Gossamer Bio, Inc. 10-K

Item 9A. Controls and Procedures. Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this annual report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Changes in Internal Control Over Financial Reporting There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 97 Table of Contents Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in its 2013 Internal Control — Integrated Framework. Based on this assessment, our management has concluded that our internal control over financial reporting was effective as of December 31, 2020. Pursuant to Section 404(c) of the Sarbanes-Oxley Act, our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting for the year ended December 31, 2020, which is included below. 98 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Gossamer Bio, Inc. Opinion on Internal Control Over Financial Reporting We have audited Gossamer Bio, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework, (the COSO criteria). In our opinion, Gossamer Bio, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”) and our report dated February 26, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Diego, California February 26, 2021 99 Table of Contents Item 9B. Other Information. None. 100 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this item will be contained in our definitive proxy statement to be filed with the Securities and Exchange Commission in connection with our 2021 Annual Meeting of Stockholders, or the Definitive Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2020, under the headings “Election of Directors,” “Corporate Governance,” “Our Executive Officers,” and, if applicable, “Delinquent Section 16(a) Reports,” and is incorporated herein by reference. Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees, which is available on our website at www.gossamerbio.com. The Code of Business Conduct and Ethics contains general guidelines for conducting the business of our company consistent with the highest standards of business ethics and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K. In addition, we intend to promptly disclose (1) the nature of any amendment to our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified officers, the name of such person who is granted the waiver and the date of the waiver on our website in the future. Item 11. Executive Compensation. The information required by this item will be set forth in the section headed “Executive Compensation and Other Information” in our Definitive Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item will be set forth in the section headed “Security Ownership of Certain Beneficial Owners and Management” in our Definitive Proxy Statement and is incorporated herein by reference. The information required by Item 201(d) of Regulation S-K will be set forth in the section headed "Executive Compensation and Other Information" in our Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item will be set forth in the section headed “Certain Relationships and Related Person Transactions,” “Board Independence” and “Committees of the Board of Directors” in our Definitive Proxy Statement and is incorporated herein by reference. Item 14. Principal Accounting Fees and Services. The information required by this item will be set forth in the section headed “Independent Registered Public Accountants’ Fees” in our Definitive Proxy Statement and is incorporated herein by reference. 101 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. (1) All Financial statements The consolidated financial statements of Gossamer Bio, Inc., together with the report thereon of Ernst & Young LLP, an independent registered public accounting firm, are included in this annual report on Form 10-K beginning on page F-1. (2) Financial statement schedules All schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto. (3) Exhibits A list of exhibits is set form on the Exhibit Index immediately preceding the signature page of this annual report on Form 10-K and is incorporated herein by reference. Item 16. Form 10–K Summary. None. 102 Table of Contents Gossamer Bio, Inc. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm F- 1 Consolidated Balance Sheets F- 3 Consolidated Statements of Operations and Comprehensive Loss F- 4 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) F- 5 Consolidated Statements of Cash Flows F- 6 Notes to Consolidated Financial Statements F- 7 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Gossamer Bio, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Gossamer Bio, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework, and our report dated February 26, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F-1 Table of Contents Accrued Research and Development Expenses Description of the Matter As of December 31, 2020, the Company accrued $10.4 million for research and development expenses. As described in Note 2 of the consolidated financial statements, the Company records accruals for estimated research and development costs, comprising payments due for work performed by third party contractors, laboratories, participating clinical trial sites, and others. Some of these contractor’s bill monthly based on actual services performed, while others bill periodically based upon achieving certain contractual milestones. For the latter, the Company accrues the expenses as goods or services are used or rendered. Clinical trial site costs are accrued as patients enter and progress through the trial. Auditing management’s accounting for accrued research and development expenses is especially challenging as evaluating the progress or stage of completion of the activities under the Company’s research and development agreements is dependent upon a high volume of data from third-party service providers and internal clinical personnel, which is tracked in spreadsheets and other end user computing programs. How We Addressed the Matter in Our Audit We obtained an understanding and evaluated the design and tested the operating effectiveness of controls over the accounting for accrued research and development expenses. This included controls over management's assessment of the assumptions and accuracy of data underlying the accrued research and development expenses estimate. To test the completeness of the Company’s accrued research and development expenses, among other procedures, we obtained supporting evidence of the research and development activities performed for significant clinical trials. We corroborated the status of significant research and development activities through meetings with accounting and clinical project managers. To verify the appropriate measurement of accrued research and development costs, we compared the costs for a sample of transactions against the related invoices and contracts, confirmed amounts incurred to-date with third-party service providers, and performed lookback analyses. We also examined a sample of subsequent payments to evaluate the completeness of the accrued research and development expenses Convertible Senior Notes Description of the Matter On May 21, 2020, the Company issued $200.0 million aggregate principal amount of 5.00% convertible senior notes due in 2027 in a public offering. As described in Note 2 of the consolidated financial statements, the Convertible Notes include conversion terms that require the Company to account for the debt and equity components of the Convertible Notes separately including allocating value to the debt component with the remaining value allocated to the equity component reflected as a debt discount to be amortized to interest expense over the terms of the notes. Auditing management’s conclusions related to the value allocated to the debt portion of the Convertible Note is complex and involves estimation to determine the effective yield that the Company would have received on the debt issuance had it not included the conversion feature. How We Addressed the Matter in Our Audit We obtained an understanding and evaluated the design and tested the operating effectiveness of controls over the Company’s process to determine the allocation between debt and equity components, including the valuation model and assumptions. To test the value assigned to each component, we performed audit procedures that included, among others, evaluating the Company’s valuation methodology. We tested the completeness and accuracy of the calculation used to estimate the fair value of the debt component. In addition, we involved our valuation specialists to assist in testing the concluded effective yield used to determine the value allocated to the debt component by performing an independent credit analysis including comparison to market rates for similarly rated instruments. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018. San Diego, California February 26, 2021 F-2 Table of Contents GOSSAMER BIO, INC. Consolidated Balance Sheets (in thousands, except share and par value amounts) December 31, 2020 2019 ASSETS Current assets Cash and cash equivalents $ 486,055 $ 135,026 Marketable securities 26,573 266,740 Restricted cash 565 63 Prepaid expenses and other current assets 9,129 7,488 Total current assets 522,322 409,317 Property and equipment, net 5,534 5,425 Operating lease right-of-use assets 10,550 10,303 Other assets 1,027 1,559 Total assets $ 539,433 $ 426,604 LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 7,508 $ 956 Accrued research and development expenses 10,431 19,258 Accrued expenses and other current liabilities 20,711 16,709 Total current liabilities 38,650 36,923 Long-term convertible senior notes 143,642 — Long-term debt 28,744 28,459 Operating lease liabilities - long-term 7,713 8,737 Total liabilities 218,749 74,119 Commitments and contingencies Stockholders' equity Common stock, $ 0.0001 par value; 700,000,000 shares authorized as of December 31, 2020 and December 31, 2019; 75,524,254 shares issued and 73,874,904 shares outstanding as of December 31, 2020, and 66,284,003 shares issued and 61,635,477 shares outstanding as of December 31, 2019 8 7 Additional paid-in capital 897,607 686,390 Accumulated deficit ( 577,530 ) ( 334,170 ) Accumulated other comprehensive income 599 258 Total stockholders' equity 320,684 352,485 Total liabilities and stockholders' equity $ 539,433 $ 426,604 The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of Contents GOSSAMER BIO, INC. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) Years Ended December 31, 2020 2019 2018 Operating expenses: Research and development $ 160,854 $ 143,403 $ 55,283 In process research and development 23,380 3,600 49,659 General and administrative 49,728 39,136 44,051 Total operating expenses 233,962 186,139 148,993 Loss from operations ( 233,962 ) ( 186,139 ) ( 148,993 ) Other income (expense) Interest income 3,442 5,563 1,720 Interest expense ( 12,666 ) ( 1,938 ) ( 12 ) Other income (expense) ( 174 ) 2,207 316 Total other income (expense), net ( 9,398 ) 5,832 2,024 Net loss $ ( 243,360 ) $ ( 180,307 ) $ ( 146,969 ) Other comprehensive income: Foreign currency translation, net of tax 441 ( 12 ) — Unrealized gain (loss) on marketable securities, net of tax ( 100 ) 331 ( 61 ) Other comprehensive income (loss) 341 319 ( 61 ) Comprehensive loss ( 243,019 ) ( 179,988 ) ( 147,030 ) Net loss per share, basic and diluted $ ( 3.55 ) $ ( 3.29 ) $ ( 22.59 ) Weighted average common shares outstanding, basic and diluted 68,510,260 54,740,170 6,504,871 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents GOSSAMER BIO, INC. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (in thousands, except share amounts) Series Seed convertible preferred stock Series A convertible preferred stock Series B convertible preferred stock Common stock Additional paid-in capital Accumulated deficit Accumulated other comprehensive income (loss) Total stockholders equity (deficit) Shares Amount Shares Amount Shares Amount Shares Amount Balance as of December 31, 2017 — $ — — $ — — $ — 9,160,888 $ — $ 32 $ ( 6,894 ) $ — $ ( 6,862 ) Issuance of Series A preferred stock for cash, net of $ 0.4 million in offering costs — — 42,215,077 73,491 — — — — — — — — Issuance of stock for acquisition 20,000,000 29,200 — — — — 1,101,278 1 2,874 — — 2,875 Issuance of Series A preferred stock to convert debt and accrued interest — — 3,499,209 6,124 — — — — — — — — Issuance of Series B preferred stock for cash, net of $ 0.5 million in offering costs — — — — 71,506,513 229,552 — — — — — — Vesting of restricted stock — — — — — — 2,369,696 1 — — — 1 Incremental vesting conditions placed on previously issued common shares — — — — — — ( 4,580,444 ) — — — — — Stock-based compensation — — — — — — — — 30,947 — — 30,947 Net loss — — — — — — — — — ( 146,969 ) — ( 146,969 ) Other comprehensive income (loss) — — — — — — — — — — ( 61 ) ( 61 ) Balance as of December 31, 2018 20,000,000 $ 29,200 45,714,286 $ 79,615 71,506,513 $ 229,552 8,051,418 $ 2 $ 33,853 $ ( 153,863 ) $ ( 61 ) $ ( 120,069 ) Issuance of common stock in connection with a public offering, net of underwriting discounts, commissions, and offering costs — — — — — — 19,837,500 2 291,309 — — 291,311 Conversion of convertible preferred stock into common stock ( 20,000,000 ) ( 29,200 ) ( 45,714,286 ) ( 79,615 ) ( 71,506,513 ) ( 229,552 ) 30,493,460 3 338,364 — — 338,367 Vesting of restricted stock — — — — — — 2,833,506 — — — — — Exercise of stock options — — — — — — 419,593 — 2,045 — — 2,045 Stock-based compensation — — — — — — — — 20,819 — — 20,819 Net loss — — — — — — — — — ( 180,307 ) — ( 180,307 ) Other comprehensive income (loss) — — — — — — — — — — 319 319 Balance as of December 31, 2019 — $ — — $ — — $ — 61,635,477 $ 7 $ 686,390 $ ( 334,170 ) $ 258 $ 352,485 Issuance of common stock in connection with a public offering, net of underwriting discounts, commissions, and offering costs — — — — — — 9,433,963 1 117,093 — — 117,094 Equity component of convertible note issuance — — — — — — — — 53,635 — — 53,635 Debt issuance costs attributable to convertible feature — — — — — — — — ( 109 ) — — ( 109 ) Vesting of restricted stock — — — — — — 2,557,375 — — — — — Exercise of stock options — — — — — — 134,803 — 534 — — 534 Stock-based compensation — — — — — — — — 38,748 — — 38,748 Issuance of common stock pursuant to Employee Stock Purchase Plan — — — — — — 113,286 — 1,300 — — 1,300 Other additional paid-in capital — — — — — — — — 16 — — 16 Net loss — — — — — — — — — ( 243,360 ) — ( 243,360 ) Other comprehensive income (loss) — — — — — — — — — — 341 341 Balance as of December 31, 2020 — $ — — $ — — $ — 73,874,904 $ 8 $ 897,607 $ ( 577,530 ) $ 599 $ 320,684 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents GOSSAMER BIO, INC. Consolidated Statements of Cash Flows (in thousands) Years Ended December 31, 2020 2019 2018 Cash flows from operating activities Net loss $ ( 243,360 ) $ ( 180,307 ) $ ( 146,969 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,409 917 297 Stock-based compensation expense 38,748 20,819 30,947 In process research and development expenses 23,380 3,600 49,659 Amortization of operating lease right-of-use assets 2,859 2,172 — Amortization of long-term debt discount and issuance costs 3,857 237 — Amortization of premium on investments, net of accretion of discounts 98 ( 2,364 ) — Net realized gain on investments ( 256 ) ( 28 ) — Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 1,641 ) ( 4,393 ) ( 2,827 ) Other assets 532 2,714 ( 584 ) Operating lease liabilities ( 2,851 ) ( 2,108 ) — Accounts payable 6,984 ( 1,399 ) 2,085 Accrued expenses 1,096 1,521 5,938 Accrued research and development expenses ( 8,827 ) 8,605 10,527 Accrued compensation and benefits 1,612 5,180 — Accrued interest expense — — ( 117 ) Net cash used in operating activities ( 176,360 ) ( 144,834 ) ( 51,044 ) Cash flows from investing activities Research and development asset acquisitions, net of cash acquired ( 23,380 ) ( 3,600 ) ( 17,721 ) Purchase of marketable securities ( 108,968 ) ( 499,079 ) ( 123,500 ) Maturities of marketable securities 265,678 328,000 — Sales of marketable securities 83,515 30,501 — Purchase of property and equipment ( 1,503 ) ( 2,966 ) ( 3,490 ) Net cash provided by (used in) investing activities 215,342 ( 147,144 ) ( 144,711 ) Cash flows from financing activities Proceeds from issuance of common stock in a public offering, net 117,110 291,311 — Proceeds from issuance of convertible senior notes, net 193,596 — — Proceeds from the issuance of long-term debt, net of debt discount and issuance costs $ 1,778 — 28,222 — Purchase of shares pursuant to Employee Stock Purchase Plan 1,300 — — Proceeds from the exercise of stock options 534 2,045 — Proceeds from issuance of Series A convertible preferred stock, net — — 73,491 Proceeds from issuance of Series B convertible preferred stock, net — — 229,552 Repayment of notes payable to related parties — — ( 40 ) Payment of deferred offering costs — — ( 2,144 ) Net cash provided by financing activities 312,540 321,578 300,859 Effect of exchange rate changes on cash, cash equivalents and restricted cash 9 70 — Net increase in cash, cash equivalents and restricted cash 351,531 29,670 105,104 Cash, cash equivalents and restricted cash, at the beginning of the period 135,089 105,419 315 Cash, cash equivalents and restricted cash, at the end of the period $ 486,620 $ 135,089 $ 105,419 Supplemental disclosure of cash flow information: Cash paid for interest $ 7,871 $ 1,475 $ 119 Supplemental disclosure of noncash investing and financing activities: Acquisition of in-process research and development through issuance of stock $ — $ — $ 19,284 Issuance of Series A convertible preferred stock to convert debt and accrued interest $ — $ — $ 6,124 Unpaid deferred offering costs - net $ — $ — $ 1,545 Right-of-use assets obtained in exchange for lease liabilities $ 3,106 $ 12,458 $ — Conversion of convertible preferred stock to common stock $ — $ 338,367 $ — Change in unrealized gain (loss) on marketable securities, net of tax $ ( 100 ) $ 331 $ ( 61 ) Unpaid property and equipment $ 15 $ 183 $ — The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents Gossamer Bio, Inc. Notes to Consolidated Financial Statements Note 1— Organization and Basis of Presentation Gossamer Bio, Inc. (including its subsidiaries, the “Company”) is a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing therapeutics in the disease areas of immunology, inflammation and oncology. The Company was incorporated in the state of Delaware on October 25, 2015 (originally as FSG Bio, Inc.) and is based in San Diego, California. The consolidated financial statements include the accounts of Gossamer Bio, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions among the consolidated entity have been eliminated in consolidation. Initial Public Offering in February 2019 On February 12, 2019, the Company completed its initial public offering (“IPO”) with the sale of 19,837,500 shares of common stock, including shares of common stock issued upon the exercise in full of the underwriters’ option to purchase additional shares, at a public offering price of $ 16.00 per share, resulting in net proceeds of $ 291.3 million after deducting underwriting discounts, commissions, and offering expenses. Liquidity and Capital Resources The Company has incurred significant operating losses since its inception. As of December 31, 2020 and 2019, the Company had an accumulated deficit of $ 577.5 million and $ 334.2 million, respectively. From the Company’s inception through the year ended December 31, 2020, the Company has funded its operations primarily through equity financings and debt issuance. The Company raised $ 942.0 million from October 2017 through December 31, 2020 through Series A and Series B convertible preferred stock financings, a convertible note financing, its IPO, its Credit Facility (as defined in Note 5 below), and concurrent underwritten public offerings of its 5.00 % convertible senior notes due 2027 (the "2027 Notes") and common stock in May 2020. See Note 5 for additional information regarding the Credit Facility and the 2027 Notes. In addition, the Company received $ 12.8 million in cash in connection with the January 2018 acquisition of AA Biopharma Inc. The Company expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As a result, the Company will need to raise capital through equity offerings, debt financings and other capital sources, including potential collaborations, licenses and other similar arrangements. Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date these consolidated financial statements were available to be issued. There can be no assurance that the Company will be successful in acquiring additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years. COVID-19 The COVID-19 pandemic has caused significant business disruption around the globe. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the pandemic and the impact on the Company’s clinical trials, employees and vendors. At this point, the degree to which COVID-19 has impacted and may continue to impact the Company’s financial condition or results of operations is uncertain. A prolonged pandemic could have a material and adverse impact on financial results and business operations of the Company, including the timing and ability of the Company to complete certain clinical trials and other efforts required to advance the development of its product candidates and raise additional capital. For example, the Company temporarily paused enrollment in its Phase 1b clinical trial in pulmonary arterial hypertension ("PAH") in 2020 as a result of the ongoing COVID-19 pandemic. In addition, due to the challenges of enrolling patients posed by the COVID-19 pandemic, the Company may experience delays in enrollment of patients in its Phase 2 clinical trials of GB004 in ulcerative colitis and of seralutinib, also known as GB002, in PAH, as well as delays in reporting data results from its ongoing trials. Note 2— Summary of Significant Accounting Policies Basis of Presentation The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Certain prior period amounts have been reclassified to conform to the current period presentation. F-7 Table of Contents Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s consolidated financial statements relate to the allocation of the 2027 Notes into liability and equity components and accrued research and development expenses. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could differ from those estimates. Segments Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents are valued at cost, which approximate their fair value. Marketable Securities The Company considers securities with original maturities of greater than 90 days to be marketable securities. The Company has the ability, if necessary, to liquidate any of its cash equivalents and marketable securities to meet its liquidity needs in the next 12 months. Accordingly, those investments with contractual maturities greater than one year from the date of purchase are classified as current assets on the accompanying condensed consolidated balance sheets. The Company’s marketable securities consist of U.S. Treasury and agency securities, commercial paper, and corporate debt securities. Marketable securities are recorded at fair value and unrealized gains and losses are recorded within accumulated other comprehensive loss. The estimated fair value of the marketable securities is determined based on quoted market prices or rates for similar instruments. The Company evaluates securities with unrealized losses to determine whether such losses, if any, are due to credit-related factors. The Company records an allowance for credit losses when unrealized losses are due to credit-related factors. Realized gains and losses are calculated using the specific identification method and recorded as interest income or expense. The Company does not generally intend to sell the investments and it is not more likely than not that it will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity. The Company has determined that there were no material declines in fair values of its investments due to credit-related factors as of December 31, 2020. Restricted Cash Restricted cash as of December 31, 2020, and 2019 represents cash held as collateral for the Company's facility leases. Restricted cash as of December 31, 2018 served as collateral for the Company’s corporate credit card program. Concentrations of Credit Risk and Off-Balance Sheet Risk Cash, cash equivalents and marketable securities are financial instruments that are potentially subject to concentrations of credit risk. The Company’s cash and cash equivalents are deposited in accounts at large financial institutions, and amounts may exceed federally insured limits. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash and cash equivalents are held. The Company maintains its cash equivalents in U.S. Treasury and agency securities and commercial paper with maturities less than three months and in money market funds that invest in U.S. Treasury and agency securities. The Company’s available for sale securities are also invested in U.S. Treasury and agency securities. The Company has not recognized any losses from credit risks on such accounts during any of the periods presented. The Company believes it is not exposed to significant credit risk on its cash, cash equivalents and available for sale securities. F-8 Table of Contents Property and Equipment, Net Property and equipment, net, which consists mainly of office equipment and leasehold improvements, are carried at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the respective assets, generally three to seven years, using the straight-line method. Convertible Senior Notes In accounting for the issuance of the 2027 Notes, the Company separated the 2027 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2027 Notes. The equity component is not remeasured as long as it continues to meet the condition for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the 2027 Notes. The Company allocated the issuance costs incurred to the liability and equity components of the 2027 Notes based on their relative fair values. Issuance costs attributable to the liability component were recorded as a reduction to the liability portion of the 2027 Notes and are being amortized to interest expense over the term of the 2027 Notes. Issuance costs attributable to the equity component, representing the conversion option, were netted with the equity component in stockholders' equity. Leases In accordance with Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as adopted on January 1, 2019, the Company determines if an arrangement is a lease at inception. Operating leases are included in the balance sheet as right-of-use assets and operating lease liabilities at the present value of the lease payments calculated using the Company’s incremental borrowing rate, unless the implicit rate is readily available. The Company applied the short-term lease recognition exemption for leases with terms at inception not greater than 12 months and elected to not separate lease and non-lease components for its long-term leases. The Company records rent expense on a straight-line basis over the term of the lease. Research and Development All research and development costs are expensed as incurred. Research and development costs consist primarily of salaries, employee benefits, costs associated with preclinical studies and clinical trials (including amounts paid to clinical research organizations and other professional services) and in process research and development expenses. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. The Company records accruals for estimated research and development costs, comprising payments for work performed by third party contractors, laboratories, participating clinical trial sites, and others. Some of these contractor’s bill monthly based on actual services performed, while others bill periodically based upon achieving certain contractual milestones. For the latter, the Company accrues the expenses as goods or services are used or rendered. Clinical trial site costs related to patient enrollment are accrued as patients enter and progress through the trial. Upfront costs, such as costs associated with setting up clinical trial sites for participation in the trials, are expensed immediately once incurred as research and development expenses. Patent Costs Costs related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain. These costs are included in general and administrative expenses. Income Taxes Income taxes are recorded in accordance with Financial Accounting Standards Board (“FASB”) Standards Codification (“ASC”) No. 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. F-9 Table of Contents The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. Deferred tax assets and liabilities reflect the future tax consequences of the differences between the financial reporting and tax bases of assets and liabilities using current enacted tax rates. Valuation allowances are recorded when the realizability of such deferred tax assets does not meet a more-likely-than-not threshold. For tax benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company is subject to taxation in the United States and California, Ireland and Luxembourg. As of December 31, 2020, the Company’s tax years since inception are subject to examination by taxing authorities due to the Company’s unutilized net operating losses ("NOLs") and tax credits. Stock-Based Compensation The Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. The Company records the expense for stock-based compensation awards subject to performance-based milestone vesting over the requisite service period when management determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting date. The Company estimates the fair value of stock option grants and shares purchasable under the Company's 2019 Employee Stock Purchase Plan ("ESPP") using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The Company estimates the fair value of restricted stock units based on the closing price of the Company's common stock on the date of grant. The Company accounts for forfeitures as they occur. All share-based compensation costs are recorded in the statements of operations based upon the underlying employees or non-employee’s roles within the Company. Foreign Currency Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated to U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at average exchange rates during the year which approximate the rates in effect at the transaction dates. The resulting translation adjustments are recorded in accumulated other comprehensive income (loss). Foreign exchange transaction gains and losses are included in other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. Recent Accounting Pronouncements—To Be Adopted In August 2020, the FASB issued ASU 2020-06, Debt: Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies the accounting for convertible instruments and contracts in an entity's own equity. This guidance is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those years, with early adoption permitted only as of annual reporting periods beginning after December 15, 2020. The Company is currently assessing the impact this standard will have on its consolidated financial statements or related financial statement disclosures. Recently Adopted Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, entities will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those years, with early adoption permitted only as of annual reporting periods beginning after December 15, 2018. The Company adopted ASU 2016-13 as of January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or related financial statement disclosures. F-10 Table of Contents Net Loss Per Share Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. The Company uses the if-converted method for assumed conversion of the 2027 Notes to compute the weighted average shares of common stock outstanding for diluted net loss per share. Diluted net loss per share excludes the potential impact of the Company's Series Seed convertible preferred stock, Series A convertible preferred stock, and Series B convertible preferred stock, common stock options and unvested shares of restricted stock and the potential shares issuable upon conversion of the 2027 Notes because their effect would be anti-dilutive due to the Company’s net loss. Since the Company had a net loss in each of the periods presented, basic and diluted net loss per common share are the same. The table below provides potentially dilutive securities not included in the calculation of the diluted net loss per share because to do so would be anti-dilutive: December 31, 2020 2019 2018 Shares issuable upon conversion of Series Seed convertible preferred stock — — 4,444,444 Shares issuable upon conversion of Series A convertible preferred stock — — 10,158,710 Shares issuable upon conversion of Series B convertible preferred stock — — 15,890,306 2027 Notes 12,321,900 — — Shares issuable upon exercise of stock options 9,401,082 8,538,060 5,107,329 Non-vested shares under restricted stock grants 3,330,821 4,648,526 7,482,032 Note 3— Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): Years Ended December 31, 2020 2019 Accrued compensation $ 12,194 $ 9,282 Operating lease liabilities, current 3,633 2,354 Accrued consulting fees 1,919 1,337 Accrued interest, current 1,094 — Accrued other 742 1,126 Accrued legal fees 619 837 Accrued accounting fees 285 173 Accrued in process research and development 225 1,600 Total accrued expenses $ 20,711 $ 16,709 Note 4— Fair Value Measurements The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. F-11 Table of Contents The Company classifies its cash equivalents and available-for-sale investments within Level 1 or Level 2. The fair value of the Company’s investment grade corporate debt securities and commercial paper is determined using proprietary valuation models and analytical tools, which utilize market pricing or prices for similar instruments that are both objective and publicly available, such as matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, and offers. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents the hierarchy for assets measured at fair value on a recurring basis as of December 31, 2020 and December 31, 2019 (in thousands): Fair Value Measurements at End of Period Using: Total Fair Value Quoted Market Prices for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of December 31, 2020 Money market funds $ 411,104 $ 411,104 $ — $ — U.S. Treasury and agency securities 18,280 18,280 — — Corporate debt securities 26,573 — 26,573 — As of December 31, 2019 Money market funds $ 82,125 $ 82,125 $ — $ — U.S. Treasury and agency securities 91,717 91,717 — — Commercial paper 37,411 — 37,411 — Corporate debt securities 156,277 — 156,277 — The Company did not reclassify any investments between levels in the fair value hierarchy during the periods presented. Fair Value of Other Financial Instruments As of December 31, 2020 and December 31, 2019, the carrying amounts of the Company’s financial instruments, which include cash, interest receivable, accounts payable and accrued expenses, approximate fair values because of their short maturities. Interest receivable as of December 31, 2020 and December 31, 2019 was $ 0.2 million and $ 1.5 million, respectively, and is recorded as a component of prepaid expenses and other current assets on the condensed consolidated balance sheets. The Company believes that its Credit Facility bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and, accordingly, the carrying value of the Credit Facility approximates fair value. The Company estimates the fair value of long-term debt utilizing an income approach. The Company uses a present value calculation to discount principal and interest payments and the final maturity payment on these liabilities using a discounted cash flow model based on observable inputs. The debt instrument is then discounted based on what the current market rates would be as of the reporting date. Based on the assumptions used to value these liabilities at fair value, the debt instrument is categorized as Level 2 in the fair value hierarchy. As of December 31, 2020 the fair value of the Company's 2027 Notes was $ 198.5 million. The fair value was determined on the basis of market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy (see Note 5). Available for Sale Investments The Company invests its excess cash in U.S. Treasury and agency securities and debt instruments of corporations and commercial obligations, which are classified as available-for-sale investments. These investments are carried at fair value and are included in the tables below. The Company evaluates securities with unrealized losses to determine whether such losses, if any, are due to credit-related factors. Realized gains and losses are calculated using the specific identification method and recorded as interest income or expense. The Company does not generally intend to sell the F-12 Table of Contents investments and it is not more likely than not that it will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity. The aggregate market value, cost basis, and gross unrealized gains and losses of available-for-sale investments by security type, classified in marketable securities and long-term investments as of December 31, 2020 are as follows (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Total Fair Value Marketable securities Corporate debt securities $ 26,396 $ 177 $ — $ 26,573 Total marketable securities $ 26,396 $ 177 $ — $ 26,573 As of December 31, 2020 and 2019, the Company classified $ 18.3 million and $ 18.7 million, respectively, of assets with original maturities of 90 days or less as cash equivalents. At each reporting date, the Company performs an evaluation of impairment to determine if any unrealized losses are due to credit-related factors. The Company records an allowance for credit losses when unrealized losses are due to credit-related factors. Factors considered when evaluating available-for-sale investments for impairment include the severity of the impairment, changes in underlying credit ratings, the financial condition of the issuer, the probability that the scheduled cash payments will continue to be made and the Company’s intent and ability to hold the investment until recovery of the amortized cost basis. The Company intends and has the ability to hold its investments in unrealized loss positions until their amortized cost basis has been recovered. As of December 31, 2020, there were no material declines in the market value of the Company's available-for-sale investments due to credit-related factors. Contractual maturities of available-for-sale debt securities, as of December 31, 2020, were as follows (in thousands): Estimated Fair Value Due within one year $ 26,573 One to two years — Total $ 26,573 Note 5— Indebtedness Credit Facility On May 2, 2019, the Company entered into a credit, guaranty and security agreement, as amended on September 18, 2019 and July 2, 2020 (the “Credit Facility”), with MidCap Financial Trust (“MidCap”), as agent and lender, and the additional lenders party thereto from time to time (together with MidCap, the “Lenders”), pursuant to which the Lenders, including affiliates of MidCap and Silicon Valley Bank, agreed to make term loans available to the Company for working capital and general business purposes, in a principal amount of up to $ 150.0 million in term loan commitments, including a $ 30.0 million term loan that was funded at the closing date, with the ability to access the remaining $ 120.0 million in two additional tranches (each $ 60.0 million), subject to specified availability periods, the achievement of certain clinical development milestones, minimum cash requirements and other customary conditions. The Company, GB001, Inc., GB002, Inc., and GB004, Inc., each wholly-owned subsidiaries of the Company, are designated as co-borrowers to the Credit Facility, whereas GB003, Inc., GB005, Inc., GB006, Inc., GB007, Inc., GB008, Inc., and Gossamer Bio Services, Inc.,each wholly-owned subsidiaries of the Company, are designated as guarantors. The remaining two tranches are available no earlier than the satisfaction of the applicable funding conditions, including the applicable clinical development milestones, and no later than December 31, 2022. As of December 31, 2020, no other tranches under the Credit Facility have been available. The Credit Facility is secured by substantially all of the Company’s and its domestic subsidiaries’ personal property, including intellectual property. Each term loan under the Credit Facility bears interest at an annual rate equal to the sum of (i) one-month LIBOR (customarily defined, with a change to prime rate if LIBOR funding becomes unlawful or impractical) plus (ii) 7.00 %, subject to a LIBOR floor of 2.00 %. The Company is required to make interest-only payments on the term loan for all payment dates prior to July 1, 2022. The term loans under the Credit Facility will begin amortizing on July 1, 2022, with equal monthly payments of principal plus interest being made by the Company to the Lenders in consecutive monthly installments following F-13 Table of Contents such interest-only period until the Credit Facility matures on January 1, 2025. Upon final repayment of the term loans, the Company must pay an exit fee of 1.75 % of the amount borrowed under the Credit Facility, less any partial exit fees previously paid. Upon partial prepayment of a portion of the term loans, the Company must pay a partial exit fee of 1.75 % of the principal being prepaid. At the Company’s option, the Company may prepay the outstanding principal balance of the term loan in whole or in part, subject to a prepayment fee of 3.00 % of any amount prepaid if the prepayment occurs through and including the first anniversary of the second amendment effective date, 2.00 % of the amount prepaid if the prepayment occurs after the first anniversary of the second amendment effective date through and including the second anniversary of the second amendment effective date, and 1.00 % of any amount prepaid after the second anniversary of the second amendment effective date and prior to January 1, 2025. The Credit Facility includes affirmative and negative covenants applicable to the Company and certain of its subsidiaries. The affirmative covenants include, among others, covenants requiring such entities to maintain their legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage, maintain property, pay taxes, satisfy certain requirements regarding accounts and comply with laws and regulations. The negative covenants include, among others, restrictions on such entities from transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, amending material agreements and organizational documents, selling assets and suffering a change in control, in each case subject to certain exceptions. The Company and certain of its subsidiaries are also subject to an ongoing minimum cash financial covenant in which they must maintain unrestricted cash in an amount not less than 25 % of the outstanding principal amount of the term loans. As of December 31, 2020, the Company was in compliance with these covenants. The Credit Facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 3.00 % and would provide MidCap, as agent, with the right to exercise remedies against the Company and/or certain of its subsidiaries, and the collateral securing the Credit Facility, including foreclosure against the properties securing the credit facilities, including cash. These events of default include, among other things, failure to pay any amounts due under the Credit Facility, a breach of covenants under the Credit Facility, insolvency or the occurrence of insolvency events, the occurrence of a change in control, the occurrence of certain U.S. Food and Drug Administration ("FDA") and regulatory events, failure to remain registered with the SEC and listed for trading on Nasdaq, the occurrence of a material adverse change, the occurrence of a default under a material agreement reasonably expected to result in a material adverse change, the occurrence of