet. To date, we have not recognized any interest and penalties in our condensed consolidated statements of operations, nor have we accrued for or made payments for interest and penalties. Our unrecognized gross tax benefits would not reduce the estimated annual effective tax rate if recognized because we have recorded a full valuation allowance on its deferred tax assets. On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security Act” (the “CARES Act”) was signed into law. The CARES Act includes income tax provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The provisions of the CARES Act did not have a material impact on our financial statements. 1 6 . Net Loss Per Share The following common stock equivalents were excluded from the computation of diluted net loss per share, because including them would have been antidilutive: As of June 30, 2020 2019 Unvested RSAs 4,460,495 6,819,608 Unvested RSUs 1,099,165 — Unvested market-based RSUs 55,614 — Unvested performance-based RSUs 14,450 — Unvested performance-based RSAs 22,611 — Common stock options issued and outstanding 7,954,519 3,744,629 Estimated shares issuable under the ESPP 38,110 — Assumed conversion of 2027 Notes 12,878,305 — 26,523,269 10,564,237 Our 2027 Notes issued in March 2020 are convertible, based on the applicable conversion rate, into cash, shares of our common stock or a combination thereof, at our election. The impact of the assumed conversion to diluted net income per share is computed using the treasury stock method. 36 BRIDGEBIO PHARMA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 1 7 . Subsequent Events 2020 Shelf Registration On July 7, 2020, we filed a shelf registration statement on Form S-3 (the “2020 Shelf”) with the SEC in relation to the registration of common stock, preferred stock, debt securities, warrants and units or any combination thereof. We also simultaneously entered into an Open Market Sale Agreement with Jefferies LLC and SVB Leerink LLC (the “Sales Agents”), to provide for the offering, issuance and sale by us of up to an aggregate of $350.0 million of our common stock from time to time in “at-the-market” offerings under the 2020 Shelf and subject to the limitations thereof (the “2020 Sales Agreement”). We will pay to the applicable Sales Agents cash commissions of up to 3.0 percent of the gross proceeds of sales of common stock under the 2020 Sales Agreement. We have not issued any shares or received any proceeds from this offering through August 11, 2020. Strategic Collaboration with LianBio On August 9, 2020, we entered into an Exclusive License Agreement (the “License Agreement”) with Shanghai-based LianBio, a company founded by Perceptive Advisors, a related party. The License Agreement focuses on the Phase 1-ready SHP2 inhibitor BBP-398 (“BBP-398”), for tumors driven by RAS and receptor tyrosine kinase mutations, that is being developed by our controlled entity, Navire Pharma, Inc. Under the terms of the License Agreement, LianBio will receive commercial rights in China and selected Asian markets and participate in clinical development activities for BBP-398. In consideration for the rights granted to LianBio, we will receive an $8.0 million upfront payment. We will also receive future development and sales milestone payments of up to $382.1 million, and tiered royalty payments from single-digit to low-teens on net sales of the product in licensed territories. 37 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 unaudited condensed financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes thereto for the year ended December 31, 2019 included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission (the “SEC”) on March 3, 2020. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify these statements by forward-looking words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q. Overview We are a team of experienced drug discoverers, developers, and innovators working to create life-altering medicines that target well-characterized genetic diseases at their source. We founded BridgeBio in 2015 to identify and advance transformative medicines to treat patients who suffer from Mendelian diseases, which are diseases that arise from defects in a single gene, and cancers with clear genetic drivers. Our pipeline of over 20 development programs includes product candidates ranging from early discovery to late-stage development. Several of our programs target indications that we believe present the potential for our product candidate, if approved, to target portions of market opportunities of at least $1.0 billion in annual sales. We focus on genetic diseases because they exist at the intersection of high unmet patient need and tractable biology. Our approach is to translate research pioneered at academic laboratories and leading medical institutions into products that we hope will ultimately reach patients. We are able to realize this opportunity through a confluence of scientific advances: (i) identification of the genetic underpinnings of disease as more cost-efficient genome and exome sequencing becomes available; (ii) progress in molecular biology; and (iii) the development and maturation of longitudinal data and retrospective studies that enable the linkage of genes to diseases. We believe that this early-stage innovation represents one of the greatest practical sources for new drug creation. Since our inception in 2015, we have focused substantially all of our efforts and financial resources on acquiring and developing product and technology rights, building our intellectual property portfolio and conducting research and development activities for our product candidates within our wholly-owned subsidiaries and controlled entities, including partially-owned subsidiaries and subsidiaries we consolidate based on our deemed majority control of such entities as determined using either the variable interest entity, or VIE model, or the voting interest entity, or VOE model. To support these activities, we and our wholly-owned subsidiary, BridgeBio Services, Inc., (i) identify and secure new programs, (ii) set up new wholly-owned subsidiaries and controlled entities, (iii) recruit key management team members, (iv) raise and allocate capital across the portfolio and (v) provide certain shared services, including accounting and human resources, as well as workspaces. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have funded our operations with proceeds from the sale of our equity securities, issuance of convertible notes, debt borrowings and, to a lesser extent, revenue from collaboration arrangements. We have experienced some delays in enrollment of ongoing clinical trials and delay in the start of planned trials due to the global outbreak of SARS-CoV-2, the novel strain of coronavirus that causes Coronavirus disease 19, or COVID-19. The ultimate impacts of COVID-19 on our business are currently unknown. We will continue to actively monitor the situation and may take further precautionary and preemptive actions as may be required by federal, state or local authorities or that we determine are in the best interests of public health and safety and that of our patient community, employees, partners, suppliers and stockholders. We cannot predict the effects that such actions, or the impact of COVID-19 on global business operations and economic conditions, may have on our business or strategy, including the effects on our ongoing and planned clinical development activities and prospects, or on our financial and operating results. 38 Financial Operations Overview Cash, Cash Equivalents and Marketable Securities As of June 30, 2020 we had cash, cash equivalents and marketable securities of $840.9 million. On March 9, 2020, we issued an aggregate principal amount of $550.0 million of our 2.50% Convertible Senior Notes due 2027, or the 2027 Notes, in a private offering (the “Note Offering”) to qualified institutional buyers. We received net proceeds from the Note Offering of approximately $537.0 million, after deducting purchasers’ discount and offering expenses. We used approximately $49.3 million of the net proceeds from the Note Offering to pay for the cost of capped call transactions and approximately $75.0 million to pay for the repurchase of shares of our common stock. We also received net proceeds of $24.1 million from Eidos’ at-the-market issuance of shares in February 2020. During the six months ended June 30, 2020, we used cash of approximately $171.8 million to support our operations. Operating Expenses Research and Development Expenses Three Months Ended June 30, Six Months Ended June 30, 2020 2019 Change 2020 2019 Change (in thousands) Research and development $ 86,598 $ 52,331 $ 34,267 $ 154,823 $ 97,184 $ 57,639 Research and development expense increased by $34.3 million and $57.6 million for the three and six months ended June 30, 2020, respectively, compared to the same periods in 2019 primarily due to increase in external-related costs and in our headcount to support progression in our research and development programs including our increasing research pipeline. Research and development costs consist primarily of external costs, such as fees paid to consultants, contractors, contract manufacturing organizations or CMOs and contract research organizations or CROs in connection with our preclinical and clinical development activities and are tracked on a program-by-program basis. License fees and other costs incurred after a product candidate has been designated and that are directly related to the product candidate are included in the specific program expense. License fees and other costs incurred prior to designating a product candidate are included in early stage research programs. The following table summarizes our research and development expenses by program incurred for the following periods: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (in thousands) Acoramidis (Previously known as BBP-265 or AG10) (Eidos) (1) $ 18,055 $ 12,311 $ 35,863 $ 20,899 Infigratinib (Previously known as BBP-831) (QED) 25,598 17,086 46,441 31,813 Fosdenopterin (Previously known as BBP-870) (Origin) 6,004 3,552 10,759 8,087 BBP-631 (Adrenas) 6,435 4,414 9,799 8,105 BBP-589 (PTR) 1,265 746 4,097 3,964 BBP-812 (ASPA) 2,322 5,116 4,115 8,082 BBP-681 (Venthera) 1,822 1,858 3,670 2,739 BBP-454 (TheRas) 1,989 1,139 3,815 2,134 BBP-418 (ML Bio) 4,544 — 6,493 — Other programs including early stage 18,564 6,109 29,771 11,361 Total $ 86,598 $ 52,331 $ 154,823 $ 97,184 (1) Amounts presented above may differ from the financial statements of Eidos due to intercompany income and expenses, which are eliminated in the condensed consolidated financial statements of BridgeBio for all periods presented. 39 In light of recent developments relating to the COVI D-19 global pandemic, the focus of healthcare providers and hospitals on fighting the virus, and consistent with the U.S. Food and Drug Administration’s updated industry guidance for conducting clinical trials issued on March 18, 2020, we have experienced delays in or temporary suspension of the enrollment of patients in our subsidiaries’ ongoing clinical trials. We additionally may experience delays in certain ongoing key program activities, including commencement of planned clinical trials, as well as non -clinical experiments and investigational new drug application-enabling good laboratory practice toxicology studies. The exact timing of delays and their overall impact on our business are currently unknown, and we are monitoring the COVID-19 outbreak as i t continues to rapidly evolve. We are continuing to actively monitor the situation and may take further precautionary and preemptive actions as may be required by federal, state or local authorities or that we determine are in the best interests of public health and safety and that of our patient community, employees, partners, suppliers and stockholders. We cannot predict the effects that such actions, or the impact of COVID-19 on global business operations and economic conditions, may have on our business or strategy, including the effects on our ongoing and planned clinical development activities and prospects, or on our financial and operating results. General and Administrative Expenses Three Months Ended June 30, Six Months Ended June 30, 2020 2019 Change 2020 2019 Change (in thousands) (in thousands) General and administrative $ 37,969 $ 16,987 $ 20,982 $ 72,231 $ 35,886 $ 36,345 General and administrative expenses increased by $21.0 million and $36.3 million for the three and six months ended June 30, 2020 compared to the same periods in 2019 due to increase in headcount to support the growth of our operations and external-related costs incurred as a result of continuing compliance as a public company. Other Income (Expense), Net Interest Income Interest income consists of interest income earned on our cash equivalents and marketable securities. The changes in interest income for the three and six months ended June 30, 2020 compared to the same periods in 2019 were not significant. Interest Expense Interest expense for the three and six months ended June 30, 2020 consists primarily of interest expense incurred under our term loans with Hercules Capital, Inc. pursuant to our Loan and Security Agreement, dated June 19, 2018, as amended, Eidos’ term loan with Silicon Valley Bank and Hercules pursuant to its Loan and Security Agreement, dated November 13, 2019, or the “SVB and Hercules Loan Agreement”, and our 2027 Notes issued in March 2020. Interest expense for the same period in 2019 consists primarily of interest expense incurred under our term loans with Hercules. The increases of $8.8 million and $11.2 million for the three and six months ended June 30, 2020, respectively, compared to the same periods in 2019 was primarily attributed to increase in principal amounts. Loss from an Equity Investment Loss from an equity investment for the three and six months ended June 30, 2019 pertain to our share of losses from our investment in PellePharm totaling $5.0 million and $9.6 million, respectively. We recognize our share of losses from the PellePharm equity method investment as incurred. After our equity method investment was reduced to zero during the three months ended March 31, 2019, we recognized our percentage of net losses consistent with our preferred stock ownership percentage until the investment was also reduced to zero during the remaining period of 2019. We have not recognized our share of net losses for the three and six months ended June 30, 2020 as our equity investment balances were reduced to zero as of December 31, 2019. Other Income (Expense) Other income (expense) consists mainly of changes in fair value of the LEO Call Option liability. The LEO Call Option is subject to remeasurement to fair value at each balance sheet date until the LEO Call Option is either exercised or expires. The LEO Call Option income (expense) of $(1.7) million and $(1.2) million for the three and six months ended June 30, 2020, respectively, and $0.2 million and $(1.3) million for the three and six months ended June 30, 2019, respectively, were due to change in fair value. 40 Net Loss Attributable to Redeemable Convertible Noncontrolling Interests and No ncontrolling Interests Net loss attributable to redeemable convertible noncontrolling interests and noncontrolling interests in our condensed consolidated statements of operations consists of the portion of the net loss of those consolidated entities that is not allocated to us. Changes in the amount of net loss attributable to noncontrolling interests are directly impacted by changes in the net loss of our consolidated entities and are the result of ownership percentage changes. Refer to Note 6 to our condensed consolidated financial statements. Net loss attributable to redeemable convertible noncontrolling interests and noncontrolling interests was $15.2 million and $27.4 million for the three and six months ended June 30, 2020, respectively, compared to $8.4 million and $16.6 million for the same periods, respectively, in 2019. Liquidity and Capital Resources We have historically financed our operations primarily through the sale of our equity securities, issuance of convertible notes, debt borrowings and revenue from certain licensing arrangements. As of June 30, 2020, we had cash, cash equivalents and marketable securities of $840.9 million or $666.1 million excluding Eidos. The funds held by our wholly-owned subsidiaries and controlled entities are available for specific entity usage, except in limited circumstances. The cash and cash equivalents of $174.8 million as of June 30, 2020 belonging to Eidos may only be used solely by Eidos. As of June 30, 2020, our outstanding debt was $466.6 million, net of debt discounts and issuance costs and accretion or $450.0 million excluding Eidos’ debt. Since inception, we have incurred significant operating losses. For the years ended December 31, 2019, 2018 and 2017, we incurred net losses of $288.6 million, $169.5 million and $43.8 million, respectively. For the six months ended June 30, 2020, we incurred net losses of $240.3 million. We had an accumulated deficit as of June 30, 2020 of $652.9 million. We expect to continue to incur net losses over the next several years as we continue our drug development and discovery efforts and incur significant clinical and preclinical development costs related to our current research and development programs as well as costs related to commercial launch readiness for our late-stage programs. In particular, to the extent we advance our programs into and through later-stage clinical trials without a partner, we will incur substantial expenses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of our product candidates at our wholly-owned subsidiaries and controlled entities. Our current business plan is also subject to significant uncertainties and risks as a result of, among other factors, our ability to generate product revenue sufficient to achieve profitability, which will depend heavily on the successful development and eventual commercialization of our product candidates at our consolidated entities. We expect our cash and cash equivalents and marketable securities will fund our operations for at least the next 12 months based on current operating plans and financial forecasts. If our current operating plans or financial forecasts change, including the effects of the COVID-19 pandemic on our research and development activities, we may require additional funding sooner in the form of public or private equity offerings, debt financings or additional collaborations and licensing arrangements. However, future financing may not be available in amounts or on terms acceptable to us, if at all. In addition, we are closely monitoring ongoing developments in connection with the COVID-19 pandemic, which may negatively impact our financial and operating results. We will continue to assess our operating expenses and our cash and cash equivalents and, if circumstances warrant, we will make appropriate adjustments to our operating plan. Sources of Liquidity Initial public offerings and at-the-market share issuances In June 2018, our controlled subsidiary, Eidos, completed its U.S. initial public offering of its common stock of which net proceeds received were $95.5 million. As of June 30, 2020, we held 24,575,501 shares of common stock of Eidos. In December 2019 and February 2020, Eidos received net proceeds of $23.9 million and $24.1 million, respectively, from its at-the-market issuance of shares. All cash and cash equivalents held by Eidos are restricted and can be applied solely to fund the operations of Eidos. On July 1, 2019, we completed the IPO of our common stock. As part of the IPO, we issued and sold 23,575,000 shares of our common stock, which included 3,075,000 shares sold pursuant to the exercise of the underwriters’ option to purchase additional shares, at a public offering price of $17.00 per share. We received net proceeds of approximately $366.2 million from the IPO, after deducting underwriters’ discounts and commissions of $28.1 million and offering costs of $6.5 million. 