What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 136 added, 79 removed, 208 unchanged (51% of the section changed)

21 unchanged sentences

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.

Our products, Nulibry TM and Truseltiq TM , were approved by the U.S.

Food and Drug Administration (FDA) in February and May 2021, respectively, and we started selling these in the second quarter of 2021.

We have not generated any significant revenue from sale of these products.

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.

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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.

For example, in light of developments relating to the global pandemic of SARS-CoV-2, the novel strain of coronavirus that causes Coronavirus disease 19, or COVID-19, the resources of healthcare providers and hospitals have been focused on fighting the virus, and , 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.

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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.

We cannot predict the effects that such actions, the duration of the COVID-19 pandemic or its continuing 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 anticipate that we will report initial data from the ongoing Phase 2 dose-escalation and expansion study of infigratinib in children with achondroplasia by the end of 2021 .

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The following table summarizes the results of our operations for the periods indicated:

Three months ended March 31,

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

License revenue

Product sales

Cost of products sold

Research and development

General and administrative

Selling, general and administrative

Loss from operations

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Cash, Cash Equivalents and Marketable Securities

As of March 31, 2021 we had cash, cash equivalents and marketable securities of $1,001.3 million.

As of June 30, 2021 we had cash, cash equivalents and marketable securities of $898.4 million.

In January 2021, we issued an aggregate principal amount of $747.5 million of our 2.25% Convertible Senior Notes due 2029, or the 2029 Notes, in a private offering, or the 2021 Note Offering, to qualified institutional buyers.

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The acquisition of the outstanding Eidos common stock was settled through cash payments of $21.3 million and the issuance of shares of our common stock.

Operating Expenses

In April 2021, we executed the Sixth Amendment to the Loan and Security Agreement with Hercules Capital, Inc., or Hercules, in which we received an additional term loan principal of $25.0 million.

We used a portion of the proceeds from such borrowing to prepay the outstanding principal of $17.5 million under Eidos’ Loan and Security Agreement with Silicon Valley Bank and Hercules or the SVB and Hercules Loan Agreement.

In May 2021, we invested $20.0 million of our available cash in equity securities of publicly held companies.

In May 2021, we received $20.0 million in upfront payment arising from the QED-Helsinn License and Collaboration Agreement.

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

License revenue

Product sales

Total revenue

License revenue for the three and six months ended June 30, 2021 is comprised primarily of the recognition of upfront and launch milestone payments in connection with the QED-Helsinn License and Collaboration Agreement of $44.4 million.

We also recognized $8.5 million in license revenue in connection with the achievement of a regulatory milestone under the License Agreement between Navire and LianBio.

Our product sales for the three and six months ended June 30, 2021 represent the initial sales of Truseltiq TM and Nulibry TM , both of which were approved by the FDA in May and February 2021, respectively.

Operating Costs and Expenses

Cost of Products Sold

Our cost of products sold amounted to $0.1 million for the three and six months ended June 30, 2021.

Research and Development Expenses

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Research and development

Research and development expense increased by $54.3 million for the three months ended March 31, 2021 compared to the same period in 2020 primarily due to an increase in personnel costs and external costs.

Research and development expense increased by $15.4 million and $69.7 million for the three and six months ended June 30, 2021 compared to the same periods in 2020 primarily due to an increase in personnel costs and external costs.

The increase in personnel costs was attributed to increase in the number of employees to support progression in our research and development programs, including our increasing research pipeline, as well as increases in stock-based compensation related to performance-based milestone compensation arrangements for regulatory and development milestones achieved and determined to be probable of achievement.

Stock-based compensation recorded in research and development expense for the three months ended March 31, 2021 was $22.4 million as compared to $1.6 million for the same period in the prior year.

Stock-based compensation recorded in research and development expense for the three and six months ended June 30, 2021 was $19.3 million and $41.7 million, respectively, as compared to $9.2 million and $10.8 million, respectively, for the same periods in the prior year.

