BridgeBio Pharma, Inc. 10-K

ITEM 7. 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 the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or 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 Annual Report on Form 10-K. The forward-looking statements in this Annual Report on Form 10-K represent our views as of the date of this Annual Report on Form 10-K. 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 Annual Report on Form 10-K. Overview BridgeBio Pharma, Inc. (we or the Company) is a team of experienced drug discoverers, developers, and innovators working to create life-altering medicines that target well-characterized genetic diseases at their source. BridgeBio was founded 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 30 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, legal, information technology 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 licensing arrangements. 118 Since our inception, we have incurred significant operating losses. For the years ended December 31, 2020, 201 9 and 2018 , we incurred net losses of $ 50 5.5 million , $28 8 . 6 million and $169.5 million, respectively . 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. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Due to the inherently unpredictable nature of preclinical and clinical development, and given our novel therapeutic approaches and the stage of development of our product candidates, we cannot determine and are unable to estimate with certainty the timelines we will require and the costs we will incur for the development of our product candidates. Clinical and preclinical development timelines and costs, and the potential of development success, can differ materially from expectations due to a variety of factors. For example, in light of developments relating to the global outbreak of SARS-CoV-2, the novel strain of coronavirus that causes Coronavirus disease 19, or COVID-19, 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 duration of delays and their overall impact on our business are currently unknown, and we are continuing to actively monitor the COVID-19 pandemic as it continues to rapidly evolve. Accordingly, we 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, the duration of the COVID-19 pandemic or its impact 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. For example, depending on the full impact and prevalence of COVID-19 over time, we currently expect to provide top-line data from Part A of our Phase 3 clinical trial of acoramidis in ATTR-CM in late 2021 or early 2022. Basis of Presentation and Consolidation Since our inception, we have created wholly-owned subsidiaries or made investments in certain controlled entities, including partially-owned subsidiaries for which we have majority voting interest under the VOE model or for which we are the primary beneficiary under the VIE model, which we refer to collectively as our consolidated entities. Ownership interests in entities over which we have significant influence, but not a controlling financial interest, are accounted for as cost and equity method investments. Ownership interests in consolidated entities that are held by entities other than us are reported as redeemable convertible noncontrolling interests and noncontrolling interests in our consolidated balance sheets. Losses attributed to redeemable convertible noncontrolling interests and noncontrolling interests are reported separately in our consolidated statements of operations. 119 Results of Operations Comparison of the years ended December 31, 2020 and 2019 We have included our financial results for 2020 compared to 2019. Additional information required by Item 7 for the year ended December 31, 2018 can be found in Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the U.S. Securities and Exchange Commission, or the SEC, on March 3, 2020 and is incorporated herein by reference. The following table summarizes the results of our operations for the periods indicated: Year Ended December 31, 2020 2019 Change (in thousands) License revenue $ 8,249 $ 40,560 $ (32,311 ) Cost of license revenue — 2,500 (2,500 ) Research and development 337,047 209,947 127,100 General and administrative 145,684 94,353 51,331 Loss from operations (474,482 ) (266,240 ) (208,242 ) Net loss (505,488 ) (288,585 ) (216,903 ) Net loss attributable to common stockholders of BridgeBio (448,724 ) (260,587 ) (188,137 ) Cash, cash equivalents and marketable securities 607,093 577,137 29,956 The results of operations for the years ended December 31, 2020 and 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other future annual or interim period. Cash, Cash Equivalents and Marketable Securities As of December 31, 2020, we had cash, cash equivalents and marketable securities of $607.1 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, or the 2020 Note Offering, to qualified institutional buyers. We received net proceeds from the 2020 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 2020 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 the at-the-market issuance of shares by Eidos Therapeutics, Inc., or Eidos, in February 2020. During the year ended December 31, 2020, we used cash of approximately $399.7 million to support our operations. License Revenue License revenue includes the recognition of upfront payments received in connection with our license agreements. The level of