41 On July 7, 2020, we filed a shelf registration statement on Form S-3 (the “2020 Shelf”) with the SEC in relation to the registration of common stock, preferred st ock, debt securities, warrants and units or any combination thereof. We also simultaneously entered into an Open Market Sale Agreement with Jefferies LLC and SVB Leerink LLC (the “Sales Agents”), to provide for the offering, issuance and sale by us of up t o an aggregate of $350.0 million of our common stock from time to time in “at-the-market” offerings under the 2020 Shelf and subject to the limitations thereof (the “2020 Sales Agreement”). We will pay to the applicable Sales Agents cash commissions of up to 3.0 percent of the gross proceeds of sales of common stock under the 2020 Sales Agreement. We have not issued any shares or received any proceeds from this offering through August 1 1 , 2020. Debt 2027 Notes On March 9, 2020, we issued an aggregate principal amount of $550.0 million of our 2027 Notes, pursuant to an Indenture dated March 9, 2020, or the Indenture, between BridgeBio and U.S. Bank National Association, as trustee, or the Trustee, in a private offering to qualified institutional buyers, or the Note Offering, pursuant to Rule 144A under the Securities Act of 1933, as amended, or the Securities Act. The 2027 Notes issued in the Note Offering include $75.0 million aggregate principal amount of 2027 Notes sold to the initial purchasers in the offering, or the Initial Purchasers, pursuant to the exercise in full of their option to purchase additional 2027 Notes. The 2027 Notes are senior, unsecured obligations of BridgeBio and will accrue interest payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2020, at a rate of 2.50 % per year. The 2027 Notes will mature on March 15, 2027, unless earlier converted or repurchased. Upon maturity, the 2027 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. We received net proceeds from the Note Offering of approximately $537.0 million, after deducting the Initial Purchasers’ discount and offering expenses. We used approximately $49.3 million of the net proceeds from the Note Offering to pay for the cost of the Capped Call Transactions, and approximately $75.0 million to pay for the repurchases of shares of our common stock. We intend to use the remainder of the net proceeds from the Note Offering for working capital and other general corporate purposes, including for our commercial organization and launch preparations. We may also use any remaining net proceeds to fund possible acquisitions of, or investments in, complementary businesses, products, services and technologies. A holder of 2027 Notes may convert all or any portion of its 2027 Notes at its option at any time prior to the close of business on the business day immediately preceding December 15, 2026 in multiples of $1,000 only under the following circumstances: • During any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; • During the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the Indenture) per $1,000 principal amount of 2027 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or, • Upon the occurrence of specified corporate events. On or after December 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2027 Notes at any time, regardless of the foregoing. The conversion rate will initially be 23.4151 shares of our common stock per $1,000 principal amount of 2027 Notes (equivalent to an initial conversion price of approximately $42.71 per share of our common stock, for a total of approximately 12,878,305 shares). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2027 Notes in connection with such a corporate event. The maximum number of shares issuable should there be an increase in the conversion rate is 17,707,635 shares of our common stock. 42 We may not redeem the 2027 Notes prior to the maturity date, and no sinking fund is provided for the 2027 Notes. If we undergo a fundamental change (as defined in the Indenture), hold ers may require us to repurchase for cash all or any portion of their 2027 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2027 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the 2 027 Notes then outstanding may declare the entire principal amount of all the Notes plus accrued special interest, if any, to be immediately due and payable. The 2027 Notes are our general unsecured obligations and rank senior in right of payment to all of our indebtedness that is expressly subordinated in right of payment to the 2027 Notes; equal in right of payment with all of our liabilities that are not so subordinated; effectively junior to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. Hercules Loan and Security Agreement In June 2018, we executed a Loan and Security Agreement with Hercules Capital, Inc. (“Hercules”), under which we borrowed $35.0 million (“Tranche I”). The term of the loan was approximately 42 months, with a maturity date of January 1, 2022 (the “Maturity Date”). No principal payments were due during an interest-only period, commencing on the initial borrowing date and continuing through July 1, 2020 (the “Amortization Date”). In December 2018, we executed the First Amendment to the Loan and Security Agreement, whereby we borrowed an additional $20.0 million (“Tranche II”) to increase the total principal balance outstanding to $55.0 million. Upon draw of the additional $20.0 million, the interest-only period on the entire facility was extended until January 1, 2021 and the maturity date for the entire facility was July 1, 2022. In May 2019, we executed the Second Amendment to the Loan and Security Agreement whereby we borrowed an additional $20.0 million (“Tranche III”) to increase the total principal balance outstanding to $75.0 million. In July 2019, the completion of BridgeBio’s IPO triggered certain provisions of the Hercules Term Loan. BridgeBio received an option to pay up to 1.5% of scheduled cash pay interest on the entire facility as payment in kind, or PIK Interest, with such cash pay interest paid as PIK Interest at a 1:1.2 ratio. The interest-only period will continue through July 1, 2021 (the “Modified Amortization Date”) and the entire facility received a maturity date of January 1, 2023 (the “Modified Maturity Date”). The outstanding balance of the Hercules Term Loan is to be repaid by BridgeBio monthly beginning on the Modified Amortization Date and extending through the Modified Maturity Date. Prior to the Fourth Amendment to the Loan and Security Agreement (the “Amended Hercules Term Loan”) described below, the interest rate for the Hercules Term Loan was established as follows: (1) Tranche I bears interest at a floating rate equal to the greater of: (i) the prime rate as reported in the Wall Street Journal plus 3.85% and (ii) 8.85%, payable monthly; (2) Tranche II bears interest at a floating rate equal to the greater of: (i) the prime rate as reported in the Wall Street Journal plus 2.85% and (ii) 8.60%, payable monthly; and (3) Tranche III bears interest at a floating rate equal to the greater of: (i) the prime rate as reported in the Wall Street Journal plus 3.10% and (ii) 9.10%, payable monthly. The Hercules Term Loan contains customary representations and warranties, events of default, and affirmative and negative covenants for a term loan facility of this size and type. However, Hercules imposes no liquidity covenants on us and Hercules cannot limit or restrict our ability to dispose of assets, make investments, or make acquisitions. As pledged collateral for our obligations under the Hercules Term Loan, we granted Hercules a security interest in all of our assets or personal property, including all equity interests owned or hereafter acquired by us. Further, at Hercules’ sole discretion we must make a mandatory prepayment equal to 75% of net cash proceeds received from the sale or licensing of any pledged or collateral assets, including intellectual property, of a consolidated entity owned by us, or the repurchase or redemption of any pledged collateral by certain specified operating companies. None of our consolidated entities are a party to, nor provide any credit support or other security in connection with the Hercules Term Loan. In March 2020, we executed the Third Amendment to the Loan and Security Agreement primarily to allow us to issue our 2027 Notes and to enter into the Capped Call and Share Repurchase Transactions. In April 2020, we entered into the Amended Hercules Term Loan, which among other things, (1) extended the interest-only period under the Loan and Security Agreement to July 1, 2022 (the “Amended Amortization Date”, which may be further extended to January 1, 2023 and July 1, 2023, in each case, subject to certain conditions set forth in the Amended Hercules Term Loan), (2) extended the maturity date for the term loans under the Loan and Security Agreement to November 1, 2023 (the “Amended Maturity Date”, which may be further extended to May 1, 2024, subject to certain conditions set forth in the Amended Hercules Term Loan), 43 (3) provide d for an interest rate on the Tranche I equal to the greater of (x) a floating interest rate linked to the prime rate as reported in the Wall Street Journal plus 3.85% and (y) 8.75% (8.75% as of June 30, 2020), payable monthly, (4) provided for an interest rate on the Tranche II equal to the greater of (x) a floating interest rate linked to the prime rate as reported in the Wall Street Journal plus 2.85% and (y) 8.60% (8.60% as of June 30, 2020), payable monthly, (5) provided for an interest rate on the Tranche III equal to the greater of (x) a floating interest rate linked to the prime rate as reported in the Wall Street Journal plus 3.10% and (y) 8.85% (8.85% as of June 30, 2020), payable monthly, and (6) provided for, subject to Hercules’ approval in its sole and absolute discretion, an additional increase in available loan facilities aggregating to $125.0 million as follows: (a) an additional incremental loan in the amount of $25.0 million, available no later than December 15, 2020, (b) an additional incremental loan in the amount of $25.0 million, available no later than December 15, 2021, (c) an additional incremental loan following the achievement of certain performance milestones in the amount of $25.0 million, available no later than December 15, 2021 and (d) an additional $50.0 million discretionary incremental tranche, available no later than December 15, 2022. The Amended Hercules Term Loan also provides us with more flexibility to consummate acquisitions and investments, incur additional debt, dispose of assets and repurchase and/or redeem stock, each subject to certain conditions set forth in the Amended Hercules Term Loan. There have not been any additional draws on the $125.0 million additional available facilities as of June 30, 2020. Silicon Valley Bank (SVB) and Hercules Loan Agreement On November 13, 2019, Eidos entered into the SVB and Hercules Loan Agreement. The SVB and Hercules Loan Agreement provides for up to $55.0 million in term loans to be drawn in three tranches as follows: (i) Tranche A loan of $17.5 million, (ii) Tranche B loan of up to $22.5 million which is available to be drawn until October 31, 2020, and (iii) Tranche C loan of up to $15.0 million available to be drawn upon a clinical trial milestone. The Tranche C loan is available to be drawn until September 30, 2021. The Tranche A loan of $17.5 million was drawn on November 13, 2019. There have not been any additional draws on the other tranches as of June 30, 2020. The Tranche A loan bears interest at a fixed rate equal to the greater of either (i) 8.50% or (ii) 3.25% plus the prime rate as reported in The Wall Street Journal (8.50% as of June 30, 2020). The Tranche A loan repayment schedule provides for interest only payments until November 1, 2021, followed by consecutive equal monthly payments of principal and interest commencing on this date continuing through the maturity date of October 2, 2023. The Tranche A loan also provides for a $0.3 million commitment fee that was paid at closing and a final payment charge equal to 5.95% multiplied by the amount funded to be paid when the loan becomes due or upon prepayment of the facility. If Eidos elects to prepay the Tranche A loan, there is also a prepayment fee of between 0.75% and 2.50% of the principal amount being prepaid depending on the timing and circumstances of prepayment. The Tranche A loan is secured by substantially all of Eidos’ assets, except Eidos’ intellectual property, which is the subject of a negative pledge. Cash Flows The following table summarizes our cash flows during the periods indicated: Six Months Ended June 30, 2020 2019 Change (in thousands) Net cash used in operating activities $ (171,769 ) $ (127,388 ) $ (44,381 ) Net cash used in investing activities (90,961 ) (3,010 ) (87,951 ) Net cash provided by (used in) financing activities 439,876 (11,620 ) 451,496 Net increase (decrease) in cash, cash equivalents and restricted cash $ 177,146 $ (142,018 ) $ 319,164 44 Net Cash Flows Used in Operating Activities Net cash used in operating activities was $171.8 million for the six months ended June 30, 2020, consisting primarily of our net loss of $240.3 million, adjusted for non-cash items such as $28.6 million in stock-based compensation expense and $7.0 million accretion of our 2027 Notes and term loans, partially offset by net cash inflow of $29.3 million related to changes in operating assets and liabilities. The $29.3 million net cash inflow related to changes in operating assets and liabilities was attributed mainly to an increase of 16.3 million in accrued research and development liabilities, an increase of $6.4 million in accrued professional services, an increase of $5.3 million in other accrued and other liabilities, and an increase of $4.0 million in accounts payable mostly due to increase in our CROs’ and CMOs’ expenses for research activities and other expenses to support the growth of our operation. Net cash used in operating activities was $127.4 million for the six months ended June 30, 2019, consisting primarily of our net loss of $143.8 million, adjusted for non-cash items such as $9.6 million share in net loss of our equity method investment, $5.6 million for stock-based compensation expense, $2.5 million for acquired in-process research and development assets and $1.3 million of expense related to the revaluation of the LEO Call Option liability, as well as net cash outflow of $3.7 million related to changes in operating assets and liabilities. The $3.7 million net cash outflow related to changes in operating assets and liabilities was attributed mainly to an increase of $3.3 million in prepaid expenses and other assets and of $2.1 million in other assets, both increases were primarily due to the advance payments made for research due to increased activities at CROs and CMOs. These increases were partially offset by an increase of $1.0 million in accrued professional services due to increased consulting expenses as we prepared for our IPO. Net Cash Flows Used in Investing Activities Net cash used in investing activities was $91.0 million for the six months ended June 30, 2020, consisting primarily of purchases of marketable securities of $168.8 million and purchases of property and equipment of $4.8 million, partially offset by $82.5 million in maturities of marketable securities. Net cash used in investing activities was $3.0 million for the six months ended June 30, 2019, which consisted of $2.5 million paid for in-progress research and development assets acquired primarily in connection with the Phoenix Tissue Repair, Inc. asset acquisition related to a Contribution Agreement and Asset Purchase Agreement entered into in July 2017 and $0.5 million related to purchase of property and equipment. Net Cash Flows Provided by (Used in) Financing Activities Net cash provided by financing activities was $439.9 million for the six months ended June 30, 2020, consisting primarily of the net proceeds from the issuance of our 2027 Notes of $537.0 million and at-the-market issuance of noncontrolling interest by Eidos of $24.1 million, offset by repurchase of our common stock of $75.0 million and purchase of capped calls of $49.3 million, both in relation to the issuance of our 2027 Notes. Net cash used in financing activities of $11.6 million for the six months ended June 30, 2019 was primarily due to $28.6 million payment in relation to repurchase of common stock of Eidos from a noncontrolling interest holder and $2.5 million payment of deferred offering costs, partially offset by proceeds from our term loan of $19.8 million. Contractual Obligations The following table summarizes our contractual obligations as of June 30, 2020: Payments Due by Period Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total (in thousands) Operating lease obligations $ 4,259 $ 5,004 $ 2,670 $ 3,008 $ 14,941 Obligation under a manufacturing agreement 4,000 — — — 4,000 2027 Notes — — — 550,000 550,000 Interest on 2027 Notes 13,979 27,500 27,500 27,500 96,479 Term loans — 71,025 21,475 — 92,500 Interest on term loans and final end of term payments 8,152 17,384 1,442 — 26,978 Total contractual obligations $ 30,390 $ 120,913 $ 53,087 $ 580,508 $ 784,898 45 We have performance-based milestone compensation arrangements with certain employees, whose vest ing is contingent upon meeting various regulatory and development milestones, with fixed monetary amounts known at inception that can be settled in the form of cash or equity at our sole election, upon achievement of each contingent milestone. As of June 3 0 , 20 20 , the potential milestone compensation amount is up to $ 5 4.9 million. Since the timing of the payments is contingent on the occurrence of these performance-based milestones, these payments are not included in the contractual obligations table above. We also have performance-based milestone compensation arrangements with certain employees as part of the Exchange Program, which is further discussed in Note 14 to our condensed consolidated financial statements. The compensation arrangements under the Ex change Program are excluded from the table above because such compensation arrangements are to be settled in the form of equity only. We have certain payment obligations under various license and collaboration agreements. Under these agreements we are required to make milestone payments upon successful completion and achievement of certain intellectual property, clinical, regulatory and sales milestones. The payment obligations under the license and collaboration agreements are contingent upon future events such as our achievement of specified development, clinical, regulatory and commercial milestones, and we will be required to make development milestone payments and royalty payments in connection with the sale of products developed under these agreements. As the achievement and timing of these future milestone payments are not probable or estimable, such amounts have not been included in our condensed consolidated balance sheet as of June 30, 2020, or in the contractual obligations table above. In addition, we enter into agreements in the normal course of business with CROs and other vendors for clinical trials and with vendors for preclinical studies and other services and products for operating purposes, which are generally cancelable upon written notice. These payments are not included in the contractual obligations table above. Off-Balance Sheet Arrangements During the periods presented, we did not have any off-balance sheet arrangements. While we have investments classified as VIEs, their purpose is not to provide off-balance sheet financing. Critical Accounting Polices and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as revenues and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Operations” included in our Form 10-K for the year ended December 31, 2019, as filed with the SEC, except for the adoption in January 1, 2020, of Accounting Standards Codification 842 discussed in Note 1, as well as the accounting for the 2027 Notes and the Capped Call and Repurchase Transactions discussed in Note 9, and the 2020 Stock and Equity Award Exchange Program discussed in Note 14 in our unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2020. JOBS Act and Emerging Growth Company Status We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We will cease to be an EGC on December 31, 2020 because our aggregate worldwide market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2020, our most recently completed second fiscal quarter, was greater than $700 million. Effective January 1, 2021, we will no longer be able to use the exemptions from certain reporting requirements available to EGCs. Recent Accounting Pronouncements See Note 2, “Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements” to our condensed consolidated financial statements appearing under Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. 