The increase in external costs was a result of increased manufacturing activities for early to late stage programs and one-time in-licensing development and regulatory milestone payments.

Under the QED-Helsinn License and Collaboration Agreement, Helsinn shares 60% of our research and development costs for infigratinib for certain indications as agreed under the agreement.

For the three and six months ended June 30, 2021, the research and development costs sharing amounted to $19.5 million which were reflected as a reduction of research and development expenses.

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.

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The following table summarizes our research and development expenses by program incurred for the following periods :

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Acoramidis (Previously known as

BBP-265 or AG10) (Eidos)

Infigratinib (Previously known as

BBP-831) (QED)

Fosdenopterin (Previously known as

BBP-870) (Origin)

Acoramidis (Previously known

as BBP-265 or AG10) (Eidos)

Infigratinib (Previously known

as BBP-831) (QED)

Fosdenopterin (Previously known

as BBP-870) (Origin)

BBP-631 (Adrenas)

BBP-418 (ML Bio)

Other programs including early-stage

General and Administrative Expenses

Three Months Ended March 31,

Other programs including early-

Selling, General and Administrative Expenses

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

General and administrative

General and administrative expenses increased by $11.1 million for the three months ended March 31, 2021 compared to the same period in 2020 due to costs incurred to support organizational growth, including staged build out of our commercial organization as part of commercial launch readiness activities and accelerated recognition of stock-based compensation arising from the merger with Eidos.

(in thousands)

Selling, general and administrative

Selling, general and administrative expenses increased by $8.0 million and $19.1 million for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020 due to costs incurred to support organizational growth, including staged build out of our commercial organization as part of commercial launch readiness activities.

Selling, general and administrative expenses for the six months ended June 30, 2021 also includes accelerated recognition of stock-based compensation arising from the merger with Eidos during the first quarter of 2021.

Under the QED-Helsinn License and Collaboration Agreement, the parties co-commercialize TruseltiqTM in the United States and share profits and losses on a 50:50 basis.

Following the FDA approval of TruseltiqTM in May 2021, we accounted for Helsinn’s share of the co-commercialization loss of $4.1 million as a reduction of selling, general and administrative expenses for the three and six months ended June 30, 2021.

Other Income (Expense), Net

Interest Income

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Interest income

Interest income consists of interest income earned on our cash equivalents and marketable securities.

The decrease in interest income for the three months ended March 31, 2021 compared to the same period in 2020 was driven by a general decline in interest rates that began at the start of the COVID-19 pandemic and continued through the current period.

The decrease in interest income for the three and six months ended June 30, 2021 compared to the same periods in 2020 was driven by a general decline in interest rates that began at the start of the COVID-19 pandemic and continued through the current period.

Interest Expense

Three Months Ended March 31,

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Interest expense

Interest expense for the three months ended March 31, 2021 consists primarily of interest expense incurred under our 2029 Notes issued in January 2021, our 2027 Notes issued in March 2020, our term loans with Hercules Capital, Inc., or Hercules, 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 for the three and six months ended June 30, 2021 consists primarily of interest expense incurred under our 2029 Notes issued in January 2021, our 2027 Notes issued in March 2020, our term loans with Hercules 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, which was prepaid in full in April 2021.

Interest expense for the same period in 2020 consists primarily of interest expense incurred under our 2027 Notes and our term loans with Hercules and SVB and Hercules.

The increase of $5.7 million for the three months ended March 31, 2021 compared to the same period in 2020 was primarily attributed to increases in principal amounts.

Three Months Ended March 31,

(in thousands)

Other income consists mainly of changes in fair value of the LEO Call Option liability.

The increase of $0.1 million and $5.8 million for the three and six months ended June 30, 2021 compared to the same period in 2020 was primarily attributed to increases in principal amounts.