certain defaults under certain other indebtedness in an amount greater than $ 2.5 million and the occurrence of certain defaults under subordinated indebtedness and convertible indebtedness. Long-term debt as of December 31, 2020 consisted of the following (in thousands): December 31, 2020 Term loan $ 30,000 Debt discount and issuance costs ( 1,256 ) Long-term debt $ 28,744 The scheduled future minimum principal payments are as follows (in thousands): December 31, 2020 2021 — 2022 5,806 2023 11,613 2024 11,613 2025 968 Total $ 30,000 F-14 Table of Contents 5.00% Convertible Senior Notes due 2027 On May 21, 2020, the Company issued $ 200.0 million aggregate principal amount of 5.00 % convertible senior notes due 2027 in a public offering. The 2027 Notes were registered pursuant to the Company’s Shelf Registration Statement (as defined in Note 8 below). The interest rate on the 2027 Notes is fixed at 5.00 % per annum. Interest is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2020. The 2027 Notes will mature on June 1, 2027. The net proceeds from the offering, after deducting the underwriting discounts and commissions and other offering costs, were approximately $ 193.6 million. The 2027 Notes may be settled in cash, shares of the Company’s common stock, or a combination thereof, solely at the Company’s election. The initial conversion rate of the 2027 Notes is 61.6095 shares per $1,000 principal amount, which is equivalent to a conversion price of approximately $ 16.23 per share, subject to adjustments. In addition, following certain corporate events that occur prior to the maturity date or if the Company issues a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its 2027 Notes in connection with such a corporate event during the related redemption period in certain circumstances. The 2027 Notes are senior unsecured obligations of the Company, ranking senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 2027 Notes, and are effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness, including all indebtedness under the Credit Facility. Holders may convert their notes at their option only in the following circumstances: (1) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on September 30, 2020, if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per $ 1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company’s common stock; (4) if the Company calls such notes for redemption; and (5) at any time from, and including, March 1, 2027 until the close of business on the scheduled trading day immediately before the maturity date. The Company will not have the right to redeem the 2027 Notes prior to June 6, 2024. On or after June 6, 2024 and on or before the 50th scheduled trading day immediately before the maturity date, the Company may redeem the 2027 Notes, in whole or in part, if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect on (1) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (2) the trading day immediately before the date the Company sends such notice. In the case of any optional redemption, the Company will redeem the 2027 Notes at a redemption price equal to 100 % of the principal amount of such Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company undergoes a fundamental change prior to the maturity date of the 2027 Notes, holders of the 2027 Notes may require the Company to repurchase for cash all or part of their 2027 Notes at a repurchase price equal to 100 % of the principal amount of the 2027 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The indenture governing the 2027 Notes provides for customary terms and covenants, including that upon certain events of default, either the trustee or the holders of not less than 25 % in aggregate principal amount of the 2027 Notes then outstanding may declare the unpaid principal amount of the 2027 Notes and accrued and unpaid interest, if any, thereon immediately due and payable. As of December 31, 2020, the Company was in compliance with these covenants. In the case of certain events of bankruptcy, insolvency or reorganization, the principal amount of the 2027 Notes together with accrued and unpaid interest, if any, thereon will automatically become and be immediately due and payable. As of December 31, 2020, there were no events or market conditions that would allow holders to convert the 2027 Notes. At the time the 2027 Notes become convertible within 12 months of the balance sheet date, the carrying value of the 2027 Notes will be reclassified to short-term. In accounting for the issuance of the 2027 Notes, the Company separated the 2027 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was $ 53.5 million and was determined by deducting the fair value of the liability component from the par F-15 Table of Contents value of the 2027 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The debt discount is amortized to interest expense over the term of the 2027 Notes at an effective interest rate of 11.17 % over the contractual terms of the 2027 Notes. In accounting for the debt issuance costs of $ 0.4 million related to the 2027 Notes, the Company allocated the total amount incurred to the liability and equity components of the 2027 Notes based on their relative fair values. Issuance costs attributable to the liability component were $ 0.3 million and will be amortized to interest expense using the effective interest method over the contractual terms of the 2027 Notes. Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. The net carrying amount of the liability component of the 2027 Notes was as follows (in thousands): December 31, 2020 December 31, 2019 Principal amount $ 200,000 $ — Unamortized debt discount ( 56,080 ) — Unamortized debt issuance cost ( 278 ) — Net carrying amount $ 143,642 $ — The net carrying amount of the equity component of the 2027 Notes was as follows (in thousands): December 31, 2020 December 31, 2019 Debt discount related to the value of conversion option $ 53,635 $ — Debt issuance cost ( 109 ) — Net carrying amount $ 53,526 $ — The following table sets forth the interest expense recognized related to the 2027 Notes (in thousands): Years Ended December 31, December 31, 2020 December 31, 2019 December 31, 2018 Contractual interest expense $ 6,139 $ — $ — Amortization of debt discount 3,555 — — Amortization of debt issuance cost 17 — — Total interest expense related to the 2027 Notes $ 9,711 $ — $ — Note 6— License and Asset Acquisitions The following purchased assets were accounted for as asset acquisitions as substantially all of the fair value of the assets acquired were concentrated in a group of similar assets and/or the acquired assets were not capable of producing outputs due to the lack of employees and early stage of development. Because the assets had not yet received regulatory approval, the fair value attributable to these assets was recorded as in process research and development (“IPR&D”) expenses in the Company’s consolidated statement of operations for the years ended December 31, 2020, 2019, and 2018. The Company accounts for contingent consideration payable upon achievement of certain regulatory, development or sales milestones in such asset acquisitions when the underlying contingency is resolved. License from Pulmokine, Inc. (Seralutinib) On October 2, 2017, the Company, entered into a license agreement with Pulmokine, Inc. under which it was granted an exclusive worldwide license and sublicense to certain intellectual property rights owned or controlled by Pulmokine to develop and commercialize seralutinib and certain backup compounds for the treatment, prevention and diagnosis of any and all disease or conditions. The Company also has the right to sublicense its rights under the license agreement, subject to certain conditions. The assets acquired are in the early stages of the FDA approval process, and the Company intends to further develop the assets acquired through potential FDA approval as evidenced by the milestone arrangement in the contract. The development activities cannot be performed without significant cost and effort by the Company. The agreement will remain in effect from the effective date, unless terminated earlier, until, on a licensed product-by-licensed product and country-by-country basis, the later of ten years from the date of first commercial sale or when there is no longer a valid patent claim covering such F-16 Table of Contents licensed product or specified regulatory exclusivity for the licensed product in such country. The Company is obligated to make future development and regulatory milestone payments of up to $ 58.0 million, commercial milestone payments of up to $ 45.0 million, and sales milestone payments of up to $ 190.0 million. The Company is also obligated to pay tiered royalties on sales for each licensed product, at percentages ranging from the mid-single digits to the high single-digits. The Company made an upfront payment of $ 5.5 million in October 2017. In December 2020, the Company accrued a milestone payment of $ 5.0 million in connection with the initiation of the first Phase 2 clinical trial of seralutinib. AA Biopharma Inc. Acquisition (GB001) On January 4, 2018, the Company acquired AA Biopharma Inc. pursuant to a merger agreement, and with the acquisition acquired the rights to GB001 and certain backup compounds. In connection with the merger agreement, the Company issued an aggregate of 20,000,000 shares of Series Seed convertible preferred stock and 1,101,278 shares of common stock to the AA Biopharma shareholders. The Company recorded IPR&D of $ 19.3 million in connection with the acquisition of AA Biopharma. License from Aerpio Pharmaceuticals, Inc. (GB004) On June 24, 2018, the Company entered into a license agreement with Aerpio Pharmaceuticals, Inc. (“Aerpio”) under which the Company was granted an exclusive worldwide license and sublicense to certain intellectual property rights owned or controlled by Aerpio to develop and commercialize GB004, and certain other related compounds for all applications. The Company made an upfront payment of $ 20.0 million in June 2018, which represented the purchase consideration for an asset acquisition. On May 11, 2020, the Company entered into an amendment to the license agreement with Aerpio pursuant to which the Company made an upfront payment of $ 15.0 million to Aerpio for a reduction in future milestone payments and royalties. Under the amended license agreement, the Company is obligated to make future approval milestone payments of up to $ 40.0 million and a sales milestone payment of $ 50.0 million. The Company also has the right to sublicense its rights under the license agreement, subject to certain conditions. The Company is also obligated to pay tiered royalties on sales for each licensed product, at percentages ranging from low- to mid-single digits, subject to certain customary reductions. Aerpio retains its twenty percent ( 20.00 %) participation right on a disposition of GB004. As of December 31, 2020, no milestones had been accrued as the underlying contingencies had not yet been