46 Item 3. Quantitative and Qualitati ve Disclosures About Market Risk We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. The primary objective of our investment activities is to preserve our capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of cash equivalents and investments in a variety of marketable securities of high credit quality. As of June 30, 2020, we held cash, cash equivalents and marketable securities of $840.9 million. Our cash equivalents consist of amounts invested in money market accounts, such as money market funds and short-term commercial paper. Our marketable securities consisted of commercial paper, corporate debt securities and U.S. government agency securities. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. A hypothetical 100 basis point change in interest rate during any of the periods presented would not have had a material impact on our financial statements. We do not believe that our cash, cash equivalents or marketable securities have a significant risk of default or illiquidity. As of June 30, 2020, we had $92.5 million in variable rate debt outstanding. The Hercules Term Loan, which had a principal balance of $75.0 million, matures in November 2023, with interest-only monthly payments until July 2022. Tranche I bears interest at a floating rate equal to the greater of: (i) the prime rate as reported in the Wall Street Journal plus 3.85% and (ii) 8.75% (8.75% as of June 30, 2020); Tranche II bears interest at a floating rate of equal to the greater of: (i) the prime rate as reported in the Wall Street Journal plus 2.85% and (ii) 8.60% (8.60% as of June 30, 2020); and Tranche III bears interest at a floating rate of equal to the greater of: (i) the prime rate as reported in the Wall Street Journal plus 3.10% and (ii) 8.85% (8.85% as of June 30, 2020). The Silicon Valley Bank and Hercules Loan Agreement entered into by Eidos, which matures in October 2023, had a principal balance of $17.5 million as of June 30, 2020 and bears interest equal to the greater of either (i) 8.50% or (ii) 3.25% plus the prime rate as reported in The Wall Street Journal (8.50% as of June 30, 2020). Our 2027 Notes had a principal balance of $550.0 million as of June 30, 2020 and bear interest at a fixed rate. Our cash flows on this debt obligation are not subject to variability as a result of changes in interest rates. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2020 and concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of that date. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Due to the COVID-19 pandemic, in March 2020, certain of our employees began working remotely. We have not identified any material changes in our internal control over financial reporting as a result of these changes to the working environment. We continue to monitor and assess the COVID-19 situation to determine any potential impact on the design and operating effectiveness of our internal controls over financial reporting. 47 PART II—OTHER INFORMATION Item 1. Legal Proceedings. As of the date of this Quarterly Report on Form 10-Q, we were not party to any material legal proceedings. In the future, we may become party to legal proceedings and claims arising in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we do not believe we are party to any claim or litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse impact on our financial position, results of operations or cash flows. Regardless of the outcome, litigation can have an adverse effect on us because of defense and settlement costs, diversion of management resources and other factors. Item 1A. Risk Factors. Our business involves significant risks, some of which are described below. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this Quarterly Report on Form 10-Q, including “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the condensed consolidated financial statements and the related notes. If any of the following risks actually occur, it could harm our business, prospects, operating results and financial condition and future prospects. In such event, the market price of our common stock could decline, and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Quarterly Report. Risks Related to Our Financial Position and Growth Strategy Drug development is a highly uncertain undertaking and involves a substantial degree of risk. We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We have not generated any revenue since inception, which, together with our limited operating history, may make it difficult for you to assess our future viability. Pharmaceutical and biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are a clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. Our subsidiaries, on whose success we largely rely, are also early-stage biopharmaceutical companies. To date, we have focused principally on identifying, acquiring or in-licensing and developing our product candidates at the subsidiary level, all of which are in discovery, lead optimization, preclinical or clinical development. Our product candidates will require substantial additional development time, including extensive clinical research, and resources before we would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. We are not profitable and have incurred losses in each year since our inception in April 2015. Our net losses for the years ended December 31, 2019, 2018 and 2017 were $288.6 million, $169.5 million and $43.8 million, respectively. For the six months ended June 30, 2020, we incurred net losses of $240.3 million. As of June 30, 2020, we had an accumulated deficit of $652.9 million. We have no products approved for commercial sale and have not generated any revenues from product sales, and have financed operations solely through the sale of equity securities and debt financings. We continue to incur significant research and development, or R&D, and other expenses related to ongoing operations and expect to incur losses for the foreseeable future. In addition, we believe that potential delays in our ongoing and planned clinical trials and adjustments to certain of our study procedures, such as enabling alternate site, telehealth and home visits, and at home drug delivery, with respect to our ongoing clinical trials, as a result of the COVID-19 pandemic, could increase our expenditures or draw out our expenditures over a longer period of time than originally estimated. Additionally, changes to our selection of contract research organizations for non-clinical laboratory activities and engagement with contract manufacturing organizations to mitigate any potential near-term impacts to our supply chain may increase our expenditures relative to initial expectations. We anticipate these losses will increase substantially in future periods and we will not generate any revenue from product sales until after we have successfully completed clinical development and received regulatory approval for the commercial sale of one or more product candidates. Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of our expenses, or when we will be able to generate any meaningful revenue or achieve or maintain profitability, if ever. In addition, our expenses could increase beyond our current expectations if we are required by the U.S. Food and Drug Administration, or FDA, or comparable foreign regulatory authorities, to conduct nonclinical or preclinical studies or clinical trials in addition to those that we currently anticipate or to otherwise provide data beyond that which we currently believe is necessary to support an application for marketing approval or to continue clinical development, or if there are any delays in any of our or our future collaborators’ clinical trials or the development of our product candidates that we may identify. Even if our future product candidates that we may identify are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate and ongoing compliance efforts. 48 We may never be able to develop or commercialize a marketable drug or achieve profitability. Revenue from the sale of any product candidate for which regulatory approval is obtained will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to obtain reimbursement at any price and whether we own the commercial rights for that territory. Our growth strategy depends on our ability to generate revenue. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to achieve sustained profitability would depress the value of our company and could impair ou r ability to raise capital, expand our business, diversify our research and development pipeline, market our product candidates, if approved, that we may identify and pursue or continue our operations. 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. If we obtain a controlling interest in additional companies in the future, it could adversely affect our operating results and the value of our common stock, thereby disrupting our business. As part of our strategy, we expect to form and invest in additional wholly-owned subsidiaries and variable interest entities, or VIEs. Investments in our existing and any future subsidiaries involve numerous risks, including, but not necessarily limited to: • risk of conducting research and development activities in new therapeutic areas or treatment modalities in which we have little to no experience; • diversion of financial and managerial resources from existing operations; • our ability to negotiate a proposed acquisition, in-license or investment in a timely manner or at a price or on terms and conditions favorable to us; • our ability to combine and integrate a potential acquisition into our existing business to fully realize the benefits of such acquisition; • the impact of regulatory reviews on a proposed acquisition, in-license or investment; and • the outcome of any legal proceedings that may be instituted with respect to the proposed acquisition, in-license or investment. If we fail to properly evaluate potential acquisitions, in-licenses, investments or other transactions associated with the creation of new research and development programs or the maintenance of existing ones, we might not achieve the anticipated benefits of any such transaction, we might incur costs in excess of what we anticipate, and management resources and attention might be diverted from other necessary or valuable activities. For instance, in August 2019, we announced a non-binding proposal to acquire all of the outstanding shares of common stock of Eidos that were not then owned by us or our subsidiaries, or the Eidos Buyout Offer. Although discussions between a special committee comprised of Eidos’ disinterested and independent directors and us with respect to the proposed transaction have terminated, the attention of certain members of each company’s management and each company’s resources were diverted from day-to-day business operations during our exploration of the Eidos Buyout Offer, and we may engage in similar discussions in the future with respect to other potential transactions that may divert our time and resources from our ongoing operations. In addition, from time to time we have pursued, and may in the future pursue, research and development programs through our wholly-owned subsidiaries and variable interest entities that we may ultimately determine not to advance, based on our ongoing assessment of the likelihood of success relative to the costs and risks associated with the program. Risks Related to Our Business and the Clinical Development, Regulatory Review and Approval of our Product Candidates The outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, could adversely impact our business, including our clinical trials and preclinical studies. Public health crises such as pandemics or similar outbreaks could adversely impact our business. In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (COVID-19), surfaced in Wuhan, China. Since then, COVID-19 has spread globally. In response to the spread of COVID-19 and governmental shelter-in-place orders, we continue to encourage our administrative employees to work outside of our offices and allow staff in our laboratory facilities to operate under applicable government orders and protocols designed to protect their health and safety. 49 As a result of the COVID-19 outbreak or any future pandemics, we have experienced, and may in the future experience , disruptions that severely impact our business, clinical tri als and preclinical studies , including: • delays or difficulties in enrolling patients in our clinical trials; • delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; • delays or disruptions in non-clinical experiments due to unforeseen circumstances at contract research organizations, or CROs, and vendors along their supply chain; • increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced to quarantine, or not accepting home health visits; • diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials; • interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (particularly any procedures that may be deemed non-essential), which may impact the integrity of subject data and clinical study endpoints; • interruption or delays in the operations of the FDA and comparable foreign regulatory agencies, which may impact review and approval timelines; • interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems; and • limitations on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, an increased reliance on working from home or mass transit disruptions. These and other factors arising from the COVID-19 pandemic could worsen in countries that are already afflicted with COVID-19, could continue to spread to additional countries, or could return to countries where the pandemic has been partially contained, each of which could further adversely impact our ability to conduct clinical trials and our business generally, and could have a material adverse impact on our operations and financial condition and results. In addition, the trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms. The COVID-19 outbreak continues to rapidly evolve. The extent to which the outbreak may impact our business, preclinical studies and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our clinical development operations, the supply chain for our ongoing and planned clinical trials, and the availability of governmental and regulatory authorities to conduct inspections of our clinical trial sites, review materials submitted by us in support of our applications for regulatory approval and grant approval for our product candidates. Our product candidates are in preclinical or clinical development, which is a lengthy and expensive process with uncertain outcomes and the potential for substantial delays. We cannot give any assurance that any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized. Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. To date, we have focused substantially all of our efforts and financial resources on identifying, acquiring, and developing our product candidates, including conducting lead optimization, nonclinical studies, preclinical studies and clinical trials, and providing general and administrative support for these operations. We cannot be certain that any clinical trials will be conducted as planned or completed on schedule, if at all. Our inability to successfully complete preclinical and clinical development could result in additional costs to us and negatively impact our ability to generate revenue. Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize product candidates. We currently have no products approved for sale and have not generated any revenue from sales of drugs, and we may never be able to develop or successfully commercialize a marketable drug. 50 All of our product candidates require additional development; management of preclinical, clinical, and manufacturing activities; and regulatory approval. In addit ion, we will need to obtain adequate manufacturing supply; build a commercial organization; commence marketing efforts; and obtain reimbursement before we generate any significant revenue from commercial product sales, if ever. Many of our product candidat es are in early-stage research or translational phases of development, and the risk of failure for these programs is high. We cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further , our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we and our subsidiaries may not be able to continue operations, which may res ult in us winding down and dissolving the subsidiary, selling or out-licensing the technology or pursuing an alternative strategy. If we are unable to obtain regulatory approval in one or more jurisdictions for any product candidates that we may identify and develop, our business will be substantially harmed. We cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product candidate. Approval by the FDA and comparable foreign regulatory authorities is lengthy and unpredictable, and depends upon numerous factors, including substantial discretion of the regulatory authorities. Approval policies, regulations, or the type and amount of nonclinical or clinical data necessary to gain approval may change during the course of a product candidate’s development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. We have not obtained regulatory approval for any product candidates, and it is possible that our current product candidates and any other product candidates which we may seek to develop in the future will not ever obtain regulatory approval. We cannot be certain that any of our product candidates will receive regulatory approval or be successfully commercialized even if we receive regulatory approval. Obtaining marketing approval is an extensive, lengthy, expensive and inherently uncertain process, and regulatory authorities may delay, limit or deny approval of our product candidates for many reasons, including but not limited to: • the inability to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that the applicable product candidate is safe and effective as a treatment for our targeted indications; • the FDA or comparable foreign regulatory authorities may disagree with the design, endpoints or implementation of our clinical trials; • the population studied in the clinical program may not be sufficiently broad or representative to assure safety or efficacy in the full population for which we seek approval; • the FDA or comparable foreign regulatory authorities may require additional preclinical studies or clinical trials beyond those that we currently anticipate; • the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical studies or clinical trials; • the data collected from clinical trials of product candidates that we may identify and pursue may not be sufficient to support the submission of an NDA, biologics license application, or BLA, or other submission for regulatory approval in the United States or elsewhere; • we may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for its proposed indication is acceptable; • the FDA or comparable foreign regulatory authorities may identify deficiencies in the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and • the approval policies or regulations of the FDA or comparable foreign regulatory authorities may change in a manner that renders the clinical trial design or data insufficient for approval. The lengthy approval process, as well as the unpredictability of the results of clinical trials and evolving regulatory requirements, may result in our failure to obtain regulatory approval to market product candidates that we may pursue in the United States or elsewhere, which would significantly harm our business, prospects, financial condition and results of operations. 