license revenue to be recognized depends in part upon the estimated recognition period of the upfront payments allocated to continuing performance obligations, the achievement of milestones and other contingent events, the amount of research and development work, and entering into new collaboration agreements, if any. License revenue for the year ended December 31, 2020 was $8.2 million arising primarily from the recognition of the $8.0 million upfront payment received by our subsidiary, Navire Pharma, Inc., from LianBio under the Navire-LianBio License Agreement (see Note 11 to our consolidated financial statements). License revenue for 2019 was $40.6 million arising primarily from the recognition of the upfront payment received by Eidos of $26.7 million upon execution of the Eidos-Alexion License Agreement and $13.8 million in license revenue recognized by our subsidiary, QED Therapeutics, Inc., upon the execution of the QED-LianBio License Agreement (see Note 11 to our consolidated financial statements). 120 Operating Expenses Cost of License Revenue Cost of license revenue for the year ended December 31, 2019 represents sublicensing fees payable under the Stanford License in connection with the Eidos-Alexion License Agreement and was $2.5 million in 2019. There was no cost of license revenue in 2020. Research and Development Expenses Year Ended December 31, 2020 2019 Change (in thousands) Research and development $ 337,047 $ 209,947 $ 127,100 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. Research and development expense increased by $127.1 million in 2020 compared to 2019 primarily due to an increase in external-related costs, including manufacturing validation activities for our late-stage programs, and in personnel costs resulting from an increase in the number of employees to support progression in our research and development programs, including our increasing research pipeline. The following table summarizes our research and development expenses by program incurred for the following periods: Year Ended December 31, 2020 2019 (in thousands) Infigratinib (Previously known as BBP-831) (QED) $ 90,022 $ 65,096 Acoramidis (Previously known as BBP-265 or AG10) (Eidos) 76,695 46,662 Fosdenopterin (Previously known as BBP-870) (Origin) 22,758 19,501 BBP-631 (Adrenas) 21,327 14,744 BBP-418 (ML Bio) 13,416 1,630 Other programs including early-stage 112,829 62,314 Total $ 337,047 $ 209,947 General and Administrative Expenses Year Ended December 31, 2020 2019 Change (in thousands) General and administrative $ 145,684 $ 94,353 $ 51,331 121 General and administrative expenses increased by $51.3 million in 2020 compared to 2019 due to an increase in personnel costs resulting from an increase in the number of employees and external-related costs incurred to support organizational growth, including staged build out of our commercial organization as part of commercial launch readiness activities. Other Income (Expense), Net Interest Income Year Ended December 31, 2020 2019 Change (in thousands) Interest income $ 4,015 $ 8,915 $ (4,900 ) Interest income consists of interest income earned on our cash equivalents and marketable securities. The changes in interest income in 2020 compared to 2019 were not significant. Interest Expense Year Ended December 31, 2020 2019 Change (in thousands) Interest expense $ (36,655 ) $ (8,765 ) $ (27,890 ) Interest expense in 2020 consists primarily of interest expense incurred under our 2027 Notes issued in March 2020, our term loans with Hercules Capital, Inc. pursuant to our Loan and Security Agreement, dated June 19, 2018, as amended, and 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. Interest expense in 2019 consists primarily of interest expense incurred under our term loans with Hercules. The increase of $27.9 million in 2020 compared to 2019 was primarily attributed to an increase in principal amounts. Share in Net Loss of Equity Method Investments Year Ended December 31, 2020 2019 Change (in thousands) Share in net loss of equity method investments $ — $ (20,869 ) $ 20,869 Loss from equity investment for the year ended December 31, 2019 pertained to our share of losses from our investment in PellePharm and LianBio totaling $17.1 million and $3.8 million, respectively. We recognize our share of losses from our equity method investments as incurred. We did not recognize our share of net losses for the year ended December 31, 2020 as our equity investment balances were reduced to zero as of December 31, 2019. Other Income (Expense) Year Ended December 31, 2020 2019 Change (in thousands) Other income (expense) $ 1,634 $ (1,626 ) $ 3,260 Other income (expense) in 2020 consists mainly of the income recognized as a result of the change in fair value of the LianBio Warrants of approximately $3.3 million (see Note 11 to our consolidated financial statements), partially offset by the change in fair value of the LEO Call Option liability of $1.5 million. Other expense in 2019 mainly represents the LEO Call Option expense of $1.1 million arising from change in fair value of the LEO Call Option liability. 122 Income Taxes Prior to the 2019 Reorganization (see Note 13 to our consolidated financial statements), which was a tax-free reorganization, BridgeBio Pharma LLC, or BBP LLC”, was treated as a pass‑through entity for U.S. federal 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. Therefore, no provision or liability for federal income tax has been included in our consolidated financial statements prior to the reorganization. For our consolidated entities, income taxes are accounted for under the asset and liability method as described below. Upon the Reorganization on July 1, 2019, we became subject to corporate U.S. federal and state income taxation. For U.S. federal income tax purposes, we are required to file a consolidated U.S. federal income tax return for the consolidated entities that meet the requirements as prescribed by the consolidated regulations. Those entities that do not meet the threshold to be included in the consolidated filing continue to file separate U.S. federal income tax returns. To the extent we incur operating losses in the periods in which we are treated as a corporation for tax purposes, net operating loss carryforwards may generally be used by us to offset cash taxes on future taxable income, subject to applicable tax laws. As of December 31, 2020, we had net operating losses of approximately $852.5 million and $177.9 million for federal and state income tax purposes, respectively, available to reduce future taxable income, if any. The federal net operating losses generated prior to 2018 in the amount of $31.8 million will begin to expire in 2036 and losses generated after 2018 in the amount of $820.7 million will carry over indefinitely and would be subject to an 80% taxable income limitation in the year utilized. State net operating losses will generally begin to expire in 2036. As of December 31, 2020, we had federal research and development and orphan drug credit carryforwards of $41.0 million, which will expire beginning in 2037 if not utilized. As of December 31, 2020, we had state research and development credit carryforwards of $6.3 million. The state research and development tax credits will expire at various dates while the California research and development tax credits will carry over indefinitely. A valuation allowance is provided for deferred tax assets where the recoverability of the assets is uncertain. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient future taxable income will be generated to utilize the deferred tax assets. Based on the weight of the available evidence, which includes our consolidated entities’ historical operating losses and forecast of future losses, we have provided a valuation allowance against the deferred tax assets resulting from the tax loss and credits carried forward. As a result of the issuance of our 2027 Notes in 2020, it was determined that our existing deferred tax assets do not fully offset the deferred tax liabilities when reviewing the reversals of temporary differences. This resulted in a deferred tax liability of $1.1 million that was recognized for the year ended December 31, 2020. The valuation allowance increased by $95.5 million and $79.2 million for the years ended December 31, 2020 and 2019, respectively. Utilization of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to an ownership change limitation as provided by section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. In the event that we have a change of ownership, utilization of the net operating loss and tax credit carryforwards may be restricted. Net Loss Attributable to Redeemable Convertible Noncontrolling Interests and Noncontrolling Interests Net loss attributable to redeemable convertible noncontrolling interests and noncontrolling interests in our 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 consolidated financial statements. Net loss attributable to redeemable convertible noncontrolling interests and noncontrolling interests was $56.8 million in 2020, compared to $28.0 million in 2019. 123 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 December 31, 2020, we had cash, cash equivalents and marketable securities of $607.1 million. The funds that were 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 $127.7 million as of December 31, 2020 belonging to Eidos may only be used solely by Eidos. As of December 31, 2020, our outstanding debt was $477.3 million, net of debt issuance costs and accretion, or $460.4 million excluding Eidos. Since our inception, we have incurred significant operating losses. For the years ended December 31, 2020, 2019 and 2018, we incurred net losses of $505.5 million, $288.6 million and $169.5 million, respectively. We had an accumulated deficit as of December 31, 2020 of $888.8 million. We expect to continue to incur net losses over the next several years as we continue our drug discovery efforts and incur significant preclinical and clinical 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 studies 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 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 December 31, 2020, we held 24,575,501 shares of common stock of Eidos. All cash and cash equivalents held by Eidos are restricted and can be applied solely to fund the operations of Eidos. In October 2020, we entered into the Merger Agreement with Eidos, Globe Merger Sub I, Inc. and Globe Merger Sub II, Inc. (the two latter companies being our indirect wholly-owned subsidiaries), providing for, in a series of merger transactions, or the Merger Transactions, the acquisition by us of all of the outstanding shares of common stock of Eidos, or the Eidos Common Stock, other than shares of Eidos Common Stock that (i) are owned by Eidos as treasury stock, (ii) are owned by us and our subsidiaries and, in each case, not owned on behalf of third parties and (iii) are subject to an Eidos restricted share award. We completed the Merger Transactions on January 26, 2021 and Eidos became our wholly-owned subsidiary. Refer to Note 18 to our consolidated financial statements. On July 1, 2019, we completed the initial public offering, or 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’ over-allotment option, 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. 124 On August 2, 2019, Eidos filed a registration statement on Form S-3, or 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 Sales Agreement , or the 2019 Sales Agreement, with the s ales a gents named therein, or the Sales Agents , to provide for the offering, issuance and sale 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. Eidos will pay to the applicable Eidos 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. As a result of the completion of the Merger Transactions with Eidos on January 26, 2021, Eidos’ common stock cease d to trade on the Nasdaq prior to the opening of business on January 26, 2021 , the 2019 Sales Agreement was terminated and the 2019 Shelf was deregistered with the SEC. On July 7, 2020, we filed a shelf registration statement on Form S-3ASR, or 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 a sales agreement, dated as of July 7, 2020, or the 2020 Sales Agreement, with the sales agents named therein, or the BridgeBio 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. We will pay to the applicable BridgeBio 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 under the 2020 Sales Agreement through December 31, 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 2020 Note Offering, pursuant to Rule 144A under the Securities Act. The 2027 Notes issued in the 2020 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 conversion, 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 in connection with the Note Offering. 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; 125 • 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. 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), holders 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 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 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., or Hercules, under which we borrowed $35.0 million, or Tranche I. The term of the loan was approximately 42 months, with a maturity date of January 1, 2022, or 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, or 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, or 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, or 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 Second Amendment to the Loan and Security Agreement. 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, or the Modified Amortization Date, and the entire facility received a maturity date of January 1, 2023, or 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. Under the Second Amendment to the Loan and Security Agreement, 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 126 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 transactions to repurchase shares of our common stock concurrently with closing of the 2027 Notes offering in privately negotiated transactions from certain initial purchasers of our 2027 notes, or the Share Repurchase Transactions. In April 2020, we entered into the Fourth Amendment to the Loan and Security Agreement, or 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, or 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, or 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 December 31, 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 December 31, 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 December 31, 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. We did not draw the incremental loan of $25.0 million that was available until December 15, 2020. There have not been any additional draws on the $100.0 million additional available facilities as of December 31, 2020. 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 significant 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 January 2021, we executed the Fifth Amendment to the Loan and Security Agreement primarily to allow us to issue our 2029 Notes (as described below) and to enter into the related capped call and share repurchase transactions, as discussed below. 127 Silicon Valley Bank 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 December 31, 2020, including the Tranche B loan that was available until October 31, 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 December 31, 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. In January 2021, Eidos entered into an amendment to the SVB and Hercules Loan Agreement primarily to allow Eidos to enter into the Merger Transactions. The amendment also requires Eidos to maintain a certain amount of cash and cash equivalents with SVB. Issuance of 2029 Notes On January 28, 2021, we issued an aggregate of $717.5 million principal amount of our 2.25% Convertible Senior Notes due 2029, or the 2029 Notes, pursuant to an Indenture dated January 28, 2021, or the 2029 Notes Indenture, between us and U.S. Bank National Association, as trustee, or the 2029 Notes Trustee, in a private offering to qualified institutional buyers , or the 2029 Note Offering, pursuant to Rule 144A under the Securities Act. The 2029 Notes issued in the 2029 Note Offering include $67.5 million aggregate principal amount of 2029 Notes sold to the initial purchasers, or the 2029 Notes Initial Purchasers, pursuant to the exercise in part of the 2029 Notes Initial Purchasers’ option to purchase $97.5 million principal amount of additional 2029 Notes. On January 28, 2021, the 2029 Notes Initial Purchasers exercised the remaining portion of their option to purchase $30.0 million principal amount of additional 2029 Notes. The sale of the additional 2029 Notes closed on February 2, 2021. The 2029 Notes will accrue interest payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2021, at a rate of 2.25% per year. The 2029 Notes will mature on February 1, 2029, unless earlier converted, redeemed or repurchased. The 2029 Notes are convertible into cash, shares of BridgeBio’s common stock or a combination of cash and shares of BridgeBio’s common stock, at our election. The 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 2029 Notes; equal in right of payment with all of our liabilities that are not so subordinated, including our 2027 Notes; 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. 128 We received net proceeds from the 2029 Note Offering of approximately $ 731.7 million, after deducting the 2029 Notes Initial Purchasers’ discount and offering expenses. We used approximately $ 61.3 million of the net proceeds from the 2029 Note Offering to pay for the cost of the c apped c all t ransactions and approximately $ 50.0 million to pay for the repurchase of shares of our common stock in connection with the 2029 Note Offering . We intend to use the remainder of the net proceeds from the 2029 Note Offering for general corporate purposes, which may include research and development and clinical development costs to support the advancement of our drug candidates, including the continued growth of our commercial and medical affairs capabilities, the conduct of clinical trials and preclinical research and development activities; working capital; capital expenditures; repayment of outstanding indebtedness; general and administrative expenses; and other general corporate purposes. The 2029 Notes Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the 2029 Notes Trustee or the holders of not less than 25% in aggregate principal amount of the 2029 Notes then outstanding may declare the entire principal amount of all the 2029 Notes plus accrued special interest, if any, to be immediately due and payable. Cash Flows The following table summarizes our cash flows during the periods indicated: Year Ended December 31, 2020 2019 Change (in thousands) Net cash used in operating activities $ (399,714 ) $ (253,587 ) $ (146,127 ) Net cash used in investing activities (52,993 ) (217,253 ) 164,260 Net cash provided by financing activities 447,189 398,792 48,397 Net decrease in cash and cash equivalents and restricted cash $ (5,518 ) $ (72,048 ) $ 66,530 Net Cash Flows Used in Operating Activities Net cash used in operating activities was $399.7 million in 2020, consisting primarily of our net loss of $505.5 million, adjusted for non-cash items such as $58.5 million in stock-based compensation expense, $17.7 million accretion of our 2027 Notes and term loans, $6.0 million fair value of shares issued under our license agreements, $4.7 million acquired in-process research and development assets and $3.1 million amortization of operating lease right-of-use assets, partially offset by $3.3 million change in fair value of LianBio Warrants, as well as net cash inflow of $14.9 million related to changes in operating assets and liabilities. The $14.9 million net cash inflow related to changes in operating assets and liabilities was attributed mainly to an increase of $8.6 million in accrued compensation and benefits, an increase of $6.2 million in accrued research and development liabilities and an increase of $8.3 million in other accrued and other liabilities partially offset by an increase in prepaid expenses and other current assets of $7.1 million. Net cash used in operating activities was $253.6 million in 2019, consisting primarily of our net loss of $288.6 million, adjusted for non-cash items such as $21.4 million in stock-based compensation expense and $20.9 million for our share of losses of our equity method investments, as well as net cash outflow of $10.9 million related to changes in operating assets and liabilities. The $10.9 million net cash outflow related to changes in operating assets and liabilities was attributed mainly to an increase of $16.9 million in other assets, an increase of $13.5 million in prepaid expenses and other assets and a decrease of $4.7 million in accounts payable mostly due to payments of CROs’ and CMOs’ expenses for increased research activities, offset by changes in liabilities primarily due to an increase in accrued research and development liabilities of $12.0 million and an increase in accrued compensation and benefits of $9.3 million. Net Cash Flows Used in Investing Activities Net cash used in investing activities was $53.0 million in 2020, consisting primarily of purchases of marketable securities of $287.9 million, purchases of property and equipment of $7.5 million and payments of merger transaction costs of $6.9 million, partially offset by $249.1 million in maturities of marketable securities. 129 Net cash used in investing activities was $217.3 million in 2019 , consist ing primarily of $212.9 million used to purchase marketable securities, $2.6 million related to purchase of property and equipment and $2.5 million paid for in-pro c ess research and development assets acquired in connection with asset acquisitions . Cash Flows Provided by Financing Activities Net cash provided by financing activities was $447.2 million in 2020, consisting primarily of the net proceeds from the issuance of our 2027 Notes of $537.0 million, at-the-market issuance by Eidos of $24.1 million and stock option exercises of $12.9 million, offset by the 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 provided by financing activities was $398.8 million in 2019, consisting primarily of the net proceeds from our IPO of $366.2 million, availment of term loans of $36.9 million, at-the-market issuance by Eidos of $23.9 million, issuance of noncontrolling interest in Eidos to Alexion of $23.3 million and stock option exercises of $1.8 million, offset by $55.0 million payment in relation to our purchase of common stock of Eidos from a noncontrolling interest holder. Contractual Obligations The following table summarizes our contractual obligations as of December 31, 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 $ 5,130 $ 8,715 $ 7,677 $ 6,303 $ 27,825 Finance lease obligations 238 852 904 37 2,031 Obligation under a manufacturing agreement 4,149 — — — 4,149 2027 Notes — — — 550,000 550,000 Interest on 2027 Notes 13,750 27,500 27,500 20,625 89,375 Term loans 1,458 91,042 — — 92,500 Interest on term loans and final end of term payments 8,147 14,727 — — 22,874 Total contractual obligations $ 32,872 $ 142,836 $ 36,081 $ 576,965 $ 788,754 In March 2020, we issued an aggregate principal amount of $550.0 million of our 2027 Notes, pursuant to an Indenture dated March 9, 2020 between BridgeBio and U.S. Bank National Association, as trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. 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 conversion, 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. 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); 130 (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 December 31 , 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 December 31, 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 December 31, 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 December 31, 2020, including the available incremental loan of $25.0 million that was available to be drawn until December 15, 2020. In October 2020, we entered into the Merger Transactions with Eidos. Pursuant to the Merger Agreement, Eidos’ stockholders (other than us) had the right to receive in the transaction, at their election, either 1.85 shares of BridgeBio common stock or $73.26 in cash for each share of common stock of Eidos, or the Eidos Common Stock, subject to proration to ensure that the aggregate amount of cash consideration was no greater than $175.0 million. Upon the closing of the Merger Transactions and subject to the terms of the Merger Agreement, Eidos became our wholly-owned subsidiary, and Eidos’ common stock ceased to trade on the Nasdaq. On January 19, 2021, the stockholders of each of BridgeBio and Eidos voted to approve all proposals related to the Merger Transactions and on January 26, 2021, we closed and completed the Merger Transactions. The acquisition of the Eidos Common Stock was settled through cash payments of $21.3 million and the issuance of approximately 26.1 million shares of our common stock. Through the closing of the Merger Transactions on January 26, 2021, we have incurred estimated transaction costs aggregating to $78.2 million. 131 I n October 2020, we entered into a twelve-year real property lease agreement for an approximately 20,000 square feet facility in Montreal, Québec. The lease is expected to commence in early 202 1 . Future minimum rent payments under this lease are approximately $5.7 million. Under the lease agreement, we are also required to secure a letter of credit of $1.6 million, subject to reduction of such amount by $0.1 million per year. Effective as of October 2020, we entered into a five-year real property sublease agreement for an approximately 53,000 square feet facility in San Francisco, California. Future minimum rent payments under this sublease are approximately $11.2 million. We have performance-based milestone compensation arrangements with certain employees and consultants, 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. As of December 31, 2020, the potential performance-based milestone compensation amount was up to $99.0 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 and consultants as part of the 2020 Stock and Equity Award Exchange Program, or the “Exchange Program”, which is further discussed in Note 15 to our consolidated financial statements. The compensation arrangements under the Exchange 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 and under certain of our asset acquisitions. 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 consolidated balance sheet as of December 31, 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 Policies Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these 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 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. We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements for the periods in this report. 132 Accrued Research and Development Liabilities We record accruals for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and clinical trials, and contract manufacturing activities. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and include these costs in accrued research and development liabilities in the consolidated balance sheet and within research and development expense in the consolidated statements of operations. These costs are a significant component of our research and development expenses. Examples of estimated research and development expenses that we accrue include: • fees paid to CROs in connection with preclinical and toxicology studies and clinical trials; • fees paid to investigative sites in connection with clinical trials; • fees paid to CMOs in connection with the production of product and clinical trial materials; and • professional service fees for consulting and related services. We base our expense accruals related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors, such as the successful enrollment of patients and the completion of clinical trial milestones. Our service providers generally invoice us monthly in arrears for services performed. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. We record advance payments to service providers as prepaid assets. We record accruals for the estimated costs of our contract manufacturing activities performed by third parties. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to our vendors. Payments under the contracts include upfront payments and milestone payments, which depend on factors such as the achievement of the completion of certain stages of the manufacturing process. For purposes of recognizing expense, we assess whether we consider the production process sufficiently defined to be considered the delivery of a good or the delivery of a service, where processes and yields are developing and less certain. If we consider the process to be the delivery of a good, we recognize expense when the drug product is delivered, or we otherwise bear risk of loss. If we consider the process to be the delivery of a service, we recognize expense based on our best estimates of the contract manufacturer’s progress towards completion of the stages in the contract. We base our estimates on the best information available at the time. However, additional information may become available to us which may allow us to make a more accurate estimate in future periods. In this event, we may be required to record adjustments to research and development expenses in future periods when the actual level of activity becomes more certain. Any increases or decreases in cost are generally considered to be changes in estimates and will be reflected in research and development expenses in the period identified. To date, we have not experienced significant changes in our estimates of accrued research and development liabilities after a reporting period. However, due to the nature of estimates, there is no assurance that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities. Accrued Milestone Compensation Arrangements We have performance-based milestone compensation arrangements with certain employees and consultants, 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 (i) cash, (ii) equity of BridgeBio, or (iii) cash or equity of BridgeBio at our sole election, upon achievement of each contingent milestones. For arrangements that involve settlement by cash or equity of BridgeBio at our sole election, we will classify the milestone compensation arrangements as liability-classified awards when it is probable of achievement because of the possible fixed monetary amounts settlement outcomes. The arrangements would also result in settlement with a variable number of 133 shares based on the then-current stock price at achievement date of each contingent milestone should we elect to settle in equity . We record accruals for the compensation expense arising from each development milestone when the specific contingent development milestone is probable of achievement and such accruals are measured at each reporting period. We estimate the probability of achieving such milestones based on the progression and expected outcome of the related clinical programs. We base our estimates on the best available information at that time. However, additional information may become available to us which may allow us to make a more accurate estimate in future periods. In this event, we may be required to record adjustments to milestone compensation expenses in future periods. Any increases or decreases in such expenses are generally considered to be changes in estimates and will be reflected in the period identified. To date, we have not experienced significant changes in our estimates of accrued milestone compensation expenses after a reporting period. However, due to the nature of estimates, there is no assurance that we will not make changes to our estimates in the future as we become aware of additional information about the progression and expected outcome of our clinical programs. Recent Accounting Pronouncements See Note 2, “Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements” to our consolidated financial statements appearing under Part II, Item 8 for more information.