resolved. Adhaere Pharmaceuticals, Inc. Acquisition (GB1275) On September 21, 2018, the Company acquired Adhaere Pharmaceuticals, Inc. pursuant to a merger agreement for an upfront payment of $ 7.5 million in cash, and with the acquisition acquired the rights to GB1275 and certain backup compounds. The Company is obligated to make future regulatory, development and sales milestone payments of up to $ 62.0 million and pay tiered royalties on worldwide net sales, at percentages ranging from low to mid-single digits, subject to customary reductions. The Company recorded IPR&D of $ 7.5 million in connection with the acquisition of Adhaere. In May 2019, the Company made a milestone payment of $ 1.0 million in connection with the filing of the Investigational New Drug application for the GB1275 program. As of December 31, 2020, no other milestones had been accrued as the underlying contingencies had not yet been resolved. The Company recorded the following IPR&D expense on the consolidated statements of operations (in thousands): Years Ended December 31, 2020 2019 2018 Seralutinib $ 5,000 $ — $ — GB004 15,000 — 20,000 GB1275 — 1,000 7,501 GB001 — — 19,148 Other preclinical programs 3,380 2,600 3,010 Total in process research and development $ 23,380 $ 3,600 $ 49,659 F-17 Table of Contents Note 7— Income Taxes The amount of net loss before taxes for the years ended December 31, 2020, 2019, and 2018 is as follows: December 31, 2020 2019 2018 (in thousands) U.S. loss before taxes $ 186,888 $ 138,342 $ 116,920 Foreign loss before taxes 56,472 41,965 30,049 Loss before income taxes $ 243,360 $ 180,307 $ 146,969 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2020, 2019 and 2018 are shown below. The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The Company periodically evaluates the recoverability of the deferred assets. At such time as it is determined that it is more likely than not that the deferred tax asset will be realized, the valuation allowance will be reduced. The change in the valuation allowance for the year ended December 31, 2020 was an increase of $ 38.9 million. December 31, 2020 2019 2018 (in thousands) Deferred tax assets: Net operating losses $ 77,946 $ 43,626 $ 14,442 Tax credits, net 17,372 9,196 1,131 Amortization 10,939 6,597 6,267 Stock-based compensation 4,448 1,388 — Lease liability 2,383 2,329 — Accrued compensation 2,137 1,476 834 Other 16 383 154 Total gross deferred tax assets 115,241 64,995 22,828 Deferred tax liabilities: Convertible senior notes ( 10,592 ) — — Right of use asset ( 2,215 ) ( 2,164 ) — Property, plant and equipment ( 776 ) ( 57 ) ( 16 ) Stock-based compensation — — ( 1,057 ) Total gross deferred tax liabilities ( 13,583 ) ( 2,221 ) ( 1,073 ) Valuation allowance ( 101,658 ) ( 62,774 ) ( 21,755 ) Net deferred tax asset $ — $ — $ — At December 31, 2020, the Company has federal and California NOL carryforwards of approximately $ 310.7 million and $ 1.1 million, respectively. The federal NOL carryforwards generated prior to January 1, 2018 begin to expire in 2034. The federal NOL generated after 2017 of $ 307.7 million can be carried forward indefinitely but may only be used to offset up to 80 % of the Company's taxable income in taxable years beginning after December 31, 2020. The California NOL carryforwards begin to expire in 2036. At December 31, 2020, the Company has foreign NOL carryforwards of approximately $ 101.1 million that can be carried forward indefinitely. At December 31, 2020, the Company also has orphan drug credit and federal research tax credit carryforwards of approximately $ 17.9 million and California research tax credits of $ 5.4 million. The federal research tax credit carryforwards begin to expire in 2038 and the California research tax credit carryforward does not expire and can be carried forward indefinitely until utilized. F-18 Table of Contents A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows: December 31, 2020 2019 2018 Federal statutory income tax rate 21.00 % 21.00 % 21.00 % State income taxes, net of federal benefit — % — % — % Change in valuation allowance ( 19.50 %) ( 22.12 %) ( 13.17 %) Research and experimentation credits 2.76 % 3.81 % 0.77 % Foreign rate differential ( 1.64 %) ( 1.84 %) ( 1.74 %) Stock-based compensation ( 1.81 %) — % ( 2.6 %) In process research and development — % — % ( 3.92 %) Other ( 0.80 %) ( 0.85 %) ( 0.34 %) Provision for income taxes — % — % — % The NOL carryforward may be subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986 (the “Code”), and similar state provisions if the Company experienced one or more ownership changes which would limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax respectively. In general, an ownership change as defined by Section 382 and 383, results from the transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. In connection with the Company’s IPO in February 2019, the Company experienced an ownership change for the purposes of Section 382 and 383 of the Code. The ownership change did not result in the forfeiture of any NOLs or credits generated prior to this date. Consequently, the Company’s federal and state NOLs and tax credits generated through February 2019 will be subject to annual limitations. If a change in ownership occurs in the future, the NOL and tax credits carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate. The Company files income tax returns in the United States, California, Ireland, and Luxembourg. Due to the Company’s unutilized NOLs and credits, the Company is subject to the income tax examination by authorities since inception. The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. As of December 31, 2020, 2019, or 2018, there were no significant accruals for interest related to unrecognized tax benefits or tax penalties. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Act”) was signed into law making significant changes to the Internal Revenue Code, including, but are not limited to (a) reducing the federal corporate income tax rate from 35% to 21%, effective January 1, 2018; (b) eliminating the federal corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; and (c) eliminating several business deductions and credits, including deductions for certain executive compensation in excess of $1 million. As a result of the rate reduction, the Company reduced the deferred tax asset balance as of December 31, 2018 by $ 0.8 million. Due to the Company's full valuation allowance position, there was no net impact on the Company’s income tax provision at December 31, 2018 as the reduction in the deferred tax asset balance was fully offset by a corresponding decrease in the valuation allowance. A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2020, 2019, and 2018, excluding interest and penalties, is as follows: December 31, 2020 2019 2018 (in thousands) Balance at beginning of the year $ 2,754 $ 408 $ — Increase related to current year positions 2,306 2,346 408 Balance at the end of the year $ 5,060 $ 2,754 $ 408 Included in the balance of unrecognized tax benefits at December 31, 2020 is $ 5.1 million that, if recognized, would not impact the Company’s income tax benefit or effective tax rate as long as our deferred tax asset remains subject to a F-19 Table of Contents full valuation allowance. The Company does not expect any significant increases or decreases to our unrecognized tax benefits within the next 12 months. Note 8— Stockholders’ Equity In connection with the Company’s IPO, the outstanding shares of the Company’s Series Seed, Series A, and Series B convertible preferred stock automatically converted into 30,493,460 shares of common stock. Each share of common stock is entitled to one vote. Common stock owners are entitled to dividends when funds are legally available and declared by the Board. Shelf Registration Statement and Stock Offering On April 10, 2020, the Company filed a universal shelf registration statement on Form S-3, covering the offering from time to time of common stock, preferred stock, debt securities, warrants and units, which registration statement became automatically effective on April 10, 2020 (the “Shelf Registration Statement”). On May 21, 2020, the Company completed a public offering of 9,433,963 shares of its common stock at a public offering price of $ 13.25 per share. The net proceeds from the offering, after deducting underwriting discounts and commissions and other offering costs, were approximately $ 117.1 million. The shares sold in the offering were registered pursuant to the Company’s Shelf Registration Statement. Shares of Common Stock Subject to Repurchase On December 3, 2015, the Company issued 9,160,888 shares of common stock as founder shares for services rendered to the Company, valued at $ 0.0001 par value per share, for a total of approximately $ 4,100 (the “founder shares”). On January 4, 2018, incremental vesting conditions were placed on the previously issued founder shares. Fifty percent of the previously issued founder shares vested on January 4, 2018, and the remaining founder shares are subject to vesting restrictions over a period of five years . These shares are subject to repurchase by the Company upon a founder's termination of employment or service to the Company. Pursuant to the employment agreements with the Company’s founders executed January 4, 2018, the Company provided for certain potential additional issuances of common stock (the “anti-dilution shares”) to each of the founders to ensure the total number of shares of common stock held by them and their affiliates (inclusive of any shares subject to equity awards granted by the Company and the Founders’ Equity) would represent 15 % of the Company’s fully-diluted capitalization until such time as the Company raised $ 300.0 million in equity capital, including the capital raised in the Series A financing. In furtherance of this obligation, on May 21, 2018, the Company issued 251,547 shares of common stock to the founders for services rendered to the Company, valued at $ 2.61 per share with an additional 251,547 shares of restricted stock subject to the same vesting restrictions and vesting period as the founder shares. In addition, on September 6, 2018, the Company issued 1,795,023 shares of common stock to the founders for services rendered to the Company, valued at $ 9.63 per share, with an additional 1,795,023 shares of restricted stock subject to the same vesting restrictions and vesting period as the founder shares. In November 2017, in connection with the issuance of the Series A convertible preferred stock, certain employees entered into stock restriction agreements, whereby 1,305,421 shares are subject to repurchase by the Company upon the stockholder’s termination of employment or service to the Company. For the year ended December 31, 2020, 441,801 shares were forfeited due to termination of employment. Any shares subject to repurchase by the Company are not deemed, for accounting purposes, to be outstanding until those shares vest. As such, the Company recognizes the measurement date fair value of the restricted stock over the vesting period as compensation expense. As of December 31, 2020, 2019 and 2018, 1,649,348 shares, 4,648,526 shares and 7,482,032 shares of common stock, respectively, were subject to repurchase by the Company. The unvested stock liability related to these awards is immaterial to all periods presented. Note 9— Equity Incentive Plans 2019 Equity Incentive Plan In January 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Incentive Award Plan (the “2019 Plan”). The 2019 Plan became effective on February 6, 2019, the day prior to the F-20 Table of Contents effectiveness of the registration statement filed in connection with the IPO. Under the 2019 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock or cash-based awards to individuals who are then employees, officers, directors or consultants of the Company, and employees and consultants of the Company’s subsidiaries. A total of 5,750,000 shares of common stock were approved to be initially reserved for issuance under the 2019 Plan. The number of shares that remained available for issuance under the 2017 Plan (as defined below) as of the effective date of the 2019 Plan were, and shares subject to outstanding awards under the 2017 Plan as of the effective date of the 2019 Plan that are subsequently canceled, forfeited or repurchased by the Company will be added to the shares reserved under the 2019 Plan. In addition, the number of shares of common stock available for issuance under the 2019 Plan will be automatically increased on the first day of each calendar year during the ten -year term of the 2019 Plan, beginning with January 1, 2020 and ending with January 1, 2029, by an amount equal to 5 % of the outstanding number of shares of the Company’s common stock on December 31 of the preceding calendar year or such lesser amount as determined by the Company’s board of directors. As of December 31, 2020, an aggregate of 1,609,830 shares of common stock were available for issuance under the 2019 Plan and 7,140,993 shares of common stock were subject to outstanding awards under the 2019 Plan. 2019 Employee Stock Purchase Plan In January 2019, the Company’s board of directors and stockholders approved and adopted the ESPP. The ESPP became effective as of February 6, 2019, the day prior to the effectiveness of the registration statement filed in connection with the IPO. The ESPP permits participants to purchase common stock through payroll deductions of up to 20 % of their eligible compensation. A total of 700,000 shares of common stock were approved to be initially reserved for issuance under the ESPP. In addition, the number of shares of common stock available for issuance under the ESPP will be automatically increased on the first day of each calendar year during the first ten-years of the term of the ESPP, beginning with January 1, 2020 and ending with January 1, 2029, by an amount equal to 1 % of the outstanding number of shares of the Company’s common stock on December 31 of the preceding calendar year or such lesser amount as determined by the Company’s board of directors. During the year ended December 31, 2020, 113,286 shares were issued pursuant to the ESPP. As of December 31, 2020, an aggregate of 1,249,554 shares of common stock were available for issuance under the ESPP. 2017 Equity Incentive Plan The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) permitted the granting of incentive stock options, non-statutory stock options, restricted stock, restricted stock units and other stock-based awards. Subsequent to the adoption of the 2019 Plan, no additional equity awards can be made under the 2017 Plan. As of December 31, 2020, 3,941,562 shares of common stock were subject to outstanding options under the 2017 Plan, and 268,719 shares of restricted stock awards granted under the 2017 plan were unvested. Fair Value of Stock Option Awards The fair value of each employee and non-employee stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company estimates its expected volatility based on the historical volatility of a publicly traded set of peer companies. Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. F-21 Table of Contents The following assumptions were used to estimate the fair value of stock option awards granted to employees under the Company’s equity incentive plans and the shares purchasable under the ESPP during the periods presented: Year Ended December 31, 2020 2019 2018 Employee Stock Options Expected term (in years) 4.6 - 6.1 4.6 - 6.1 5.3 - 6.1 Risk-free interest rate 0.22 % - 1.67 % 1.38 % - 2.58 % 2.65 % - 2.96 % Volatility 84.38 % - 87.23 % 70.25 % - 86.92 % 69.13 % - 77.62 % Dividend yield — — — Employee Stock Purchase Plan Expected term (in years) 0.49 - 2.00 0.49 - 1.99 N/A Risk-free interest rate 0.12 % - 0.95 % 1.46 % - 1.87 % N/A Volatility 85.50 % - 99.13 % 72.08 % - 78.70 % N/A Dividend yield — — N/A Stock Options The following table summarizes stock option activity for the years ended December 31, 2020, 2019 and 2018: Shares Subject to Options Outstanding Weighted- Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Shares Weighted- Average Exercise Price (in thousands) Outstanding as of December 31, 2017 — $ — 0.0 $ — Options granted 5,143,551 $ 7.49 Options exercised — $ — Options forfeited/cancelled ( 36,222 ) $ 4.85 Outstanding as of December 31, 2018 5,107,329 $ 7.51 9.7 $ 16,343 Options granted 4,194,624 $ 20.11 Options exercised ( 419,593 ) $ 4.87 Options forfeited/cancelled ( 344,300 ) $ 11.64 Outstanding as of December 31, 2019 8,538,060 $ 13.67 9.0 $ 35,385 Options granted 2,712,372 $ 13.78 Options exercised ( 134,803 ) $ 3.96 Options forfeited/cancelled ( 1,714,547 ) $ 15.99 Outstanding as of December 31, 2020 9,401,082 $ 13.42 8.1 $ 10,182 Options vested and exercisable as of December 31, 2020 3,749,170 $ 12.66 7.5 $ 6,293 The weighted-average grant date fair value per share for the stock options granted during the year ended December 31, 2020, 2019 and 2018 was $ 9.82 , $ 13.17 and $ 4.87 , respectively. The aggregate fair value of stock options that vested during the years ended December 31, 2020, 2019 and 2018 was $ 29.9 million, $ 7.2 million and $ 0.1 million, respectively. The aggregate intrinsic value in the above table is calculated as the difference between fair value of the Company’s common stock price and the exercise price of the stock options. The aggregate intrinsic value of stock options exercised during the year ended December 31, 2020 and 2019 was $ 1.1 million and $ 6.9 million, respectively. There were no stock options exercised during the year ended December 31, 2018. At December 31, 2020, the total unrecognized compensation related to unvested stock option awards granted was $ 48.1 million, which the Company expects to recognize over a weighted-average period of approximately 2.4 years. F-22 Table of Contents Restricted Stock The summary of the Company’s restricted stock activity during the years ended December 31, 2020, 2019 and 2018 is as follows: Number of Restricted Stock Units Outstanding Weighted- Average Grant Date Fair Value Nonvested at December 31, 2017 1,305,421 $ 0.09 Granted 8,673,584 5.53 Vested ( 2,369,696 ) 7.58 Forfeited ( 127,277 ) 0.09 Nonvested at December 31, 2018 7,482,032 $ 4.01 Granted — — Vested ( 2,833,506 ) 4.05 Forfeited — — Nonvested at December 31, 2019 4,648,526 $ 3.98 Granted 2,003,900 10.96 Vested ( 2,557,377 ) 4.00 Forfeited ( 764,228 ) 8.30 Nonvested at December 31, 2020 3,330,821 $ 7.16 At December 31, 2020, the total unrecognized compensation related to unvested restricted stock awards granted was $ 18.8 million, which the Company expects to recognize over a weighted-average period of approximately 1.9 years. Stock-Based Compensation Expense Stock-based compensation expense has been reported in the Company’s consolidated statements of operations as follows (in thousands): Year Ended December 31, 2020 2019 2018 Research and development $ 18,997 $ 10,227 $ 679 General and administrative 19,751 10,592 30,268 Total stock-based compensation $ 38,748 $ 20,819 $ 30,947 In connection with the departure of the Company's former President and Chief Executive Officer in November 2020, the Company recognized $ 5.5 million of incremental stock-based compensation expense during the year ended December 31, 2020, due to a modification of the executive's existing restricted stock award, which included 18 months of accelerated vesting of the executive's outstanding restricted stock in accordance with the terms of the executive's transition agreement. As of December 31, 2020, total unrecognized compensation expense related to the ESPP was $ 1.4 million, which the Company expects to recognize over a weighted-average period of approximately 1 year. F-23 Table of Contents Note 10— Property and Equipment, Net The Company’s property and equipment, net consisted of the following (in thousands): Estimated Useful Life (in years) December 31, 2020 December 31, 2019 Office equipment 3 - 7 $ 1,153 $ 1,097 Computer equipment 5 123 124 Software 3 116 87 Lab equipment 2 - 5 4,210 3,054 Leasehold improvements 6 - 7 2,540 2,229 Construction in process N/A 15 48 Total property and equipment 8,157 6,639 Less: accumulated depreciation 2,623 1,214 Property and equipment, net $ 5,534 $ 5,425 Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was approximately $ 1.4 million, $ 0.9 million and $ 0.3 million, respectively, and was recorded in general and administrative expense in the consolidated statements of operations. Note 11— Commitments and Contingencies Leases The Company subleases certain office and laboratory space under a non-cancelable operating lease expiring in January 2025 for the initial leased space and December 2022 for expansion space leased pursuant to an amendment to the lease agreement entered into in August 2018. The sublease agreement included options to extend for the entire premises through October 2028. The options to extend must be exercised prior to the termination of the original lease agreement. The period covered by the options was not included in the non-cancellable lease term as it was not determined to be reasonably certain to be executed. The lease agreement also includes a one-time termination option for the expansion space only whereby the Company can terminate the lease with advance written notice. The termination option was not determined to be reasonably certain to be executed. The lease is subject to charges for common area maintenance and other costs, and base rent is subject to an annual 3 % increase each subsequent year. Costs determined to be variable and not based on an index or rate were not included in the measurement of the operating lease liabilities. In November 2019, the Company entered into an additional non-cancelable lease agreement for certain office and laboratory space (the “permanent space”) in San Diego, California, commencing on May 1, 2020 and expiring on December 31, 2021. The lease agreement includes a lease for temporary space commencing on January 1, 2020 and expiring on the commencement date of the lease of the permanent space. The monthly base rent for the