51 We may encounter substantial delays in clinical trials, or may not be able to conduct or complete clinical trials on the expected timelines, if at all. Clinical testing is expensive, time consuming, and subject to uncertainty. We cannot guarantee that any of our ongoing and planned clinical trials will be conducted as planned or completed on schedule, if at all. Moreover, even if these trials are initiated or conducted on a timely basis, issues may arise that could result in the suspension or termination of such clinical trials. A failure of one or more clinical trials can occur at any stage of testing, and our ongoing and future clinical trials may not be successful. Events that may prevent successful or timely initiation or completion of clinical trials include: • delays in clinical trial enrollment or clinical trial initiation resulting from the COVID-19 outbreak or any future pandemics; • inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical trials; • delays in confirming target engagement, patient selection or other relevant biomarkers to be utilized in preclinical and clinical product candidate development; • delays in reaching a consensus with regulatory agencies as to the design or implementation of our clinical trials; • delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites; • delays in identifying, recruiting and training suitable clinical investigators; • delays in obtaining required Institutional Review Board, or IRB, approval at each clinical trial site; • imposition of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an IND or amendment, clinical trial application, or CTA, or amendment, or equivalent application or amendment; or as a result of a new safety finding that presents unreasonable risk to clinical trial participants or a negative finding from an inspection of our clinical trial operations or study sites; • developments in trials for other product candidates with the same targets or related modalities as our product candidates conducted by competitors that raise regulatory or safety concerns about risk to patients of the treatment; or if the FDA finds that the investigational protocol or plan is clearly deficient to meet its stated objectives; • difficulties in securing access to materials for the comparator arm of certain of our clinical trials; • delays in identifying, recruiting and enrolling suitable patients to participate in clinical trials, and delays caused by patients withdrawing from clinical trials or failing to return for post-treatment follow-up; • difficulty collaborating with patient groups and investigators; • failure by CROs, other third parties, or us to adhere to clinical trial requirements; • failure to perform in accordance with the FDA’s or any other regulatory authority’s current good clinical practices, or GCP, requirements, or regulatory guidelines in other countries; • occurrence of adverse events, or AEs, associated with the product candidate that are viewed to outweigh its potential benefits; • changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; • changes in the standard of care on which a clinical development plan was based, which may require new or additional trials; • the cost of clinical trials of any product candidates that we may identify and pursue being greater than we anticipate; • clinical trials of any product candidates that we may identify and pursue producing negative or inconclusive results, which may result in our deciding, or regulators requiring us, to conduct additional clinical trials or abandon product development programs; • transfer of manufacturing processes to larger-scale facilities operated by a CMO, or by us, and delays or failure by our CMOs or us to make any necessary changes to such manufacturing process; and • delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of product candidates that we may identify for use in clinical trials or the inability to do any of the foregoing. 52 Any inability to successfully initiate or complete clinical trials could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required to or we may elect to conduct additional nonclinical studies or clinical trials to bridge data obtained from our modifie d product candidates to data obtained from nonclinical and clinical research conducted using earlier versions of these product candidates . Clinical trial delays could also shorten any periods during which our products have patent protection and may allow o ur competitors to bring products to market before we do, which could impair our ability to successfully commercialize product candidates and may harm our business and results of operations. We could also encounter delays if an ongoing or planned clinical trial is suspended or terminated by us, by the data safety monitoring board, or DSMB, including for our ongoing and planned Phase 3 clinical trials of acoramidis, our ongoing and planned Phase 2 and Phase 3 clinical trials of infigratinib and our ongoing Phase 3 and Phase 2b clinical trials of BBP-009, or by the FDA or other regulatory authority, or if the IRBs of the institutions in which such trials are being conducted suspend or terminate the participation of their clinical investigators and sites subject to their review. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. For example, on October 30, 2018, the FDA notified our subsidiary Phoenix Tissue Repair, Inc. of a partial clinical hold, but allowed it to proceed with the planned Phase 1/2 study using only the existing drug substance of BBP-589 that was identified by the FDA. The FDA requested additional development of the analytical test method to quantitate relative potency of any new batch of product we intend to use for future clinical studies. We provided a complete response in January 2020, and the FDA removed the partial clinical hold in February 2020. Although the partial clinical hold on BBP-589 was removed, we may be required or may voluntarily determine to place BBP-589 or other product candidates on clinical hold in the future for various reasons. Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates. Delays in the initiation, conduct or completion of any clinical trial of our product candidates will increase our costs, slow down the product candidate development and approval process and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. In the event we identify any additional product candidates to pursue, we cannot be sure that submission of an IND or a CTA will result in the FDA or comparable foreign regulatory authority allowing clinical trials to begin in a timely manner, if at all. Any of these events could have a material adverse effect on our business, prospects, financial condition and results of operations. Our clinical trials may fail to demonstrate substantial evidence of the safety and effectiveness of product candidates that we may identify and pursue for their intended uses, which would prevent, delay or limit the scope of regulatory approval and commercialization. Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive nonclinical studies, preclinical studies and clinical trials that the applicable product candidate is both safe and effective for use in each target indication, and in the case of our product candidates regulated as biological products, that the product candidate is safe, pure, and potent for use in its targeted indication. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical development process. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. 53 We cannot be certain that our current clinical trials or any other future clinical trials will be successful. Additionally, any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of our product candidates in those and other indications, which could have a material adverse effect on our business, financial condition and results of operations. In addition, even if such clinical trials are successfully completed, we cannot gu arantee that the FDA or comparable foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. This is particularly true for clinical trials in very rare diseas es, such as with fosdenopterin for MoCD Type A, where the very small patient population makes it difficult or impossible to conduct two traditional, adequate and well-controlled studies, and therefore the FDA or comparable foreign regulatory authorities ar e often required to exercise flexibility in approving therapies for such diseases. Moreover, results acceptable to support approval in one jurisdiction may be deemed inadequate by another regulatory authority to support regulatory approval in that other ju risdiction. To the extent that the results of the trials are not satisfactory to the FDA or comparable foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates. For example, subject to any delays that may occur as a result of the global COVID-19 pandemic, we intend to file an NDA in 2020 for infigratinib in second line and later advanced CCA with FGFR2 fusions or translocations. However, the FDA could disagree that data from our Phase 2 trial are sufficient to file an NDA or to approve infigratinib for such an indication. Even if regulatory approval is secured for a product candidate, the terms of such approval may limit the scope and use of the specific product candidate, which may also limit its commercial potential. Results of earlier studies or clinical trials may not be predictive of future clinical trial results, and initial studies or clinical trials may not establish an adequate safety or efficacy profile for our product candidates to justify proceeding to advanced clinical trials or an application for regulatory approval. The results of nonclinical and preclinical studies and clinical trials may not be predictive of the results of later-stage clinical trials, and interim results of a clinical trial do not necessarily predict final results. In addition, for certain of our product candidates that we acquired, we did not undertake the preclinical studies and clinical trials ourselves. The results of preclinical studies and clinical trials in one set of patients or disease indications, or from preclinical studies or clinical trials that we did not lead, may not be predictive of those obtained in another. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. In addition, preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through nonclinical studies and initial clinical trials. A number of companies in the pharmaceutical and biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. Even if early-stage clinical trials are successful, we may need to conduct additional clinical trials of our product candidates in additional patient populations or under different treatment conditions before we are able to seek approvals from the FDA and regulatory authorities outside the United States to market and sell these product candidates. Our failure to obtain marketing approval for our product candidates for commercially viable indications, or at all, would substantially harm our business, prospects, financial condition and results of operations. For example, if acoramidis is first approved for ATTR-CM on the basis of efficacy endpoints other than for reduction in mortality or hospitalization, acoramidis might be limited to a second-line claim until such data were available. Any of these events could limit the commercial potential of acoramidis and have a material adverse effect on our business, prospects, financial condition and results of operations. Additionally, some clinical trials of our product candidates performed to date were generated from open-label studies and were conducted at a limited number of clinical sites on a limited number of patients. An “open-label” clinical trial is one where both the patient and investigator know whether the patient is receiving the investigational product candidate or either an existing approved drug or placebo. Most typically, open-label clinical trials test only the investigational product candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a “patient bias” where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. Moreover, patients selected for early clinical studies often include the most severe sufferers and their symptoms may have been bound to improve notwithstanding the new treatment. In addition, open-label clinical trials may be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group more favorably given this knowledge. Given that our Phase 2 clinical trial of acoramidis includes an open-label clinical trial extension, the results from this clinical trial may not be predictive of future clinical trial results with this or other product candidates for which we include an open-label clinical trial when studied in a controlled environment with a placebo or active control. 54 We may encounter difficulties enrolling patients in clinical trials, an d clinical development activities could thereby be delayed or otherwise adversely affected. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. The indications for which we plan to evaluate our current product candidates represent a rare disease or condition with limited patient populations from which to draw participants in clinical trials. Due to our focus on the development of product candidates for the treatment of Mendelian diseases and genetically driven cancers, many of which are rare conditions, we may not be able to identify and enroll a sufficient number of patients, or those with required or desired characteristics and criteria, in a timely manner. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons, including: • the size and nature of a patient population; • the patient eligibility criteria defined in the applicable clinical trial protocols, which may limit the patient populations eligible for clinical trials to a greater extent than competing clinical trials for the same indication; • the size of the study population required for analysis of the trial’s primary endpoints; • the severity of the disease under investigation; • the proximity of patients to a trial site; • the design of the trial; • the ability to recruit clinical trial investigators with the appropriate competencies and experience; • the approval or concurrent enrollment of clinical trials involving competing product candidates currently under development for Mendelian diseases or genetically driven cancers or competing clinical trials for similar therapies or targeting patient populations meeting our patient eligibility criteria; • clinicians’ and patients’ perceptions as to the potential advantages and side effects of the product candidate being studied in relation to other available therapies and product candidates; • the ability to obtain and maintain patient consents; and • the risk that patients enrolled in clinical trials will not complete such trials, for any reason. If we have difficulty enrolling sufficient numbers of patients to conduct clinical trials as planned, we may need to delay or terminate ongoing or planned clinical trials, either of which would have an adverse effect on our business. Use of our product candidates could be associated with side effects, adverse events or other properties or safety risks, which could delay or halt their clinical development, prevent their regulatory approval, cause us to suspend or discontinue clinical trials, abandon a product candidate, limit their commercial potential, if approved, or result in other significant negative consequences that could severely harm our business, prospects, operating results and financial condition. As is the case with pharmaceuticals generally, it is likely that there may be side effects and AEs associated with our product candidates’ use. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. Moreover, if our product candidates are associated with undesirable side effects in preclinical studies or clinical trials or have characteristics that are unexpected, we may elect to abandon their development or limit their development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial expectations for the product candidate if approved. We may also be required to modify or terminate our study plans based on findings in our preclinical studies or clinical trials. For instance, in our Phase 2 clinical trial of infigratinib for the treatment of FGFR-driven cancers, the most commonly reported treatment emergent adverse event of any grade was hyperphosphatemia, which is an electrolyte disorder in which there is an elevated level of phosphate in the blood. These and other AEs that we may observe in our ongoing and future clinical trials of our product candidates could require us to delay, modify or abandon our development plans for the affected product candidate or other product candidates that share properties of the affected product candidate. Many product candidates that initially show promise in early-stage testing may later be found to cause side effects that prevent further development. As we work to advance existing product candidates and to identify new product candidates, we cannot be certain that later testing or trials of product candidates that initially showed promise in early testing will not be found to cause similar or different unacceptable side effects that prevent their further development. 55 It is possible that as we test our product candidates in larger, longer and more extensive clini cal trials, or as the use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other AEs that were observed in earlier trials, as well as conditions that did not occur or went undetec ted in previous trials, will be reported by subjects. If such side effects become known later in development or upon approval, if any, such findings may harm our business, financial condition and prospects significantly. Additionally, adverse developments in clinical trials of pharmaceutical and biopharmaceutical products conducted by others may cause the FDA or other regulatory oversight bodies to suspend or terminate our clinical trials or to change the requirements for approval of any of our product candidates. In addition to side effects caused by the product candidate, the administration process or related procedures also can cause adverse side effects. If any such AEs occur, our clinical trials could be suspended or terminated. If we are unable to demonstrate that any AEs were caused by the administration process or related procedures, the FDA, the European Commission, the European Medicines Agency, or the EMA, or other regulatory authorities could order us to cease further development of, or deny approval of, a product candidate for any or all targeted indications. Even if can demonstrate that all future serious adverse events, or SAEs, are not product-related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial. Moreover, if we elect, or are required, to not initiate, delay, suspend or terminate any future clinical trial of any of our product candidates, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product candidates, and may harm our business, financial condition and prospects significantly. Additionally, if any of our product candidates receives marketing approval, the FDA could impose a boxed warning in the labeling of our product and could require us to adopt a risk evaluation and mitigation strategy, or REMS, and could apply elements to assure safe use to ensure that the benefits of the product outweigh its risks, which may include, among other things, a Medication Guide outlining the risks of the product for distribution to patients and a communication plan to health care practitioners. Furthermore, if we or others later identify undesirable side effects caused by our product candidates once approved, several potentially significant negative consequences could result, including: • regulatory authorities may suspend or withdraw approvals of such product candidate; • regulatory authorities may require additional warnings on the label; • we may be required by the FDA to implement a REMS; • we may be required to change the way a product candidate is administered or conduct additional clinical trials; • we could be sued and held liable for harm caused to patients; and • our reputation may suffer. Any of these occurrences could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and may harm our business, financial condition and prospects significantly. Certain of our product candidates under development for the treatment of patient populations with significant comorbidities that may result in deaths or serious adverse or unacceptable side effects and require us to abandon or limit our clinical development activities. Patients in certain of our ongoing and planned clinical trials of product candidates in genetically driven cancers, including clinical trials of infigratinib of FGFR-driven cancers, as well as patients who may undergo treatment with other product candidates that we may develop, may also receive chemotherapy, radiation, and/or other high dose or myeloablative treatments in the course of treatment of their disease, and may therefore experience side effects or AEs, including death, that are unrelated to our product candidates. While these side effects or AEs may be unrelated to our product candidates, they may still affect the success of our clinical trials. The inclusion of critically ill patients in our clinical trials may also result in deaths or other adverse medical events due to underlying disease or to other therapies or medications that such patients may receive. Any of these events could prevent us from advancing our product candidates through clinical development, and from obtaining regulatory approval, and would impair our ability to commercialize our product candidates. Any inability to advance our product candidates through clinical development may harm our business, financial condition, results of operations and prospects. 