Other Income (Expense), net

Three Months Ended June 30,

Six Months Ended June 30,

Other income (expense) consists mainly of changes in fair value of the LEO Call Option liability.

The LEO Call Option was subject to remeasurement to fair value at each balance sheet date until the LEO Call Option either was exercised, terminated or had expired.

As a result of the notice of termination by LEO of the LEO call option, we have derecognized the LEO call option liability balance of $5.6 million as of March 2021.

The LEO Call Option income of $0.5 million for the three months ended March 31, 2020 was due to a change in fair value.

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 March 31, 2021, we had cash, cash equivalents and marketable securities of $1,001.3 million.

As of June 30, 2021, we had cash, cash equivalents and marketable securities of $898.4 million.

The funds held by our wholly-owned subsidiaries and controlled entities are available for specific entity usage, except in limited circumstances.

As of March 31, 2021, our outstanding debt was $1,364.8 million, net of debt discounts and issuance costs and accretion.

As of June 30, 2021, our outstanding debt was $1,373.9 million, net of debt discounts and issuance costs and accretion.

Since 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.

For the three months ended March 31, 2021, we incurred net losses of $171.1 million.

We had an accumulated deficit as of March 31, 2021 of $1,037.5 million.

For the six months ended June 30, 2021, we incurred net losses of $273.2 million.

We had an accumulated deficit as of June 30, 2021 of $1,133.9 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.

Our current business plan is also subject to significant uncertainties and risks as a result of, among other factors, our ability to generate product sale sufficient to achieve profitability, which will depend heavily on the successful development and eventual commercialization of our product candidates at our consolidated entities.

Our short-term and long-term liquidity requirements include contractual payments related to our 2029 Notes, 2027 Notes, term loans and obligations under our real estate leases.

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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, i ncluding 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.

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.

We will continue to assess our operating costs and expenses and our cash and cash equivalents and, if circumstances warrant, we will make appropriate adjustments to our operating plan.

Sources of Liquidity

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In June 2018, our then controlled subsidiary, Eidos, completed its U.S.

initial public offering of its common stock of which net proceeds received were $95.5 million.

initial public offering of its common stock of which net proceeds received were $95.5 million (“Eidos IPO”).

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.

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We will pay to the applicable Sales Agents cash commissions of up to 3.0% 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 March 31, 2021.

We have not issued any shares or received any proceeds from this offering through June 30, 2021.

On January 28, 2021, we issued an aggregate of $717.5 million principal amount of our 2029 Notes, pursuant to an Indenture dated January 28, 2021, or the 2029 Notes Indenture, between us and U.S.

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During the five business day period after any five consecutive trading day period, or the measurement period, in which the “trading price” (as defined in the 2029 Notes Indenture) per $1,000 principal amount of 2029 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;

If we call such notes for redemption, at any time prior to the close of business on the second business day immediately preceding the redemption date;

I f we call such notes for redemption, at any time prior to the close of business on the second business day immediately preceding the redemption date ;

Upon the occurrence of specified corporate events.

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We used approximately $49.3 million of the net proceeds from the 2020 Note Offering to pay for the cost of the 2020 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 2020 Note Offering for working capital and other general

corporate purposes, including for our commercial organization and launch preparations.

We intend to use the remainder of the net proceeds from the 2020 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.

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(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;

(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:

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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,

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),

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),

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 March 31, 2021), payable monthly,

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 March 31, 2021), payable monthly,

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 March 31, 2021), payable monthly, and

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 .

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 March 31, 2021.

In April 2020, we entered into the Fourth Amendment to the Loan and Security Agreement, which among other things, extended the interest-only period and maturity date of the term loans, provided for certain interest rate reduction and increased the available loan facilities under the Loan and Security Agreement.

In January 2021, we executed the Fifth Amendment to the Loan and Security Agreement primarily to allow us to issue our 2029 Notes and to enter into the related 2021 Capped Call and share repurchase transactions.