permanent and temporary space is $ 63,425 and $ 28,745 , respectively. The lease agreement included an option to extend the term of the permanent space for twelve months . The option to extend must be exercised nine months prior to the termination of the original lease agreement. The period covered by the option was not included in the non-cancellable lease term as it was not determined to be reasonably certain to be executed. The lease is subject to charges for common area maintenance and other costs, and base rent is subject to an annual 3 % increase each subsequent year. In June 2020, the Company entered into a sublease agreement for the permanent space with a third party. The sublease commenced on July 1, 2020 and expires on December 31, 2021. The sublessee pays the monthly base rent of $ 63,425 , subject to an annual 3 % increase, and is obligated to pay for common area maintenance and other costs. The sublessee received a 6 months base rent abatement. The Company determined that there was no impairment on the original right-of-use asset and will continue to account for the permanent space as it did before the commencement of the sublease. The Company recognized $ 0.2 million in sublease income for the year ended December 31, 2020. On July 29, 2020, the Company entered into a lease assignment agreement, whereby it became the assignee to a lease for certain office and laboratory space in Ann Arbor, Michigan. The lease term expires on December 31, 2026 and the Company has the option to extend the term of the lease by up to five years . The period covered by the option was not included in the non-cancellable lease term as it was not determined to be reasonably certain to be executed. The monthly base rent for the space is $ 28,495 . The lease is subject to charges for common area maintenance and other costs, and base rent is subject to an annual 2.5 % increase on January 1 of each year. F-24 Table of Contents Monthly rent expense is recognized on a straight-line basis over the term of the leases. The operating leases are included in the balance sheet at the present value of the lease payments at a weighted average discount rate of 7 % using the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment as the leases do not provide an implicit rate. The weighted average remaining lease term was 3.4 years. Lease costs were comprised of the following (in thousands): Year ended December 31, 2020 Operating lease cost $ 3,615 Short-term lease cost 78 Total lease cost $ 3,693 Cash paid for amounts included in the measurement of operating lease liabilities for the years ended December 31, 2020 and 2019 was $ 3.6 million and $ 3.0 million , respectively. Gross future minimum annual rental commitments as of December 31, 2020, were as follows (in thousands): Undiscounted Rent Payments Year ending December 31, 2021 $ 4,273 2022 3,579 2023 2,063 2024 2,123 2025 387 397 Total undiscounted rent payments $ 12,822 Present value discount ( 1,476 ) Present value $ 11,346 Current portion of operating lease liabilities (included as a component of accrued expenses and other current liabilities) 3,633 Noncurrent operating lease liabilities 7,713 Total operating lease liability $ 11,346 For the years ended December 31, 2020, 2019 and 2018, the Company recorded approximately $ 4.0 million, $ 3.1 million and $ 1.5 million, respectively, in rent expense. Litigation Kuhne vs. Gossamer Bio, Inc., et. al. On April 3, 2020, Scott Kuhne, individually and on behalf of all others similarly situated, filed a putative class action lawsuit against the Company, certain of its executive officers and directors, and the underwriters of its IPO in the United States District Court for the Southern District of California (Case No. 3:20-cv-00649-DMS-DEB). The first amended complaint was filed on August 31, 2020, and the second amended complaint was filed on November 20, 2020. The second amended complaint was filed on behalf of all investors who purchased the Company's securities pursuant to or traceable to the Company's February 8, 2019 IPO. The second amended complaint alleges that the Company, certain of its executive officers and directors, and the underwriters of its IPO made false and/or misleading statements and failed to disclose material adverse facts about its business, operations and prospects in violation of Sections 11 and 15 of the Securities Act of 1933, as amended. The plaintiff seeks damages, interest, costs, attorneys’ fees, and other unspecified equitable relief. The Company moved to dismiss the second amended complaint on January 19, 2021, and Plaintiff filed an opposition to the motion on February 18, 2021. The Company’s deadline to file a reply in support of the motion to dismiss is March 22, 2021. The Company intends to vigorously defend this matter. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss that may result from this action. F-25 EXHIBIT INDEX Exhibit Number Exhibit Description Incorporated by Reference Filed Herewith Form Date Number 3.1 Amended and Restated Certificate of Incorporation. 8-K 2/12/2019 3.1 3.2 Amended and Restated Bylaws. 10-Q 5/12/2020 3.2 4.1 Form of Common Stock Certificate. S-1/A 1/23/2019 4.1 4.2 Amended and Restated Investors’ Rights Agreement, dated July 20, 2018, by and among the Registrant and certain of its stockholders. S-1 12/21/2018 4.2 4.3 Description of Securities Registered under Section 12 of the Exchange Act. X 4.4 Indenture, dated as of May 21, 2020, by and between the Registrant and Wilmington Trust, National Association. 8-K 5/21/2020 4.1 4.5 First Supplemental Indenture, dated May 21, 2020, by and between the Registrant and Wilmington Trust, National Association. 8-K 5/21/2020 4.2 4.6 Form of Global Note representing 5.00% Convertible Senior Notes due 2027 (included as part of Exhibit 4. 5 ). 8-K 5/21/2020 4.3 10.1# Gossamer Bio, Inc. 2017 Equity Incentive Plan, as amended. S-1 12/21/2018 10.1 10.2# Form of stock option grant notice and stock option agreement under Gossamer Bio, Inc. 2017 Equity Incentive Plan, as amended. S-1 12/21/2018 10.2 10.3# Form of restricted stock grant notice and restricted stock agreement under Gossamer Bio, Inc. 2017 Equity Incentive Plan, as amended. S-1 12/21/2018 10.3 10.4# Form of Founder restricted stock grant notice and restricted stock agreement. S-1 12/21/2018 10.4 10.5# Gossamer Bio, Inc. 2019 Incentive Award Plan and form of stock option grant notice and stock option agreement thereunder. S-1/A 1/23/2019 10.5 10.6# Gossamer Bio, Inc. 2019 Employee Stock Purchase Plan. S-1/A 1/23/2019 10.6 10.7# Gossamer Bio, Inc. Non-Employee Director Compensation Program. S-1/A 1/23/2019 10.7 10.8# Gossamer Bio, Inc. Restricted Stock Unit Agreement under the 2019 Equity Incentive Plan. 10-Q 5/12/2020 10.1 10.9# Employment Letter, dated January 4, 2018, by and between Sheila Gujrathi, M.D. and the Registrant. S-1 12/21/2018 10.8 10.10# Transition Agreement, dated November 17, 2020, by and between Sheila Gujrathi, M.D. and the Registrant. X 10.11# Letter Agreement, dated November 16, 2020, by and between Faheem Hasnain and the Registrant. X 10.12# Employment Letter, dated December 4, 2018, by and between Bryan Giraudo and the Registrant. S-1 12/21/2018 10.10 10.13# Employment Letter, dated December 4, 2018, by and between Christian Waage and the Registrant. S-1 12/21/2018 10.11 10.14# Employment Letter, dated December 4, 2018, by and between Luisa Salter-Cid, Ph.D. and the Registrant. S-1 12/21/2018 10.13 10.15# Form of Indemnification Agreement. S-1 12/21/2018 10.14 10.16 Sublease Agreement, dated December 29, 2017, by and between The Medicines Company and the Registrant. S-1 12/21/2018 10.15 10.17 First Amendment to Sublease Agreement, dated August 24, 2018, by and between The Medicines Company and the Registrant. S-1 12/21/2018 10.16 10.18† Exclusive License Agreement, dated October 2, 2017, by and between GB002, Inc., the Registrant and Pulmokine, Inc. S-1 12/21/2018 10.17 10.19† License Agreement, dated June 24, 2018, by and between Aerpio Pharmaceuticals, Inc. and GB004, Inc. S-1 12/21/2018 10.18 10.20† Amendment No. 1 to License Agreement, dated May 11, 2020, by and between GB004, Inc. and Aerpio Pharmaceuticals, Inc. 10-Q 8/11/2020 10.2 10.21 Credit, Guaranty and Security Agreement, dated May 2, 2019, by and among GB001, Inc., as Borrower, Gossamer Bio, Inc., as Guarantor, MidCap Financial Trust, as Agent and Lender, and the additional lenders from time to time party thereto. 8-K 5/3/2019 10.1 Exhibit Number Exhibit Description Incorporated by Reference Filed Herewith Form Date Number 10.22 First Amendment to Credit, Guaranty and Security Agreement, dated September 18, 2019, by and among GB001, Inc., as borrower, the Registrant, as guarantor, the other guarantors from time to time party thereto and MidCap Financial Trust, as Agent and as Lender, and the additional lenders from time to time party thereto. 10-Q 11/12/2019 10.1 10.23 Second Amendment to Credit, Guaranty and Security Agreement, dated July 2, 2020, by and among the Registrant , GB001, Inc., GB002, Inc. and GB004, Inc., as co-borrowers, the other guarantors from time to time party thereto and MidCap Financial Trust, as Agent and as a Lender and the additional lenders from time to time party thereto. 8-K 7/2/2020 10.1 21.1 List of Subsidiaries of the Registrant. 10-K 3/24/2020 21.1 23.1 Consent of Ernst & Young LLP, independent registered public accounting firm. X 31.1 Certification of Chief Executive Officer of Gossamer Bio, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. X 31.2 Certification of Chief Financial Officer of Gossamer Bio, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. X 32.1* Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 32.2* Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 101.INS XBRL Report Instance Document X 101.SCH XBRL Taxonomy Extension Schema Document X 101.CAL XBRL Taxonomy Calculation Linkbase Document X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB XBRL Taxonomy Label Linkbase Document X 101.PRE XBRL Presentation Linkbase Document X # Indicates management contract or compensatory plan. † Portions of this exhibit (indicated by asterisks) have been omitted for confidentiality purposes pursuant to Item 601(b)(10)(iv) of Regulation S-K. * These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GOSSAMER BIO, INC. By: /s/ Faheem Hasnain Faheem Hasnain President and Chief Executive Officer Date February 26, 2021 SIGNATURES AND POWER OF ATTORNEY Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Faheem Hasnain President, Chief Executive Officer and Chairman of the Board of Directors (principal executive officer) February 26, 2021 Faheem Hasnain /s/ Bryan Giraudo Chief Financial Officer (principal financial and accounting officer) February 26, 2021 Bryan Giraudo /s/ Joshua H. Bilenker Director February 26, 2021 Joshua H. Bilenker, M.D. /s/ Kristina Burow Director February 26, 2021 Kristina Burow /s/ Russell Cox Director February 26, 2021 Russell Cox /s/ Thomas Daniel, M.D. Director February 26, 2021 Thomas Daniel, M.D. /s/ Renée Galá Director February 26, 2021 Renée Galá