56 We may in the future conduct clinical trials for product candidates outside the United States, and the FDA and comparable foreign regulatory authorities may not accept data from such trials. We may in the future choose to conduct one or more clinical trials outside the United States, including in Europe. For instance, our clinical trials of infigratinib and fosdenopterin each included patients outside of the United States and our Phase 3 clinical trials of acoramidis include patients outside of the United States. The acceptance by the FDA or comparable foreign regulatory authority of study data from clinical trials conducted outside the United States or another jurisdiction may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice and (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction, including from our ongoing and planned Phase 3 clinical trials of acoramidis, for which we have enrolled, and plan to enroll, cohorts outside the United States. If the FDA or any comparable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in product candidates that we may develop not receiving approval or clearance for commercialization in the applicable jurisdiction. Even if we obtain FDA approval for product candidates that we may identify and pursue in the United States, we may never obtain approval to commercialize any product candidates outside of the United States, which would limit our ability to realize their full market potential. In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and effectiveness. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional or different administrative review periods from those in the United States, including additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval. Seeking foreign regulatory approval could result in difficulties and costs and require additional nonclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our product candidates in those countries. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approval in international markets is delayed, our target market will be reduced and our ability to realize the full market potential of our products will be harmed. Interim, “top-line,” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available or as additional analyses are conducted, and as the data are subject to audit and verification procedures that could result in material changes in the final data. From time to time, we may publish interim, “top-line,” or preliminary data from our clinical studies. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Material adverse changes between preliminary, “top-line,” or interim data and final data could significantly harm our business, financial condition, results of operations and prospects. 57 Even though we may apply for orphan drug designation for our product candidates, we may not be able to obtain orphan drug marketing exclusivity. Our business strategy focuses on the development of product candidates for the treatment of genetic diseases, which may be eligible for FDA or EMA orphan drug designation. Regulatory authorities in some jurisdictions, including the United States and European Union, may designate drugs or biologics for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In order to obtain orphan drug designation, the request must be made before submitting an NDA or BLA. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. If a product that has orphan drug designation subsequently receives the first FDA approval of that particular product for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including an NDA or BLA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances such as a showing of clinical superiority to the product with orphan drug exclusivity or if FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. As a result, even if one of our product candidates receives orphan exclusivity, the FDA can still approve other drugs or biologics for use in treating the same indication or disease or the same biologic for a different indication or disease during the exclusivity period. Furthermore, the FDA can waive orphan exclusivity if we are unable to manufacture sufficient supply of our product or if a subsequent applicant demonstrates clinical superiority over our product. In the European Union, the Committee for Orphan Medicinal Products of the EMA grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union (or where it is unlikely that the development of the medicine would generate sufficient return to justify the investment) and for which no satisfactory method of diagnosis, prevention, or treatment is authorized or, if a method exists, the product would be of significant benefit to those affected by the condition. We have obtained from the FDA orphan drug designations for: BBP-009 for the treatment of nevoid basal cell carcinoma syndrome, or Gorlin syndrome; acoramidis for the treatment of transthyretin amyloidosis; BBP-589 for the treatment of dystrophic epidermolysis bullosa; BBP-631 for the treatment of CAH 21OHD; fosdenopterin for the treatment of molybdenum cofactor deficiency type A; BBP-551 for the treatment of Leber congenital amaurosis, or LCA, due to inherited mutations in RPE65 or LRAT genes and for the treatment of retinitis pigmentosa; infigratinib for the treatment of cholangiocarcinoma; and BBP-812 for the treatment of Canavan Disease. We have obtained from the EMA orphan drug designation for: BBP-009 for the treatment of nevoid basal cell carcinoma syndrome, or Gorlin syndrome; acoramidis for the treatment of ATTR amyloidosis; BBP-589 for the treatment of epidermolysis bullosa; fosdenopterin for the treatment of molybdenum cofactor deficiency type A; and BBP-551 for the treatment of retinitis pigmentosa and for the treatment of Leber’s congenital amaurosis; BBP-631 for the treatment of congenital adrenal hyperplasia; and BBP-812 for the treatment of Canavan Disease. We may seek orphan drug designation for other product candidates. Even if we obtain orphan drug designation, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition, or if a subsequent applicant demonstrates clinical superiority over our products, if approved. In addition, although we may seek orphan drug designation for other product candidates, we may never receive such designations. Any failure to obtain, maintain or otherwise recognize the benefits of, orphan drug designation for our product candidates could have a material adverse effect on our prospects. 58 Certain of our product candidates, including our protein therapeutic and gene therapy product candidates, are novel, complex and difficult to manufacture. We could experience manufacturing problems that result in delays in our development or commercialization programs or otherwise harm our business. The manufacturing processes our CMOs use to produce our product candidates, including our protein therapeutic and gene therapy product candidates, are complex, novel and have not been validated for commercial use. Several factors have caused and may cause future production interruptions, including restrictions on certain manufacturing operations and shortages in on-site personnel at our CMOs’ manufacturing facilities as a result of governmental “stay at home” orders in response to the COVID-19 outbreak, equipment malfunctions, facility contamination, raw material shortages or contamination, natural disasters, disruption in utility services, human error or disruptions in the operations of our suppliers. Several of our small molecule product candidates are particularly complex and difficult to manufacture, in some cases due to the number of steps required, the process complexity and the toxicity of end or intermediate-stage products. Our protein therapeutic and gene therapy product candidates require processing steps that are more complex than those required for most small molecule drugs. Moreover, unlike small molecules, the physical and chemical properties of certain of our biologic product candidates generally cannot be fully characterized. As a result, assays of the finished product may not be sufficient to ensure that the product is consistent from lot-to-lot or will perform in the intended manner. Accordingly, our CMOs must employ multiple steps to control the manufacturing process to assure that the process is reproducible and the product candidate is made strictly and consistently in compliance with the process. Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims or insufficient inventory to conduct clinical trials or supply commercial markets. We may encounter problems achieving adequate quantities and quality of clinical-grade materials that meet the FDA, the EMA or other applicable standards or specifications with consistent and acceptable production yields and costs. In addition, the FDA, the EMA and other foreign regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA or other foreign regulatory authorities may require that we not distribute a lot until the agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay product launches or clinical trials, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects. Our CMOs also may encounter problems hiring and retaining the experienced scientific, quality assurance, quality-control and manufacturing personnel needed to operate our manufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements. Any problems in our CMOs’ manufacturing process or facilities could result in delays in planned clinical trials and increased costs, and could make us a less attractive collaborator for potential partners, including larger biotechnology companies and academic research institutions, which could limit access to additional attractive development programs. Problems in our manufacturing process could also restrict our ability to meet potential future market demand for any products that may be approved. Certain of our product candidates are based on a novel adeno-associated virus, or AAV, gene therapy technology with which there is limited clinical or regulatory experience to date, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval. Certain of our product candidates are based on gene therapy technology and our future success depends on the successful development of this novel therapeutic approach. We cannot assure you that any development problems we or other gene therapy companies experience in the future related to gene therapy technology will not cause significant delays or unanticipated costs in the development of our product candidates, or that such development problems can be solved. In addition, the clinical study requirements of the FDA, EMA and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or extensively studied therapeutic modalities. Further, as we are developing novel treatments for diseases in which there is limited clinical experience with new endpoints and methodologies, there is heightened risk that the FDA, EMA or comparable foreign regulatory bodies may not consider the clinical trial endpoints to provide clinically meaningful results, and the resulting clinical data and results may be more difficult to analyze. To date, few gene therapy products have been approved by the FDA or comparable foreign regulatory authorities, which makes it difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our product candidates in the United States, the European Union or other jurisdictions. Further, approvals by one regulatory agency may not be indicative of what other regulatory agencies may require for approval. 59 Regulatory re quirements governing gene therapy products have evolved and may continue to change in the future. For example, the FDA established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. These and other regulatory review agencies, committees and advisory groups and the requirements and guidelines th ey promulgate may lengthen the regulatory review process, require us to perform additional preclinical studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and co mmercialization of these treatment candidates or lead to significant post-approval limitations or restrictions. The FDA, National Institutes of Health, or NIH, other regulatory agencies at both the federal and state level in the United States, U.S. congressional committees, and the EMA and other foreign governments, have expressed interest in further regulating the biotechnology industry, including gene therapy and genetic testing. For example, the EMA advocates a risk-based approach to the development of a gene therapy product. Any such further regulation may delay or prevent commercialization of some or all of our product candidates. For example, in 1999, a patient died during a gene therapy clinical trial that utilized an adenovirus vector and it was later discovered that adenoviruses could generate an extreme immune system reaction that can be life-threatening. In January 2000, the FDA halted that trial and began investigating 69 other gene therapy trials underway in the United States, 13 of which required remedial action. In 2003, the FDA suspended 27 additional gene therapy trials involving several hundred patients after learning that some patients treated in a clinical trial in France had subsequently developed leukemia. While the new AAV vectors that we use across our portfolio of gene therapy product candidates have been designed and developed to help reduce these side effects, gene therapy is still a relatively new approach to disease treatment and past as well as different adverse side effects could develop. Regulatory requirements in the United States and abroad governing gene therapy products have changed frequently and may continue to change in the future. For example, in addition to the submission of an IND, to the FDA, before initiation of a clinical trial in the United States, certain human clinical trials for cell therapy products and gene therapy had historically been subject to review by the NIH Office of Biotechnology Activities’ Recombinant DNA Advisory Committee, or the RAC, pursuant to the NIH Guidelines for Research Involving Recombinant DNA Molecules, or NIH Guidelines. Following an initial review, RAC members would make a recommendation as to whether the protocol raises important scientific, safety, medical, ethical or social issues that warrant in-depth discussion at the RAC’s quarterly meetings. Although the FDA decides whether individual gene therapy protocols may proceed under an IND, the RAC’s recommendations were shared with the FDA and, the RAC public review process, if undertaken, could have impeded or delayed the initiation of a clinical trial, even if the FDA has reviewed the trial and approved its initiation or has notified the sponsor that the study may begin. Conversely, the FDA can put an IND on clinical hold even if the RAC provided a favorable review or has recommended against an in-depth, public review. On August 17, 2018, the NIH issued a notice in the Federal Register and issued a public statement proposing changes to the oversight framework for gene therapy trials, including changes to the applicable NIH Guidelines to modify the roles and responsibilities of the RAC with respect to human clinical trials of gene therapy products, and requesting public comment on its proposed modifications. During the public comment period, which closed on October 16, 2018, the NIH had announced that it would no longer accept new human gene transfer protocols for review as part of the protocol registration process under the existing NIH Guidelines or convene the RAC to review individual clinical protocols. In April 2019, NIH announced the updated guidelines, which reflect these proposed changes, and clarify that these trials will remain subject to the FDA’s oversight and other clinical trial regulations, and oversight at the local level will continue as otherwise set forth in the NIH Guidelines. Specifically, under the NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to the public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Even though we may not be required to submit a protocol for our gene therapy product candidates through the NIH for RAC review, we will still be subject to significant regulatory oversight by the FDA, and in addition to the government regulators, the applicable IBC and IRB of each institution at which we or our collaborators conduct clinical trials of our product candidates, or a central IRB if appropriate, would need to review and approve the proposed clinical trial. Similarly, the EMA governs the development of gene therapies in the European Union and may issue new guidelines concerning the development and marketing authorization for gene therapy products and require that we comply with these new guidelines. 60 These regulatory review committees and advisory groups and the new guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, le ad to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of such product candidates. These additional processes may result in a review and appro val process that is longer than we otherwise would have expected. Delays as a result of an increased or lengthier regulatory approval process or further restrictions on the development of our product candidates can be costly and could negatively impact our ability to complete clinical trials and commercialize our current and future product candidates in a timely manner, if at all. Our product candidates based on gene therapy technology may cause undesirable and unforeseen side effects or be perceived by the public as unsafe, which could delay or prevent their advancement into clinical trials or regulatory approval, limit the commercial potential or result in significant negative consequences. Public attitudes may be influenced by claims that gene therapy technology is unsafe, unethical, or immoral, and, consequently, our product candidates may not gain the acceptance of the public or the medical community. Adverse public attitudes may adversely impact our ability to enroll clinical trials. Moreover, our success will depend upon physicians prescribing, and their patients being willing to receive, treatments that involve the use of product candidates we may develop in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may be available. For example, there have been several significant adverse side effects in prior clinical trials of gene therapy product candidates, including reported cases of leukemia and death seen in other trials using other vectors. While new AAV vectors have been developed to reduce these side effects, gene therapy is still a relatively new approach to disease treatment and additional adverse side effects could develop. There also is the potential risk of delayed AEs following exposure to gene therapy products due to persistent biologic activity of the genetic material or other components of products used to carry the genetic material. Possible adverse side effects that could occur with treatment with gene therapy products include an immunologic reaction early after administration which could be detrimental to the patient’s health or substantially limit the effectiveness and durability of the treatment. For example, an increasingly anticipated side effect of AAV gene therapy is the development of a T-cell immunological response, most often seen affecting the liver. Any actual or perceived negative effects of our AAV gene therapy product candidates or those under development by third parties could impair our ability to continue the development of these product candidates and have an adverse effect on our prospects. The FDA has granted rare pediatric disease designation to fosdenopterin for the treatment of molybdenum cofactor deficiency type A. However, a marketing application for fosdenopterin, if approved, may not meet the eligibility criteria for a priority review voucher. The FDA has granted rare pediatric disease designation to fosdenopterin for the treatment of molybdenum cofactor deficiency type A, or MoCD Type A. Designation of a drug as a drug for a rare pediatric disease does not guarantee that an NDA for such drug will meet the eligibility criteria for a rare pediatric disease priority review voucher at the time the application is approved. Under the Federal Food, Drugs, and Cosmetic Act, or FDCA, we will need to request a rare pediatric disease priority review voucher in our original NDA for fosdenopterin. The FDA may determine that an NDA for fosdenopterin, if approved, does not meet the eligibility criteria for a priority review voucher, including for the following reasons: • MoCD Type A no longer meets the definition of a rare pediatric disease; • the NDA contains an active ingredient (including any ester or salt of the active ingredient) that has been previously approved in an NDA; • the NDA is not deemed eligible for priority review; • the NDA does not rely on clinical data derived from studies examining a pediatric population and dosages of the drug intended for that population (that is, if the NDA does not contain sufficient clinical data to allow for adequate labeling for use by the full range of affected pediatric patients); or • the NDA is approved for a different adult indication than the rare pediatric disease for which fosdenopterin is designated (for example, if fosdenopterin is approved for an indication based on specific genetic alterations that would be inclusive of, but not limited to, fosdenopterin). 