On April 13, 2021, we executed the Sixth Amendment to the Loan and Security Agreement, or the Hercules Loan Amendment, to amend our existing Hercules Term Loan with Hercules.

The Hercules Loan Amendment, among other things, (1) extends the interest-only period to June 1, 2024 (which may be further extended to June 1, 2025, subject to certain conditions), (2) extends the maturity date for the term loans to May 1, 2025 (which may be further extended to May 1, 2026, subject to certain conditions), (3) provides for an additional $25.0 million advance pursuant to the Hercules Loan Amendment (which we received upon execution of the Hercules Loan Amendment), (4) provides for an interest rate on the outstanding principal equal to the greater of (x) a floating interest rate linked to the prime rate as reported in the Wall Street Journal plus 4.40% and (y) 7.65%, and (5) provides for (a) an additional incremental loan in the amount of $70.0 million, available no later than June 15, 2022, (b) an additional incremental loan following the achievement of certain performance milestones in the amount of $40.0 million, available no later than September 15, 2022, and (c) an additional $75.0 million discretionary incremental tranche, subject to Hercules’ approval in its sole and absolute discretion, available no later than December 15, 2023.

We used a portion of the proceeds from the additional $25.0 million advance referred to above to prepay in full the $17.5 million principal under Eidos’ Tranche A Loan and outstanding interest payable under the SVB and Hercules Loan Agreement.

The Hercules Loan Amendment also provides us with greater flexibility to incur additional convertible debt and repurchase and/or redeem convertible debt, each subject to certain conditions set forth in the Hercules Loan Amendment.

In April 2021, we executed the Sixth Amendment to the Loan and Security Agreement (the “Amended Hercules Term Loan”), which among other things:

provided for an additional principal borrowing amounting to $25.0 million (“Tranche IV”, the proceeds of which were received by us upon the execution of the Amended Hercules Term Loan),

extended the interest-only period under the Loan and Security Agreement to June 1, 2024 (the “Amended Amortization Date”) which may be further extended to June 1, 2025, subject to certain conditions set forth in the Amended Hercules Term Loan,

extended the maturity date for the term loans under the Loan and Security Agreement to May 1, 2025, which may be further extended to May 1, 2026, subject to certain conditions set forth in the Amended Hercules Term Loan,

provided for an interest rate on the outstanding principal balance equal to the greater of (x) a floating interest rate linked to the prime rate as reported in the Wall Street Journal plus 4.40% and (y) 7.65% (7.65% as of June 30, 2021), payable monthly, and

provided for additional available facilities aggregating to $185.0 million, which comprises of:

(a) an additional incremental loan in the amount of $70.0 million, available no later than June 15, 2022, (b) an additional incremental loan following the achievement of certain performance milestones in the amount of $40.0 million, available no later than September 15, 2022, and (c) an additional $75.0 million discretionary incremental tranche, subject to Hercules’ approval in its sole and absolute discretion, available no later than December 15, 2023.

The Amended Hercules Term Loan also provides us with greater flexibility to incur additional convertible debt and repurchase and/or redeem convertible debt, each subject to certain conditions set forth in the Amended Hercules Term Loan.

There have not been any additional draws on the $185.0 million additional available facilities as of June 30, 2021.

Silicon Valley Bank and Hercules Loan Agreement

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The Tranche A loan was prepaid in full in April 2021 as mentioned above.

The Tranche A loan was prepaid in full in April 2021 using a portion of the proceeds from Tranche IV under the Amended Hercules Term Loan mentioned above.

The following table summarizes our cash flows during the periods indicated:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash used in investing activities

Net cash provided by financing activities

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Net Cash Flows Used in Operating Activities

Net cash used in operating activities was $150.8 million for the three months ended March 31, 2021, consisting primarily of our net loss of $171.1 million, adjusted for non-cash items including $33.6 million in stock-based compensation expense and $5.6 million of income from the derecognition of the LEO Call Option liability, as well as $15.4 million net cash outflow related to changes in operating assets and liabilities.