61 The authority for the FDA to awar d rare pediatric disease priority review vouchers for drugs that have received rare pediatric disease designation prior to September 30, 2020 currently expires on September 30, 2022 , although it is possible the FDA’s authority to award rare pediatric disea se priority review vouchers will be further extended through federal lawmaking . Absent any such extension, i f the NDA for fosdenopterin is not approved prior to September 30, 2022 for any reason, regardless of whether it meets the criteria for a rare pediatric disease priority review voucher, it will not be eligible for a priority review voucher. We may not elect or be able to take advantage of any expedited development or regulatory review and approval processes available to product candidates granted breakthrough therapy, fast track or regenerative medicine advanced therapy designation by the FDA. We intend to evaluate and continue ongoing discussions with the FDA on regulatory strategies that could enable us to take advantage of expedited development pathways for certain of our product candidates, although we cannot be certain that our product candidates will qualify for any expedited development pathways or that regulatory authorities will grant, or allow us to maintain, the relevant qualifying designations. Potential expedited development pathways that we could pursue include breakthrough therapy, fast track designation and or regenerative medicine advanced therapy, or RMAT. Breakthrough therapy designation is intended to expedite the development and review of product candidates that are designed to treat serious or life-threatening diseases when “preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.” The designation of a product candidate as a breakthrough therapy provides potential benefits that include more frequent meetings with the FDA to discuss the development plan for the product candidate and ensure collection of appropriate data needed to support approval; more frequent written correspondence from the FDA about matters such as the design of the proposed clinical trials and use of biomarkers; intensive guidance on an efficient drug development program, beginning as early as Phase 1; organizational commitment involving senior managers; and eligibility for rolling review and priority review. Fast track designation is designed for product candidates intended for the treatment of a serious or life-threatening disease or condition, where nonclinical or clinical data demonstrate the potential to address an unmet medical need for this disease or condition. We may seek RMAT designation for one or more of our product candidates. In 2017, the FDA established the RMAT designation as part of its implementation of the 21st Century Cures Act to expedite review of any drug that meets the following criteria: it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease or condition. Like breakthrough therapy designation, RMAT designation provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites. RMAT-designated products that receive accelerated approval may, as appropriate, fulfill their post-approval requirements through the submission of clinical evidence, clinical trials, patient registries, or other sources of real world evidence, such as electronic health records; through the collection of larger confirmatory data sets; or via post-approval monitoring of all patients treated with such therapy prior to approval of the therapy. Although BBP-589 has received fast track designation for the treatment of dystrophic epidermolysis bullosa, or DEB, fosdenopterin has received breakthrough therapy designation for MoCD, BBP-009 has received breakthrough therapy designation for the reduction of life-long, serious clinical morbidity and disease burden of persistently developing BCCs in patients with basal cell nevus syndrome, or BCNS, which is also known as Gorlin Syndrome, infigratinib has received fast track designation for the first-line treatment of adult patients with unresectable locally advanced or metastatic cholangiocarcinoma with FGFR2 gene fusions or translocations, and BBP-551 has received fast track designation for the treatment of LCA due to inherited mutations in LRAT and RPE65 genes and for the treatment of autosomal recessive RP due to inherited mutations in LRAT and RPE genes, we may elect not to pursue any of breakthrough therapy, fast track or RMAT designations for our other product candidates, and the FDA has broad discretion whether or not to grant these designations. Even if we believe a particular product candidate is eligible for breakthrough therapy, fast track designation or RMAT, there can be no assurance that the FDA would decide to grant it. Breakthrough therapy designation, fast track and RMAT designation do not change the standards for product approval, and there is no assurance that such designation or eligibility will result in expedited review or approval or that the approved indication will not be narrower than the indication covered by the breakthrough therapy, fast track or RMAT designation. Thus, even if we do receive breakthrough therapy, fast track or RMAT designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw breakthrough therapy, fast track or RMAT designation if it believes that the product no longer meets the qualifying criteria. Our business may be harmed if we are unable to avail ourselves of these or any other expedited development and regulatory pathways. 62 If we are unable to successful ly validate, develop and obtain regulatory approval for companion diagnostic tests for our drug candidates that require or would commercially benefit from such tests, or experience significant delays in doing so, we may not realize the full commercial pote ntial of these drug candidates. In connection with the clinical development of our drug candidates for certain indications, we may work with collaborators to develop or obtain access to in vitro companion diagnostic tests to identify patient subsets within a disease category who may derive selective and meaningful benefit from our drug candidates. For example, we are currently developing a companion diagnostic for infigratinib in patients with CCA in collaboration with Foundation Medicine, or FMI. Such companion diagnostics would be used during our clinical trials as well as in connection with the commercialization of our product candidates. To be successful, we or our collaborators will need to address a number of scientific, technical, regulatory and logistical challenges. The FDA and comparable foreign regulatory authorities regulate in vitro companion diagnostics as medical devices and, under that regulatory framework, will likely require the conduct of clinical trials to demonstrate the safety and effectiveness of any diagnostics we may develop, which we expect will require separate regulatory clearance or approval prior to commercialization. We may rely on third parties for the design, development and manufacture of companion diagnostic tests for our therapeutic drug candidates that may require such tests. If we enter into such collaborative agreements, we will be dependent on the sustained cooperation and effort of our future collaborators in developing and obtaining approval for these companion diagnostics. It may be necessary to resolve issues such as selectivity/specificity, analytical validation, reproducibility, or clinical validation of companion diagnostics during the development and regulatory approval processes. Moreover, even if data from preclinical studies and early clinical trials appear to support development of a companion diagnostic for a product candidate, data generated in later clinical trials may fail to support the analytical and clinical validation of the companion diagnostic. We and our future collaborators may encounter difficulties in developing, obtaining regulatory approval for, manufacturing and commercializing companion diagnostics similar to those we face with respect to our therapeutic candidates themselves, including issues with achieving regulatory clearance or approval, production of sufficient quantities at commercial scale and with appropriate quality standards, and in gaining market acceptance. If we are unable to successfully develop companion diagnostics for these therapeutic drug candidates, or experience delays in doing so, the development of these therapeutic drug candidates may be adversely affected, these therapeutic drug candidates may not obtain marketing approval, and we may not realize the full commercial potential of any of these therapeutics that obtain marketing approval. As a result, our business, results of operations and financial condition could be materially harmed. In addition, a diagnostic company with whom we contract may decide to discontinue selling or manufacturing the companion diagnostic test that we anticipate using in connection with development and commercialization of our product candidates or our relationship with such diagnostic company may otherwise terminate. We may not be able to enter into arrangements with another diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with the development and commercialization of our product candidates or do so on commercially reasonable terms, which could adversely affect and/or delay the development or commercialization of our therapeutic candidates. If approved, our investigational products regulated as biologics may face competition from biosimilars approved through an abbreviated regulatory pathway. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of the other company’s product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our investigational medicines to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once licensed, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. If competitors are able to obtain marketing approval for biosimilars referencing any of our products, if approved, our products may become subject to competition from such biosimilars, which would impair our ability to successfully commercialize and generate revenues from sales of such products. 63 Even if we obtain regulatory approval for a product candidate, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product c andidates. If any of our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and other post-market information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities. Manufacturers and manufacturers’ facilities are required to comply with extensive requirements imposed by the FDA and comparable foreign regulatory authorities, including ensuring that quality control and manufacturing procedures conform to current good manufacturing practices, or cGMP, regulations. As such, we and our CMOs will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA, BLA or marketing authorization application, or MAA. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production and quality control. Any regulatory approvals that we may receive for our product candidates will be subject to limitations on the approved indicated uses for which the product may be marketed and promoted or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the product candidate. We will be required to report certain adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing, labeling, advertising and promotion of products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved label. We will have to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. As such, we may not promote our products for indications or uses for which they do not have approval. The holder of an approved NDA, BLA or MAA must submit new or supplemental applications and obtain approval for certain changes to the approved product, product labeling, or manufacturing process. We could also be asked to conduct post-marketing clinical trials to verify the safety and efficacy of our products in general or in specific patient subsets. If original marketing approval was obtained via the accelerated approval pathway, we could be required to conduct a successful post-marketing clinical trial to confirm clinical benefit for our products. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval. If a regulatory agency discovers previously unknown problems with a product, such as AEs of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things: • issue warning letters that would result in adverse publicity; • impose civil or criminal penalties; • suspend or withdraw regulatory approvals; • suspend any of our ongoing clinical trials; • refuse to approve pending applications or supplements to approved applications submitted by us; • impose restrictions on our operations, including closing our CMOs’ facilities; • seize or detain products; or • require a product recall. Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. 64 We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administ rative action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number o f Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and a pproval of marketing applications. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted. The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If any of our product candidates are approved and we are found to have improperly promoted off-label uses of those products, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, if approved. In particular, while FDA permits the dissemination of truthful and non-misleading information about an approved product, a manufacturer may not promote a product for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees, corporate integrity agreements or permanent injunctions under which specified promotional conduct must be changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition. Risks Related to Reliance on Third Parties We expect to rely on third parties to conduct our clinical trials and some aspects of our research and preclinical testing, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research, or testing. We currently rely and expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions, and clinical investigators, to conduct some aspects of research and preclinical testing and clinical trials. Any of these third parties may terminate their engagements with us or be unable to fulfill their contractual obligations. If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative third parties on commercially reasonable terms, or at all. If we need to enter into alternative arrangements, it would delay our product development activities. Our reliance on these third parties for research and development activities reduces control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our respective clinical trials is conducted in accordance with the general investigational plan and protocols for the trial and applicable legal, regulatory, and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. In addition, the FDA and comparable foreign regulatory authorities require compliance with GCPs for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible, reproducible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators, and trial sites. If we or any of these third parties fail to comply with applicable GCP regulations, some or all of the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional nonclinical or clinical trials or to enroll additional patients before approving our marketing applications. We cannot be certain that, upon inspection, such regulatory authorities will determine that any of our clinical trials complies with the GCP regulations. For any violations of laws and regulations during the conduct of clinical trials, we could be subject to untitled and warning letters or enforcement action that may include civil penalties up to and including criminal prosecution. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database within certain timeframes. Failure to do so can result in fines, adverse publicity, and civil and criminal sanctions. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or conduct clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for any product candidates we may develop and will not be able to, or may be delayed in our efforts to, successfully commercialize our medicines. Our failure or the failure of these third parties to comply applicable regulatory requirements or our stated protocols could also subject us to enforcement action. We also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of any product candidates we may develop or commercialization of our medicines, producing additional losses and depriving us of potential product revenue. 65 We rely entirely on third parties for the manufacturing of our product candidates or other product candidates t hat we may develop for preclinical studies and clinical trials and expect to continue to do so for commercialization. Our business could be harmed if those third parties fail to provide us with sufficient quantities of drug product, or fail to do so at acc eptable quality levels or prices. We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture drug supplies for our ongoing clinical trials or any future clinical trials that we may conduct, and we lack the resources to manufacture any product candidates on a commercial scale. We rely, and expect to continue to rely, on third-party manufacturers to produce our current product candidates or other product candidates that we may identify for clinical trials, as well as for commercial manufacture if any product candidates that receive marketing approval. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete the trial, any significant delay or discontinuity in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay the clinical development and potential regulatory approval of our product candidates, which could harm our business and results of operations. We also expect to rely primarily on third parties for the manufacturing of commercial supply of our product candidates, if approved. We may be unable to identify and appropriately qualify third-party manufacturers or establish agreements with third-party manufacturers or do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including: • reliance on the third party for sourcing of raw materials, components, and such other goods as may be required for execution of its manufacturing processes and the oversight by the third party of its suppliers; • reliance on the third party for regulatory compliance and quality assurance for the manufacturing activities each performs; • the possible breach of the manufacturing agreement by the third party; • the possible misappropriation of proprietary information, including trade secrets and know-how; and • the possible termination or non-renewal of the agreement by the third party at a time that is costly or inconvenient for us. Furthermore, all of our CMOs are engaged with other companies to supply and/or manufacture materials or products for such companies, which exposes our manufacturers to regulatory risks for the production of such materials and products. The facilities used by our contract manufacturers to manufacture our product candidates are subject to review by the FDA pursuant to inspections that will be conducted after we submit an NDA or BLA to the FDA. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements, known as current good manufacturing practice, or cGMP, requirements for manufacture of drug and biologic products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, we will not be able to secure or maintain regulatory approval for our product candidates manufactured at these manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the manufacture of our product candidates or if any agency withdraws its approval in the future, we may need to find alternative manufacturing facilities, which would negatively impact the ability to develop, obtain regulatory approval for or market our product candidates, if approved. Our product candidates may compete with other product candidates and marketed drugs for access to manufacturing facilities. Any performance failure on the part of our existing or future manufacturers could delay clinical development, marketing approval or commercialization. Our current and anticipated future dependence upon others for the manufacturing of our product candidates may adversely affect our future profit margins and our ability to commercialize any product candidates that receive marketing approval on a timely and competitive basis. The drug substance and drug product for certain of our product candidates are currently acquired from single-source suppliers. The loss of these suppliers, or their failure to supply us with the drug substance or drug product, could materially and adversely affect our business. The drug substance and drug product for certain of our product candidates, including Veratrum californicum, or corn lily, from which we obtain cyclopamine for BBP-009, are grown or manufactured by single-source suppliers or CMOs under development and manufacturing contracts and services and quality agreements and purchase orders. We do not currently have any other suppliers for the drug substance or drug product of these product candidates and, although we believe that there are alternate sources of supply that could satisfy our clinical and commercial requirements, we cannot assure you that identifying alternate sources and establishing relationships with such sources would not result in significant delay in the development of our product candidates. 66 Our dependence on single-source suppliers exposes us to certain risks, including the following: • our suppliers may cease or reduce production or deliveries, raise prices or renegotiate terms; • delays caused by supply issues may harm our reputation; and • our ability to progress our business could be materially and adversely impacted if our single-source suppliers upon which we rely were to experience a significant business challenges, disruption or failures due to issues such as financial difficulties or bankruptcy, issues relating regulatory or quality compliance issues, or other legal or reputational issues. Additionally, we may not be able to enter into supply arrangements with alternative suppliers on commercially reasonable terms, or at all. A delay in the development of our product candidates or having to enter into a new agreement with a different third party on less favorable terms than we have with our current suppliers could have a material adverse impact upon on our business. If the contract manufacturing facilities on which we rely do not continue to meet regulatory requirements or are unable to meet our supply demands, our business will be harmed. All entities involved in the preparation of product candidates for clinical trials or commercial sale, including our existing CMOs for all of our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP, or similar regulatory requirements outside the United States. These regulations govern manufacturing processes and procedures, including recordkeeping, and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates. Our failure, or the failure of third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, suspension of production, seizures or recalls of product candidates or marketed drugs, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect clinical or commercial supplies of our product candidates. We or our CMOs must supply all necessary documentation in support of an NDA, BLA or MAA on a timely basis and must adhere to regulations enforced by the FDA and other regulatory agencies through their facilities inspection program. Some of our CMOs have never produced a commercially approved pharmaceutical product and therefore have not obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we oversee the CMOs, we cannot control the manufacturing process of, and are completely dependent on, our CMO partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever. The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business. Additionally, if supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA, BLA supplement or MAA variation, or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines. These factors could cause us to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue. 67 Collaborative relationships with third parties could cause us to expend significant resources and incur substantial business risk with no assurance of fin ancial return. We anticipate relying upon strategic collaborations for marketing and commercializing our existing product candidates. For example, Eidos is party to a license agreement with Alexion Pharma International Operations Unlimited Company, or Alexion, pursuant to which we depend on Alexion for the clinical development and commercialization of acoramidis in Japan. In addition, we may rely even more on strategic collaborations for R&D of other product candidates, and we may sell or license other product offerings through strategic partnerships with pharmaceutical and biotechnology companies. If we enter into R&D collaborations during the early phases of product development, success will in part depend on the performance of research collaborators. We will not directly control the amount or timing of resources devoted by research collaborators to activities related to product candidates. Research collaborators may not commit sufficient resources to our R&D programs. If any research collaborator fails to commit sufficient resources, the preclinical or clinical development programs related to the collaboration could be delayed or terminated. Also, collaborators may pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us. Finally, if we fail to make required milestone or royalty payments to collaborators or to observe other obligations in agreements with them, the collaborators may have the right to terminate or stop performance of those agreements. Establishing strategic collaborations is difficult and time-consuming. Our discussions with potential collaborators may not lead to the establishment of collaborations on favorable terms, if at all. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. Even if we successfully establish collaborations, these relationships may never result in the successful development or commercialization of product candidates or the generation of sales revenue. To the extent that we enter into collaborative arrangements, the related product revenues are likely to be lower than if we directly marketed and sold products. Such collaborators may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for any future product candidate. Management of our relationships with collaborators will require: • significant time and effort from our management team; • coordination of our marketing and R&D programs with the marketing and R&D priorities of our collaborators; and • effective allocation of our resources to multiple projects. If we are unable to establish or maintain such strategic collaborations on terms favorable to us in the future, our R&D efforts and potential to generate revenue may be limited. We are parties to and may seek to enter into additional collaborations, licenses and other similar arrangements and may not be successful in maintaining existing arrangements or entering into new ones, and even if we are, we may not realize the benefits of such relationships. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include risks that: • collaborators may have significant discretion in determining the efforts and resources that they will apply to collaborations; • collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to their acquisition of competitive products or their internal development of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities; • collaborators may delay clinical trials, provide insufficient funding for a development program, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; • collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates; • a collaborator with marketing, manufacturing and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities; 68 • we could grant exclusive rights to our collaborators that would prevent us from collaborating with others; • collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability; • disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our current or future product candidates or that results in costly litigation or arbitration that diverts management attention and resources; • collaborations may be terminated, which may result in a need for additional capital to pursue further development or commercialization of the applicable current or future product candidates; • collaborators may own or co-own intellectual property covering products that result from our collaboration with them, and in such cases, we would not have the exclusive right to develop or commercialize such intellectual property; • disputes may arise with respect to the ownership of any intellectual property developed pursuant to our collaborations; and • a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminal proceedings. Additionally, we may seek to enter into additional collaborations, joint ventures, licenses and other similar arrangements for the development or commercialization of our product candidates, due to capital costs required to develop or commercialize the product candidate or manufacturing constraints. We may not be successful in our efforts to establish such collaborations for our product candidates because our research and development pipeline may be insufficient, our product candidates may be deemed to be at too early of a stage of development for collaborative effort or third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy or significant commercial opportunity. In addition, we face significant competition in seeking appropriate strategic partners, and the negotiation process can be time consuming and complex. Further, any future collaboration agreements may restrict us from entering into additional agreements with potential collaborators. We cannot be certain that, following a strategic transaction or license, we will achieve an economic benefit that justifies such transaction. Even if we are successful in our efforts to establish such collaborations, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such collaborations if, for example, development or approval of a product candidate is delayed, the safety of a product candidate is questioned or sales of an approved product candidate are unsatisfactory. In addition, any potential future collaborations may be terminable by our strategic partners, and we may not be able to adequately protect our rights under these agreements. Furthermore, strategic partners may negotiate for certain rights to control decisions regarding the development and commercialization of our product candidates, if approved, and may not conduct those activities in the same manner as we do. Any termination of collaborations we enter into in the future, or any delay in entering into collaborations related to our product candidates, could delay the development and commercialization of our product candidates and reduce their competitiveness if they reach the market, which could have a material adverse effect on our business, financial condition and results of operations. Risks Related to Our Intellectual Property If we are unable to obtain and maintain sufficient intellectual property protection for our product candidates, including acoramidis, infigratinib, BBP-454, BBP-631, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize product candidates similar or identical to ours, and our ability to successfully commercialize our product candidates may be impaired. As is the case with other pharmaceutical and biopharmaceutical companies, our success depends in large part on our ability to obtain and maintain protection of the intellectual property we may own solely and jointly with others, particularly patents, in the United States and other countries with respect to our product candidates and technology. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our product candidates. Obtaining and enforcing pharmaceutical and biopharmaceutical patents is costly, time consuming and complex, and we may not be able to file and prosecute all necessary or desirable patent applications, or maintain, enforce and license any patents that may issue from such patent applications, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. We may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the rights to patents licensed to third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. 69 The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal, technological and factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States, or vice versa. Further, we may not be aware of all third-party intellectual property rights potentially relating to our product candidates. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Furthermore, the scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history and can involve other factors such as expert opinion. Our analysis of these issues, including interpreting the r elevance or the scope of claims in a patent or a pending application, determining applicability of such claims to our proprietary technologies or product candidates, predicting whether a third party’s pending patent application will issue with claims of re levant scope, and determining the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. We do not always conduct indepe ndent reviews of pending patent applications of and patents issued to third parties. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may n ot result in patents being issued that protect our product candidates, in whole or in part, or which effectively prevent others from commercializing competitive product candidates. Even if our patent applications issue as patents, they may not issue in a f orm that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative product c andidates in a non-infringing manner. Our ability to enforce patent rights also depends on our ability to detect infringement. It may be difficult to detect infringers who do not advertise the components or methods that are used in connection with their products and services. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product or service. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful. If we initiate lawsuits to protect or enforce our patents, or litigate against third-party claims, such proceedings would be expensive and would divert the attention of our management and technical personnel. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. Moreover, we may be subject to a third-party preissuance submission of prior art to the United States Patent and Trademark Office, or the USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize drugs without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. In addition, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical product candidates to ours, or limit the duration of the patent protection of our product candidates. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing drugs similar or identical to ours. Furthermore, our intellectual property rights may be subject to a reservation of rights by one or more third parties. For example, the research resulting in certain of our patent rights and technology was funded in part by the U.S. government. As a result, the government has certain rights, including march-in rights, to such patent rights and technology. When new technologies are developed with government funding, the government generally obtains certain rights in any resulting patents, including a non-exclusive license authorizing the government to use the invention or to have others use the invention on its behalf. These rights may permit the government to disclose our information to third parties and to exercise march-in rights to use or allow third parties to use our technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. Any exercise by the government of such rights or by any third party of its reserved rights could harm our competitive position, business, financial condition, results of operations, and prospects. 70 Our rights to develop and commercialize our product candidates are subject in part to the terms and conditions of licenses granted to us by others, and the patent protection, prosecution and enforcement for some of our product candidates may be d ependent on our licensors. We currently are reliant upon licenses of certain intellectual property rights and proprietary technology from third parties that are important or necessary to the development of our proprietary technology, including technology related to our product candidates. These licenses, and other licenses we may enter into in the future, may not provide adequate rights to use such intellectual property rights and proprietary technology in all relevant fields of use or in all territories in which we may wish to develop or commercialize technology and product candidates in the future. Licenses to additional third-party proprietary technology or intellectual property rights that may be required for our development programs may not be available in the future or may not be available on commercially reasonable terms. In that event, we may be required to expend significant time and resources to redesign our proprietary technology or product candidates or to develop or license replacement technology, which may not be feasible on a technical or commercial basis. If we are unable to do so, we may not be able to develop and commercialize technology and product candidates in fields of use and territories for which we are not granted rights pursuant to such licenses, which could harm our competitive position, business, financial condition, results of operations and prospects significantly. In some circumstances, we may not have the right to control the preparation, filing, prosecution and enforcement of patent applications, or to maintain the patents, covering technology that we license from third parties. In addition, some of our agreements with our licensors require us to obtain consent from the licensor before we can enforce patent rights, and our licensor may withhold such consent or may not provide it on a timely basis. Therefore, we cannot be certain that our licensors or collaborators will prosecute, maintain, enforce and defend such intellectual property rights in a manner consistent with the best interests of our business, including by taking reasonable measures to protect the confidentiality of know-how and trade secrets, or by paying all applicable prosecution and maintenance fees related to intellectual property registrations for any of our product candidates. We also cannot be certain that our licensors have drafted or prosecuted the patents and patent applications licensed to us in compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents or any patents that may issue from such applications. This could cause us to lose rights in any applicable intellectual property that we in-license, and as a result our ability to develop and commercialize product candidates may be adversely affected and we may be unable to prevent competitors from making, using and selling competing products. In addition, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, while we cannot currently determine the amount of the royalty obligations we would be required to pay on sales of future products, if any, the amounts may be significant. The amount of our future royalty obligations will depend on the technology and intellectual property we use in product candidates that we successfully develop and commercialize, if any. Therefore, even if we successfully develop and commercialize product candidates, we may be unable to achieve or maintain profitability. In addition, we may seek to obtain additional licenses from our licensors and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to terms that could enable third parties (potentially including our competitors) to receive licenses to a portion of the intellectual property rights that are subject to our existing licenses. Any of these events could have a material adverse effect on our competitive position, business, financial condition, results of operations, and prospects. If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or these agreements are terminated or we otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are important to our business. We are party to various agreements that we depend on to operate our business, and our rights to use currently licensed intellectual property, or intellectual property to be licensed in the future, are or will be subject to the continuation of and our compliance with the terms of these agreements. For example, we are a party to an exclusive license agreement with the Board of Trustees of the Leland Stanford Junior University, or Stanford, and may need to obtain additional licenses from others to advance our research and development activities to allow the commercialization of acoramidis or any other product candidates we may identify and pursue. Our license agreement with Stanford imposes, and we expect that future license agreements will impose, various development, diligence, commercialization, and other obligations on us. In particular, under our license agreement with Stanford, we are required to use commercially reasonable efforts to engage in various development and commercialization activities with respect to licensed products, and must satisfy specified milestone and royalty payment obligations. We are also a party to a license agreement with Novartis International Pharmaceutical Ltd. for infigratinib under which we are required to use commercially reasonable efforts to develop infigratinib, and to obtain regulatory approval for and commercialize at least one therapeutic product incorporating infigratinib in the United States and the European Union. 