The $15.4 million net cash outflow related to changes in operating assets and liabilities was attributed mainly to a decrease of $13.0 million in accrued compensation and benefits mainly due to timing of payments and an increase of $6.1 million in other assets due to prepayment of long-term directors and officers’ tail insurance arising from the Merger Transactions with Eidos.

The outflow in these operating assets and liabilities was partially offset by an increase of $6.1 million in accrued research and development liabilities mainly due to increases in our CROs’ and CMOs’ expenses for research activities.

Net cash used in operating activities was $83.9 million for the three months ended March 31, 2020, consisting primarily of our net loss of $104.1 million, adjusted for non-cash items such as $10.2 million in stock-based compensation expense and $1.8 million accretion of our 2027 Notes and term loans, partially offset by net cash inflow of $7.7 million related to changes in operating assets and liabilities.

The $7.7 million net cash inflow related to changes in operating assets and liabilities was attributed mainly to an increase of $8.6 million in accrued research and development liabilities and an increase of $4.2 million in accounts payable mostly due to increase in our CROs’ and CMOs’ expenses for research activities, and a decrease of $2.8 million in prepaid expenses and other current assets primarily due to the receipt of a receivable from a related party.

The increase in these operating assets and liabilities was partially offset by a decrease in accrued compensation and benefits of $7.7 million due to timing of payments.

Net cash used in operating activities was $242.5 million for the six months ended June 30, 2021, consisting primarily of our net loss of $273.2 million, adjusted for non-cash items including $63.7 million in stock-based compensation expense, $4.1 million in depreciation and amortization and $5.6 million of income from the derecognition of the LEO Call Option liability, as well as $41.4 million net cash outflow related to changes in operating assets and liabilities.

The $41.4 million net cash outflow related to changes in operating assets and liabilities was attributed mainly to an increase of $35.4 million in receivable from licensing and collaboration agreements, an increase of $9.0 million in receivable from a related party and a decrease of $8.5 million in accrued compensation and benefits mainly due to timing of payments, partially offset by an increase of $13.0 million in accounts payable mainly due to increases in our CROs’ and CMOs’ expenses for research 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 Flows Provided by (Used in) Investing Activities

Net cash used in investing activities was $282.1 million for the three months ended March 31, 2021, consisting primarily of purchases of marketable securities of $379.3 million, partially offset by $99.2 million in maturities of marketable securities

Net cash provided by investing activities was $38.0 million for the three months ended March 31, 2020, consisting primarily of $42.5 million maturities of marketable securities, partially offset by $4.5 million related to purchase of property and equipment.

Net cash used in investing activities was $281.6 million for the six months ended June 30, 2021, consisting primarily of purchases of marketable securities of $509.9 million and investment in equity securities of $20.0 million, partially offset by $238.9 million in maturities of marketable securities.

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 Flows Provided by Financing Activities

Net cash provided by financing activities was $547.9 million for the three months ended March 31, 2021, consisting primarily of the net proceeds from the issuance of our 2029 Notes of $731.4 million, offset by purchase of capped calls of $61.3 million and repurchase of our common stock of $50 million, both in relation to the issuance of our 2029 Notes.

Net cash provided by financing activities was $546.5 million for the six months ended June 30, 2021, consisting primarily of the net proceeds from the issuance of our 2029 Notes of $731.4 million and from the additional principal borrowing under the Amended Hercules Term Loan of $25.0 million, offset by purchase of capped calls of $61.3 million, repurchase of our common stock of $55.3 million and prepayment of the Tranche A loan of $18.1 million.

We also used cash of $84.8 million to repurchase the noncontrolling interest of Eidos and pay for related direct transaction costs.

Net cash provided by financing activities was $439.2 million for the three months ended March 31, 2020, consisting primarily of the net proceeds from the issuance of our 2027 Notes of $537.6 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 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.