71 In spite of our efforts, our licensors might conclude that we have materially breached our obligations under such license agreements and might therefore terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and technology covered by these license agreements. For example, if our license agreement with Stanford is terminated, competitors or other third parties would have the freedom to seek regulatory approval of, and to marke t, products identical to acoramidis and we may be required to cease our development and commercialization of acoramidis . Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operat ions and prospects. Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including: • the scope of rights granted under the license agreement and other interpretation-related issues; • the extent to which our product candidates, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; • the sublicensing of patent and other rights under our collaborative development relationships; • our diligence obligations under the license agreement and what activities satisfy those diligence obligations; • the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and • the priority of invention of patented technology. In addition, certain provisions in our license agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our competitive position, business, financial condition, results of operations and prospects. Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts. Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. However, our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter partes reexamination proceedings before the USPTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that acoramidis, infigratinib, BBP-454, BBP-631 or other product candidates that we may identify may be subject to claims of infringement of the patent rights of third parties. Other third parties may assert that we are employing their proprietary technology without authorization. There may be other third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all, or it may be non-exclusive, which could result in our competitors gaining access to the same intellectual property rights. 72 Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further d evelop and commercialize our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful cla im of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be im possible or require substantial time and monetary expenditure. Parties making claims against us may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on ability to raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects. Patent terms may be inadequate to protect our competitive position on product candidates for an adequate amount of time. Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional or international patent application filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. If we are not able to obtain patent term extension or non-patent exclusivity in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation, thereby potentially extending the marketing exclusivity term of our product candidates, our business may be materially harmed. Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, one of the U.S. patents covering each of such product candidates or the use thereof may be eligible for up to five years of patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA approved product as compensation for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product, a method for using it or a method for manufacturing it may be extended. Patent term extension also may be available in certain foreign countries upon regulatory approval of our product candidates. Nevertheless, we may not be granted patent term extension either in the United States or in any foreign country because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the term of extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority could be less than we request. If we are unable to obtain patent term extension or restoration, or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product may be shortened and our competitors may obtain approval of competing products following our patent expiration sooner, and our revenue could be reduced, possibly materially. It is possible that we will not obtain patent term extension under the Hatch-Waxman Act for a U.S. patent covering a product candidate even where that patent is eligible for patent term extension, or if we obtain such an extension, it may be for a shorter period than we had sought. Further, for certain of our licensed patents, we do not have the right to control prosecution, including filing with the USPTO, a petition for patent term extension under the Hatch-Waxman Act. Thus, if one of our licensed patents is eligible for patent term extension under the Hatch-Waxman Act, we may not be able to control whether a petition to obtain a patent term extension is filed, or obtained, from the USPTO. Also, there are detailed rules and requirements regarding the patents that may be submitted to the FDA for listing in the Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book. We may be unable to obtain patents covering our product candidates that contain one or more claims that satisfy the requirements for listing in the Orange Book. Even if we submit a patent for listing in the Orange Book, the FDA may decline to list the patent, or a manufacturer of generic drugs may challenge the listing. If one of product candidates is approved and a patent covering that product candidate is not listed in the Orange Book, a manufacturer of generic drugs would not have to provide advance notice to us of any abbreviated new drug application, or ANDA, filed with the FDA to obtain permission to sell a generic version of such product candidate. 73 If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed. We seek to protect our confidential proprietary information, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and collaborators. These agreements are designed to protect our proprietary information. However, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. For example, any of these parties may breach the agreements and disclose proprietary information, including trade secrets, and we may not be able to obtain adequate remedies for such breaches. We also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems, but it is possible that these security measures could be breached. If any of our confidential proprietary information were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. We may not be able to obtain adequate remedies in the event of such unauthorized use. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. Trade secrets will also over time be disseminated within the industry through independent development, the publication of journal articles and the movement of personnel skilled in the art from company to company or academic to industry scientific positions. Though our agreements with third parties typically restrict the ability of our advisors, employees, collaborators, licensors, suppliers, third-party contractors and consultants to publish data potentially relating to our trade secrets, our agreements may contain certain limited publication rights. In addition, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. Despite employing the contractual and other security precautions described above, the need to share trade secrets increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. If any of these events occurs or if we otherwise lose protection for our trade secrets, the value of this information may be greatly reduced and our competitive position, business, financial condition, results of operations, and prospects would be harmed. If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected. Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential collaborators or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. We may license our trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names. Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our competitive position, business, financial condition, results of operations and prospects. We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful. Competitors may infringe our patents or other intellectual property. If we were to initiate legal proceedings against a third party to enforce a patent covering one or more of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including novelty, nonobviousness, written description or enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to 74 determine the priority of inventions with respect to our pat ents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access to the same technology. Our defense of litigation or interference or derivation proceedings may fail and, even if successful, may result in su bstantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue clinical trials, continue research progr ams, license necessary technology from third parties, or enter into development partnerships that would help us bring product candidates to market. Furthermore, because of the substantial amount of discovery required in connection with intellectual propert y litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or develop ments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. We may be subject to claims challenging the inventorship of our patents and other intellectual property. Our agreements with employees and our personnel policies provide that any inventions conceived by an individual in the course of rendering services to us shall be our exclusive property. Although our policy is to have all such individuals enter into these agreements, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. The assignment of intellectual property may not be automatic upon the creation of an invention and despite such agreement, such inventions may become assigned to third parties. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we or our licensors may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operations and prospects. Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court. If we or one of our licensing partners initiated legal proceedings against a third party to enforce a patent covering one or more of our product candidates, the defendant could counterclaim that the patent covering the relevant product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including novelty, nonobviousness, written description or enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection would have a material adverse impact on our business. 75 We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these fees, and we employ an outside firm and rely on outside counsel to pay these fees due to non-U.S. patent agencies. However, we cannot guarantee that our licensors have similar systems and procedures in place to pay such fees. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business. We may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology and pharmaceutical products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. 76 Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products. Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to a patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us to be cognizant of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we or our licensors were the first to either (i) file any patent application related to our product candidates or (ii) invent any of the inventions claimed in our or our licensor’s patents or patent applications. The America Invents Act also includes a number of significant changes that affect the way patent applications are prosecuted and also may affect patent litigation. These include allowing third party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our owned or in-licensed patent applications and the enforcement or defense of our owned or in-licensed issued patents, all of which could have a material adverse effect on our competitive position, business, financial condition, results of operations, and prospects. In addition, the patent positions of companies in the development and commercialization of pharmaceuticals are particularly uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property rights in the future. Risks Related to Commercialization Even if any product candidates we develop receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors, and others in the medical community necessary for commercial success. The commercial success of our product candidates will depend upon their degree of market acceptance by physicians, patients, third-party payors, and others in the medical community. Even if any product candidates we may develop receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors, and others in the medical community. The degree of market acceptance of any product candidates we may develop, if approved for commercial sale, will depend on a number of factors, including: • the efficacy and safety of such product candidates as demonstrated in pivotal clinical trials and published in peer-reviewed journals; • the potential and perceived advantages compared to alternative treatments, including any similar generic treatments; • the ability to offer these products for sale at competitive prices; • the ability to offer appropriate patient access programs, such as co-pay assistance; • convenience and ease of dosing and administration compared to alternative treatments; • the clinical indications for which the product candidate is approved by FDA or comparable regulatory agencies; • product labeling or product insert requirements of the FDA or other comparable foreign regulatory authorities, including any limitations, contraindications or warnings contained in a product’s approved labeling; 77 • restrictions on how the product is distributed; • the timing of market introduction of competitive products; • publicity concerning these products or competing products and treatments; • the strength of marketing and distribution support; • favorable third-party coverage and sufficient reimbursement; and • the prevalence and severity of any side effects or AEs. Sales of medical products also depend on the willingness of physicians to prescribe the treatment, which is likely to be based on a determination by these physicians that the products are safe, therapeutically effective and cost effective. In addition, the inclusion or exclusion of products from treatment guidelines established by various physician groups and the viewpoints of influential physicians can affect the willingness of other physicians to prescribe the treatment. We cannot predict whether physicians, physicians’ organizations, hospitals, other healthcare providers, government agencies or private insurers will determine that our product is safe, therapeutically effective and cost effective as compared with competing treatments. If any product candidates we develop do not achieve an adequate level of acceptance, we may not generate significant product revenue, and we may not become profitable. If, in the future, we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any product candidates we may develop, we may not be successful in commercializing those product candidates if and when they are approved. We do not have a sales or marketing infrastructure and have little experience in the sale, marketing, or distribution of pharmaceutical products. To achieve commercial success for any approved product for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to third parties. In the future, we may choose to build a focused sales, marketing, and commercial support infrastructure to market and sell our product candidates, if and when they are approved. We may also elect to enter into collaborations or strategic partnerships with third parties to engage in commercialization activities with respect to selected product candidates, indications or geographic territories, including territories outside the United States, although there is no guarantee we will be able to enter into these arrangements even if the intent is to do so. There are risks involved with both establishing our own commercial capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force or reimbursement specialists is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and other commercialization capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition commercialization personnel. Factors that may inhibit our efforts to commercialize any approved product on our own include: • the inability to recruit and retain adequate numbers of effective sales, marketing, reimbursement, customer service, medical affairs, and other support personnel; • the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future approved products; • the inability of reimbursement professionals to negotiate arrangements for formulary access, reimbursement, and other acceptance by payors; • the inability to price products at a sufficient price point to ensure an adequate and attractive level of profitability; • restricted or closed distribution channels that make it difficult to distribute our products to segments of the patient population; • the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and • unforeseen costs and expenses associated with creating an independent commercialization organization. If we enter into arrangements with third parties to perform sales, marketing, commercial support, and distribution services, our product revenue or the profitability of product revenue may be lower than if we were to market and sell any products we may develop internally. In addition, we may not be successful in entering into arrangements with third parties to commercialize our product candidates or may be unable to do so on terms that are favorable to us or them. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively or may expose us to legal and regulatory risk by not adhering to regulatory requirements and restrictions governing the sale and promotion of prescription drug products, including those restricting off-label promotion. If we do not establish commercialization capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates, if approved. 78 The insurance coverage and reimbursement status of new