Off-Balance Sheet Arrangements

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While we have investments classified as VIEs, their purpose is not to provide off-balance sheet financing.

Critical Accounting Polic i es

Critical Accounting Policies

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.

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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 Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.

Except as discussed below, 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 Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.

License Arrangements and Multiple-Element Arrangements

Revenue from non-refundable, up-front license or technology access payments under license arrangements that are not dependent on any future performance by us is recognized when such amounts are earned.

If we have continuing obligations to perform under the arrangement, such fees are recognized over the estimated period of continuing performance obligation.

When we enter into license agreements, we assess whether the arrangements fall within the scope of ASC 808, Collaborative Arrangements (ASC 808) based on whether the arrangements involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards.

To the extent that the arrangement falls within the scope of ASC 808, we assess whether the payments between us and our partner fall within the scope of other accounting literature.

If we conclude that payments from the partner to us represent consideration from a customer, such as license fees and contract manufacturing and research and development activities, we account for those payments within the scope of ASC 606, Revenue from Contracts with Customers .

However, if we conclude that our partner is not a customer for certain activities and associated payments, such as for certain collaborative research, development, manufacturing and commercial activities, we present such payments as a reduction of research and development expense or selling, general and administrative expense, based on where we present the underlying expense.

Additionally, if we reimburse our collaboration partners for these activities, we present such reimbursements as research and development expense or selling, general and administrative expense, depending upon the nature of the underlying expense.

If our collaborative arrangement provides for the sharing of profits and losses with our partner for commercialization activities, the treatment of our share in the profit-sharing structure depends on who the selling party is.

If we are the selling party and the deemed principal, we record our collaboration partner's share of profits as an addition in selling, general and administrative expenses and our collaboration partner's share of loss as a reduction in selling, general and administrative expenses.

If our partner is the selling party and the deemed principal, we record our share of profits as collaboration revenue and our share of losses as addition to selling, general and administrative expenses.

Revenue Recognition

For elements of those arrangements that we determine should be accounted for under ASC 606, we perform the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) we satisfy our performance obligation.

We apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.

At inception of the arrangement, once it is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and then identify the performance obligations and assess whether each promised good or service is distinct.

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation, on a relative standalone selling price basis, when (or as) the performance obligation is satisfied.

As part of the accounting for these arrangements, we develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract.

These key assumptions may include forecasted revenue or costs, development timelines, discount rates and probabilities of clinical and regulatory success.

License Fees :

For arrangements that include a grant of a license to our intellectual property, we consider whether the license grant is distinct from the other performance obligations included in the arrangement.

Generally, we would conclude that the license is distinct if the customer is able to benefit from the license with the resources available to it.

For licenses that are distinct, we recognize revenues from nonrefundable, upfront license fees and other consideration allocated to the license when the license term has begun and we have provided all necessary information regarding the underlying intellectual property to the customer, which generally occurs at or near the inception of the arrangement.

For licenses that are bundled with other promises, we determine whether the combined performance obligation is satisfied over time or at a point in time.

If the combined performance obligation is satisfied over time, we use judgment in determining the appropriate method of measuring progress for purposes of recognizing revenue from the up-front license fees.

We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Development and Regulatory Milestone Payments :

At the inception of each arrangement that includes development and regulatory milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method.

We generally include these milestone payments when they are achieved because there is considerable uncertainty in the research and development processes that trigger these payments under our agreements.

Similarly, we include approval milestone payments in the transaction price once the product is approved by the applicable regulatory agency.

At the end of each subsequent reporting period, we re-evaluate the probability of achieving such development and regulatory milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis.

Sales-based Milestone Payments and Royalties :

For arrangements that include sales-based royalties, including milestone payments based on the volume of sales, we will determine whether the license is deemed to be the predominant item to which the royalties or sales-based milestones relate and if such is the case, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis