Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis should be read in conjunction with our financial statements and the accompanying notes included in this report and the audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. Our financial results for the three and nine months ended September 30, 2020 are not necessarily indicative of results that may occur in future interim periods or for the full fiscal year.
This Quarterly Report on Form 10-Q contains statements indicating expectations about future performance and other forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, that involve risks and uncertainties. We usually use words such as “may,” “will,” “would,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” or the negative of these terms or similar expressions to identify these forward-looking statements. These statements appear throughout this Quarterly Report on Form 10-Q and are statements regarding our current expectation, belief or intent, primarily with respect to our operations and related industry developments. Examples of these statements include, but are not limited to, statements regarding the following: our expectations regarding the impact of the global COVID-19 pandemic; our business and scientific strategies; risks and uncertainties associated with the commercialization and marketing of TAVALISSE; in the U.S. and in Europe; risks that the FDA, EMA or other regulatory authorities may make adverse decisions regarding fostamatinib; the progress of our and our collaborators’ product development programs, including clinical testing, and the timing of results thereof; our corporate collaborations and revenues that may be received from our collaborations and the timing of those potential payments; our expectations with respect to regulatory submissions and approvals; our drug discovery technologies; our research and development expenses; protection of our intellectual property; sufficiency of our cash and capital resources and the need for additional capital; and our operations and legal risks. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including as a result of the risks and uncertainties discussed under the heading “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Overview
We are a biotechnology company dedicated to discovering, developing and providing novel small molecule drugs that significantly improve the lives of patients with immune and hematologic disorders, cancer and rare diseases. Our pioneering research focuses on signaling pathways that are critical to disease mechanisms. Our first product approved by the United States Food and Drug Administration (FDA) is TAVALISSE ® (fostamatinib disodium hexahydrate) tablets, the only oral spleen tyrosine kinase (SYK) inhibitor, for the treatment of adult patients with chronic immune thrombocytopenia (ITP) who have had an insufficient response to a previous treatment. The product has been approved by the European Commission (EC) for the treatment of chronic ITP in adult patients who are refractory to other treatments and is marketed in Europe under the name TAVLESSE ® (fostamatinib). Fostamatinib is currently being studied in a Phase 3 trial for the treatment of warm autoimmune hemolytic anemia (AIHA); a NIH/NHLBI-Sponsored Phase 2 trial for the treatment of hospitalized COVID-19 patients, in collaboration with Inova ® Health System; and a Phase 2 trial for the treatment of COVID-19 pneumonia being conducted by Imperial College London. Additionally, we plan to study fostamatinib in a Phase 3 clinical trial for the treatment of hospitalized COVID-19 patients which is expected to launch in the fourth quarter of 2020. Other clinical trials include an ongoing Phase 1 study of R835, a proprietary molecule from its interleukin receptor associated kinase (IRAK) inhibitor program; and an ongoing Phase 1 study of R552, a proprietary molecule from its receptor-interacting protein kinase (RIP) inhibitor program. In addition, we have product candidates in clinical development with partners AstraZeneca (AZ), BerGenBio ASA (BerGenBio), and Daiichi Sankyo (Daiichi).
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Business Update
In the first nine months of 2020, net product sales of TAVALISSE increased by 47% year over year to $43.9 million. During the first nine months, our sales were negatively impacted by the COVID-19 pandemic as further discussed below.
Due to the evolving effect of the COVID-19 global pandemic, resources have been deployed to enable our field-based employees to continue to engage remotely with health care providers. These virtual engagements have enabled our field team to support existing prescribers as well as partner with new prescribers to identify appropriate patients for TAVALISSE.
Post-hoc data analysis from our Phase 3 clinical program, which highlights the potential benefit of using TAVALISSE in earlier lines of therapy in adult patients with chronic ITP was published in the July 2020 British Journal of Haematology. Inclusion in one of the leading peer-reviewed journals in the field of hematology underscores the significance of the 78% (25/32) response rate defined as at least one platelet count of at least 50,000/µL when TAVALISSE was used as a second-line therapy in our Phase 3 clinical program. Adverse events were manageable and consistent with those previously reported with fostamatinib. Our sales force is now sharing this analysis with physicians.
We recently launched FORTE, an observational study to further evaluate fostamatinib as a second-line treatment for adult chronic ITP. The study goal is to generate additional data on patient quality of life and financial expenditures relative to the healthcare of ITP patients.
Our FORWARD study, a pivotal Phase 3 clinical trial in warm AIHA has enrolled 57 of the 90 patients targeted for enrollment. Currently, the FORWARD study has over 90 active clinical trial sites established across 22 countries and clinical trial sites have resumed screening patients after a temporary pause due to the ongoing COVID-19 pandemic. We continue to evaluate enrollment timing in light of COVID-19 impacts, and at this time, we are unable to provide an update on anticipated enrollment completion.
In November 2020, we announced that we will launch a Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients without respiratory failure that have certain high-risk prognostic factors. This multi-center, double-blind, placebo-controlled, adaptive design study will randomly assign either fostamatinib plus standard of care (SOC) or matched placebo plus SOC (1:1) to over 300 evaluable patients. Treatment will be administered orally twice daily for 14 days with follow up to day 60. The primary endpoint of this study is the proportion of subjects who progress to severe/critical disease within 29 days.
In September 2020, we announced a Phase 2 clinical trial to be sponsored by the NIH/NHLBI in order to evaluate the safety of fostamatinib for the treatment of hospitalized COVID-19 patients. This multi-center, double-blind, placebo-controlled study will randomly assign fostamatinib or matched placebo (1:1) to approximately 60 evaluable patients. Treatment will be administered orally twice daily for 14 days. There will be a follow-up period to day 60. The primary endpoint of this study is cumulative incidence of serious adverse events (SAE) through day 29. The trial also includes multiple secondary endpoints designed to assess the early efficacy and clinically relevant endpoints of disease course. In November 2020, we announced that the trial has enrolled 9 patients.
In July 2020, we announced a Phase 2 clinical trial sponsored by Imperial College London in order to evaluate the efficacy of fostamatinib for the treatment of COVID-19 pneumonia. This is a two-stage, open label, controlled clinical trial with patients randomized (1:1:1) to fostamatinib plus SOC, ruxolitinib plus SOC, or standard of care alone. Treatment will be administered twice daily for 14 days and patients will receive a follow-up assessment at day 14 and day 28 after the first dose. The primary endpoint of this study is progression from mild to severe COVID-19 pneumonia within 14 days in hospitalized patients. In November 2020, we announced that the Imperial College London-sponsored clinical trial began enrolling patients.
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The Broad Institute of the Massachusetts Institute of Technology (MIT) and Harvard led a recent screen to identify FDA-approved compounds that reduce mucin-1 (MUC1) protein abundance. MUC1 is a biomarker used to predict the development of ALI and ARDS and correlates with poor clinical outcomes. Of the 3,713 compounds that were screened, fostamatinib was the only compound identified which both decreased expression of MUC1 and is FDA approved, and so allows for rapid repurposing for patients with COVID-19 lung injury. Fostamatinib demonstrated preferential depletion of MUC1 from epithelial cells without affecting cell viability. The research was focused on drug repurposing for the much lower risk of toxicity and the ability of FDA-approved treatments to be delivered on a shortened timescale, which is critical for patients afflicted with lung disease resulting from COVID-19.
Recent in vitro studies led by the Amsterdam University Medical Center at the University of Amsterdam, showed that R406, the active metabolite of fostamatinib, blocked macrophage hyper-inflammatory responses to a combination of immune complexes formed by anti-Spike IgG in serum from severe COVID-19 patients. Anti-Spike IgG levels are known to correlate with the severity of COVID-19. These results suggest that by inhibiting anti-Spike IgG-mediated hyperinflammation, R406 could potentially play a role in the prevention of cytokine storms as well as pulmonary edema and thrombosis associated with severe COVID-19.
In June 2020, at the European League Against Rheumatism (EULAR) 2020 E-Congress, we presented two oral and two poster presentations highlighting our investigational compound R835, a potent and selective inhibitor of both IRAK1 and IRAK4. In multiple pre-clinical rodent models of acute and chronic inflammation, R835 administration resulted in reduced inflammation, and in Phase 1 trials, it showed encouraging pharmacokinetic (PK) properties.
In February 2020, we received a $20.0 million payment from Grifols. The payment was received upon the EC approval of the Marketing Authorization Application (MAA) for fostamatinib for the treatment of chronic ITP in adult patients who are refractory to other treatments. In addition, as a result of the EC approval, the $25.0 million of the $30.0 million upfront fee that we previously received from Grifols will no longer be repayable by us to Grifols. Fostamatinib is marketed in Europe under the brand name TAVLESSE™ (fostamatinib). Grifols launched TAVLESSE™ in the UK and Germany in July 2020, and expects a phased roll-out over the next 18 months across Europe.
We currently anticipate no disruption related to the COVID-19 pandemic in the supply of TAVALISSE tablets and drug substance to meet the needs for our U.S. ITP sales, as well as for our collaborative partners and clinical trials worldwide.
With our cash and cash equivalents and short term investments as of September 30, 2020 of approximately $72.8 million and expected cash flow from operations, we believe our sources of liquidity and capital will be sufficient to finance our continued operations and growth strategy for at least the next twelve months. In May 2020, we accessed the second $10.0 million tranche from our $60.0 million credit facility with MidCap. The facility provides us with access to an additional $40.0 million which is subject to the achievement of certain conditions. Additionally, on August 4, 2020, we entered into an Open Market Sale Agreement SM (Sales Agreement) with Jefferies LLC (Jefferies), as our sole sales agent, pursuant to which we may sell, from time to time, through Jefferies, shares of our common stock having an aggregate offering price of up to $65.0 million.
Management Update
On August 4, 2020, we announced the appointment of David Santos as our new executive vice president and chief commercial officer. Mr. Santos joined us on August 10, 2020, and brings over 30 years of commercial experience in the biopharmaceutical industry with companies such as Bristol-Myers Squibb, Lilly, Genentech, and most recently Jazz Pharmaceuticals, where he led the Hematology/Oncology Business Unit. He has a robust track record of success in sales and marketing leadership roles, building commercial capabilities, and growing brands in the hematology-oncology area, where he has spent most of his career.
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On October 2, 2020, Nelson D. Cabatuan, delivered notice of his resignation from his position as Vice President, Finance and Principal Accounting Officer, and employment with the Company, to be effective on October 16, 2020.
Update on Current and Potential Future Impact of COVID-19 on our Business
The global COVID-19 pandemic has resulted, and is expected to continue to result, in significant economic disruption, and has adversely affected and will likely continue to adversely affect our business. As of the date of this filing, significant uncertainty exists concerning the duration and severity of the COVID-19 pandemic. We have undertaken, and plan to continue to undertake, safety measures to keep our staff, patients, investigators and stockholders safe and to help the communities where we live and work reduce the number of people exposed to the virus. We have previously implemented work-from-home policies for certain employees and restricted on-site staff at our office in South San Francisco to only those personnel performing essential activities. In March 2020, through our existing Crisis Management Team (CMT), we also activated our business continuity plans to prevent or minimize business disruption and ensure the safety and well-being of our personnel. Our CMT meets regularly to assess the effectiveness of our business continuity plans and make adjustments accordingly as COVID-19 continues to evolve. The ultimate impact of the COVID-19 pandemic on our business and financial condition is highly uncertain and subject to change, and as such, we cannot ascertain the full extent of the impacts on our sales of our product, our ability to continue to secure new collaborations and support existing collaboration efforts with our partners and our clinical and regulatory activities.
Since the COVID-19 pandemic was declared, we have observed reduced patient-doctor interactions and our representatives are having fewer visits with health care providers, which negatively affected our product sales and may continue to negatively affect our product sales in the future. Resources have been deployed to enable our field team to have virtual engagements to support existing prescribers as well as partner with new prescribers to identify appropriate patients for TAVALISSE. As such, our field-based employees primarily engage remotely with health care providers. Other commercial related activities, such as our marketing programs, speaker bureaus, and market access initiatives that were in live forums have been conducted virtually, delayed or cancelled as a result of the COVID-19 pandemic.
With respect to our supply chain, we currently do not anticipate significant disruption in the supply chain for our commercial product, TAVALISSE. However, we do not know the full extent of the impact on our supply chain if the COVID-19 pandemic continues and persists for an extended period of time . We currently rely on third parties to, among other things, manufacture and ship our commercial product, raw materials and product supply for our clinical trials, perform quality testing and supply other goods and services to help manage our commercial activities, our clinical trials and our operations in the ordinary course of business. We have engaged actively with various elements of our supply chain and distribution channel, including our customers, contract manufacturers, and logistics and transportation provider, to meet demand for TAVALISSE and to remain informed of any challenges within our supply chain. We continue to monitor demand, and intend to adapt our plans as needed to continue to drive our business and meet our obligations during the evolving COVID-19 pandemic.
With respect to clinical development, we have taken, and continue to take, measures to implement remote and virtual approaches, including remote patient monitoring where possible per recent FDA guidance and working with our investigators for appropriate care of these patients in a safe manner consistent with agency guidelines. We have a number of ongoing clinical trials, one of which is a global Phase 3 clinical study in warm AIHA. A number of our clinical trial investigators had paused, postponed or delayed new patient enrollment and restricted site visits of existing patients enrolled, but since May 2020, trial sites have resumed screening and enrolling patients . We are making decisions country-by-country to minimize risk to the patients and clinical trial sites. We also rely heavily on our clinical trial investigators to inform us of the best course of action with respect to resuming of enrollment/screening considering the ability of sites to ensure patient safety or data integrity. Patients already enrolled in our studies continue to receive study drug, and we remain focused on supporting our sites in providing care for these patients and providing continued investigational drug supply. At this time, however, we cannot currently fully forecast the scope of impacts that the COVID-19 pandemic may have on our ability to continue to treat patients enrolled in our trials, enroll and assess new patients, supply study drug, obtain complete data points in accordance with study protocol and overall impact on clinical study results including the timing thereof. In addition, our partner, Kissei, is currently conducting a Phase 3 clinical trial
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for fostamatinib in ITP in Japan the timing and completion of which could be delayed due to the COVID-19 pandemic. The delays may potentially delay future royalties on sales, as well as, receipt of future potential milestones. At this time, however, we cannot fully forecast the scope of impacts that the COVID-19 pandemic may have under our partnership with Kissei.
The COVID-19 pandemic has similarly affected our collaboration and licensing partners for the commercialization of fostamatinib globally, as well as in advancing our various clinical stage programs. We do not yet know the full impact of s uch disruptions in our partners’ ability to advance commercialization of fostamatinib in the market and the timing of enrollment and completion of various clinical trials being conducted by our collaboration partners.
See also the section titled “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q for additional information on risks and uncertainties related to the ongoing COVID-19 pandemic.
Our Product Portfolio
The following table summarizes our portfolio:
Commercial Product
TAVALISSE in ITP
Disease background. Chronic ITP affects an estimated 81,300 adult patients in the U.S. In patients with ITP, the immune system attacks and destroys the body’s own platelets, which play an active role in blood clotting and healing. ITP patients can suffer extraordinary bruising, bleeding and fatigue as a result of low platelet counts. Current therapies for ITP include steroids, platelet production boosters that imitate thrombopoietin (TPOs) and splenectomy.
Orally available fostamatinib program. Taken in tablet form, fostamatinib blocks the activation of SYK inside immune cells. ITP is typically characterized by the body producing antibodies that attach to healthy platelets in the blood
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stream. Immune cells recognize these antibodies and affix to them, which activates the SYK enzyme inside the immune cell, and triggers the destruction of the antibody and the attached platelet. When SYK is inhibited by fostamatinib, it interrupts this immune cell function and allows the platelets to escape destruction. The results of our Phase 2 clinical trial, in which fostamatinib was orally administered to 16 adults with chronic ITP, published in Blood , showed that fostamatinib significantly increased the platelet counts of certain ITP patients, including those who had failed other currently available agents.
Our fostamatinib for immune thrombocytopenia (FIT) Phase 3 clinical program had a total of 150 ITP patients that were randomized into two identical multi-center, double-blind, placebo-controlled clinical trials. The patients were diagnosed with persistent or chronic ITP, and had blood platelet counts consistently below 30,000 per microliter of blood. Two-thirds of the subjects received fostamatinib orally at 100 mg twice daily (bid) and the other third received placebo on the same schedule. Subjects were expected to remain on treatment for up to 24 weeks. At week four of treatment, subjects who failed to meet certain platelet counts and met certain tolerability thresholds could have their dosage of fostamatinib (or corresponding placebo) increased to 150 mg bid. The primary efficacy endpoint of this program was a stable platelet response by week 24 with platelet counts at or above 50,000 per microliter of blood for at least four of the final six qualifying blood draws. In August 2015, the FDA granted our request for Orphan Drug designation for fostamatinib for the treatment of ITP. In February 2020, Kissei was granted orphan drug designation from the Japanese Ministry of Health, Labour and Welfare for R788 (fostamatinib) in chronic ITP.
In August 2016, we announced the results of the first FIT study, reporting that fostamatinib met the study’s primary efficacy endpoint. The study showed that 18% of patients receiving fostamatinib achieved a stable platelet response compared to none receiving a placebo control (p=0.0261). In October 2016, we announced the results of the second FIT study, reporting that the response rate was 18%, consistent with the first study. However, one patient in the placebo group (4%) achieved a stable platelet response, therefore the difference between those on treatment and those on placebo did not reach statistical significance (p=0.152) and the study did not meet its primary endpoint. Using the most conservative sensitivity analysis, rather than the protocol’s prespecified analysis, one more patient in the second study is considered a non-responder, resulting in 8 of 50 (16%) responders on fostamatinib (p = 0.256 vs. placebo). When the data from both studies are combined, however, this difference is statistically significant (p=0.007).
Patients from the FIT studies were given the option to enroll in a long-term open-label extension study and receive treatment with fostamatinib, also a Phase 3 trial. A total of 123 patients enrolled in this study. All the patients who responded to fostamatinib in the FIT studies and enrolled in the long-term open-label extension study maintained a median platelet count of 106,500/uL at a median of 16 months. In addition, there were 44 placebo non-responders that enrolled in the long-term open-label extension study, 41 of which patients had at least 12 weeks of follow-up. Of those, 9 patients (22%) have achieved a prospectively defined stable platelet response, which is statistically significant (p=0.0078) and similar to the response rate fostamatinib achieved in the parent studies.
A stable response was defined as a patient achieving platelet counts of greater than 50,000/uL on more than 4 of the 6 visits between weeks 14 and 24, without rescue medication. In the post-study analysis we performed, a clinically-relevant platelet response was defined to include patients achieving one platelet count over 50,000/uL during the first 12 weeks of treatment, in absence of rescue medication, but who did not otherwise meet the stable response criteria. Once the platelet count of greater than 50,000/uL is achieved, a loss of response was defined as two consecutive platelet counts of less than 30,000/uL in any subsequent visits. In the combined dataset of both stable and clinically-relevant platelet responders for the FIT studies, the response rate was 43% (43/101), compared to 14% (7/49) for placebo (p=0.0006).
In December 2019, we presented data at the 61st ASH Annual Meeting & Exposition held in Orlando, Florida, which included the post-hoc data analysis we conducted from a Phase 3 clinical program of TAVALISSE in adult patients with ITP. In this analysis, 32 patients received fostamatinib as a second-line therapy, and 78% (25/32) achieved ≥1 platelet count of ≥50,000/µL (without rescue therapy).
The most frequent adverse events were gastrointestinal-related, and the safety profile of the product was consistent with prior clinical experience, with no new or unusual safety issues uncovered. A paper presenting this data analysis, as well as accompanying commentary have been published in the July 2020 British Journal of Haematology.
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We recently launched FORTE, an observational study to further evaluate fostamatinib as a second-line treatment for adult chronic ITP. The study goal is to generate additional data on patient quality of life and financial expenditures relative to the healthcare of ITP patients.
TAVALISSE was approved by the FDA in April 2018 for the treatment of chronic ITP in adult patients who have had an insufficient response to a previous treatment, and successfully launched in the U.S. in May 2018. In January 2020, the EC granted our MAA in Europe for fostamatinib for the treatment of chronic ITP in adult patients who are refractory to other treatments. Grifols launched TAVLESSE TM in the UK and Germany in July 2020, and expects a phased roll-out over the next 18 months across Europe .
Commercial launch activities, including sales and marketing
A significant portion of our business operations were related to our commercial launch activities for TAVALISSE. Specifically, our marketing and sales efforts are focused on targeting hematologists and hematologist-oncologists in the United States, who manage chronic adult ITP patients.
We have a fully integrated commercial team consisting of sales, marketing, market access, and commercial operations functions. Our sales team promotes TAVALISSE in the U.S. wherein, in the ordinary course of the business, we use customary pharmaceutical company practices to market our products in the U.S. and concentrate our efforts on hematologists and hematologists-oncologists. TAVALISSE is sold initially through third-party wholesale distribution and specialty pharmacy channels and group purchasing organizations before being ultimately prescribed to patients. To facilitate our commercial activities in the U.S., we also enter into arrangements with various third-parties, including advertising agencies, market research firms and other sales-support-related services as needed. We believe that our commercial team and distribution practices are adequate to ensure that our marketing efforts reach our target customers and deliver our products to patients in a timely and compliant fashion. Also, to help ensure that all eligible patients in the U.S. have appropriate access to TAVALISSE, we have established a comprehensive reimbursement and patient support program called Rigel One Care (ROC). Through ROC, we provide co-pay assistance to qualified, commercially insured patients to help minimize out-of-pocket costs and provide free drug to uninsured or under-insured patients who meet certain clinical and financial criteria. In addition, ROC is designed to provide comprehensive reimbursement support services, such as prior authorization support, benefits investigation and appeals support.
Competitive landscape for TAVALISSE
Our industry is intensely competitive and subject to rapid and significant technological change. TAVALISSE is competing with other existing therapies. In addition, a number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. For example, there are existing therapies and drug candidates in development for the treatment of ITP that may be alternative therapies to TAVALISSE.
Currently, corticosteroids remain the most common first line therapy for ITP, occasionally in conjunction with intravenous immuglobulin (IVIg) or anti-Rh(D) to help further augment platelet count recovery, particularly in emergency situations. However, it has been estimated that frontline agents lead to durable remissions in only a small percentage of newly-diagnosed adults with ITP. Moreover, concerns with steroid-related side effects often restrict therapy to approximately four weeks. As such, many patients progress to persistent or chronic ITP, requiring other forms of therapeutic intervention. In long-term treatment of chronic ITP, patients are often cycled through several therapies over time in order to maintain a sufficient response to the disease.
Other approaches to treat ITP are varied in their mechanism of action, and there is no consensus about the sequence of their use. Options include splenectomy, thrombopoietin receptor agonists (TPO-RAs) and various immunosuppressants (such as rituximab). The response rate criteria of the above-mentioned options vary, precluding a comparison of response rates for individual therapies.
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Even with the above treatment options, a significant number of patients remain severely thrombocytopenic for long durations and are subject to risk of spontaneous or trauma-induced hemorrhage. The addition of fostamatinib to the treatment options could be beneficial since it has a different mechanism of action than any of the therapies that are currently available. Fostamatinib is a potent and relatively selective SYK inhibitor, and its inhibition of Fc receptors and B-cell receptors of signaling pathways make it a potentially broad immunomodulatory agent.
Other products in the U.S. that are approved by the FDA to increase platelet production through binding and TPO receptors on megakaryocyte precursors include PROMACTA ® (Novartis International AG (Novartis)), Nplate ® (Amgen, Inc.) and DOPTELET ® (Swedish Orphan Biovitrum AB).
Fostamatinib in Global Markets
Fostamatinib in Europe/Turkey
In January 2019, we entered into an exclusive commercialization license agreement with Grifols to commercialize fostamatinib for the treatment, palliation, or prevention of human diseases, including chronic or persistent ITP and AIHA, in Europe and Turkey. Pursuant to the terms of the license agreement, Grifols has exclusive rights to commercialize, and non-exclusive rights to develop, fostamatinib in Europe and Turkey. Grifols also received an exclusive option to expand the territory under its exclusive and non-exclusive licenses to include the Middle East, North Africa and Russia (including Commonwealth of Independent States).
We are responsible for performing and funding certain development activities for fostamatinib for ITP and AIHA and Grifols is responsible for all other development activities for fostamatinib in such territories. We remain responsible for the manufacture and supply of fostamatinib for all development and commercialization activities under the agreement. In December 2019, we entered into a Drug Product Purchase Agreement with Grifols wherein we agreed to supply and sell to Grifols the drug product requested under an executed first and only purchase order until Grifols enters into a supply agreement directly with a third-party drug product manufacturer.
Under the terms of the agreement, we received an upfront cash payment of $30.0 million and will be eligible to receive regulatory and commercial milestones of up to $297.5 million, which included a $20.0 million non-refundable payment received in the first quarter of 2020, comprised of a $17.5 million payment for EMA approval of fostamatinib for the first indication and a $2.5 million creditable advance royalty payment due upon EMA approval of fostamatinib in the first indication. We will also receive tiered royalty payments ranging from the mid-teens to 30% of net sales of fostamatinib in Europe and Turkey. We retain the global rights to fostamatinib outside the Kissei, Grifols and Medison territories.
In January 2020, we received approval of our MAA for fostamatinib for the treatment of chronic ITP in adult patients who are refractory to other treatments. With this approval, we received a $20.0 million payment as described above. Grifols launched TAVLESSE TM in the UK and Germany in July 2020, and expects a phased roll-out over the next 18 months across Europe.
Fostamatinib in Japan/Asia
In October 2018, we entered into an exclusive license and supply agreement with Kissei to develop and commercialize fostamatinib in all current and potential indications in Japan, China, Taiwan and the Republic of Korea. Kissei is a Japan-based pharmaceutical company addressing patients' unmet medical needs through its research, development and commercialization efforts, as well as through collaborations with partners.
Under the terms of the agreement, we received an upfront cash payment of $33.0 million, with the potential for an additional $147.0 million in development and commercial milestone payments, and will receive product transfer price payments in the mid to upper twenty percent range based on tiered net sales for the exclusive supply of fostamatinib. Kissei receives exclusive rights to fostamatinib in ITP and all future indications in Japan, China, Taiwan, and the Republic of Korea. Rigel retains the global rights to fostamatinib outside the Kissei, Grifols and Medison territories.
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In September 2019, our collaboration partner, Kissei, initiated a Phase 3 trial in Japan of fostamatinib in adult patients with chronic ITP. The efficacy and safety of orally administered fostamatinib will be assessed by comparing it with placebo in a randomized, double-blind study. Japan has the third highest prevalence of chronic ITP in the world behind the U.S. and EU. In February 2020, Kissei was granted orphan drug designation from the Japanese Ministry of Health, Labour and Welfare for R788 (fostamatinib) in chronic ITP.
Fostamatinib in Canada/Israel
In October 2019, we entered into an exclusive commercialization license agreements with Medison to commercialize fostamatinib in all potential indications in Canada and Israel. Under the terms of the agreements, we will receive an upfront payment of $5.0 million with the potential for approximately $35.0 million in regulatory and commercial milestones. In addition, we will receive royalty payments beginning at 30% of net sales. Under our agreement with Medison for the Canada territory, we have the option to buy back all rights to the product upon regulatory approval in Canada for the indication of AIHA. The buyback provision if exercised would require both parties to mutually agree on commercially reasonable terms for us to purchase back the rights, taking into account Medison’s investment and the value of the rights, among others. Pursuant to this exclusive commercialization license agreement, in August 2020, we entered into a commercial supply agreement with Medison.
Clinical Stage Programs
Fostamatinib—AIHA
Disease background . AIHA is a rare, serious blood disorder where the immune system produces antibodies that result in the destruction of the body's own red blood cells. Symptoms can include fatigue, shortness of breath, rapid heartbeat, jaundice or enlarged spleen. While no medical treatments are currently approved for AIHA, physicians generally treat acute and chronic cases of the disorder with corticosteroids, other immuno-suppressants, or splenectomy. Research has shown that inhibiting SYK with fostamatinib may reduce the destruction of red blood cells. This disorder affects an estimated 45,000 Americans annually, for whom no approved treatment options currently exist.
Orally available fostamatinib program . We completed our Phase 2 clinical trial, also known as the SOAR study in patients with warm AIHA. This trial was an open-label, multi-center, two-stage study that evaluated the efficacy and safety of fostamatinib in patients with warm AIHA who had previously received treatment for the disorder but have relapsed. The primary efficacy endpoint of this study was to achieve increased hemoglobin levels by week 12 of greater than 10 g/dL, and greater than or equal to 2 g/dL higher than baseline. In November 2019, we announced updated data that in a Phase 2 open-label study of fostamatinib in patients with warm AIHA, data showed that 44% (11/25) of evaluable patients met the primary efficacy endpoint of a Hgb level >10 g/dL with an increase of ≥2 g/dL from baseline by week 24. Including one late responder at week 30, the overall response rate was 48% (12/25). Adverse events were manageable and consistent with those previously reported with fostamatinib.
In March 2019, we initiated our warm AIHA pivotal Phase 3 clinical study of fostamatinib, known as FORWARD study. The clinical trial protocol calls for a placebo-controlled study of approximately 90 patients with primary or secondary warm AIHA who have failed at least one prior treatment. The primary endpoint will be a durable Hgb response, defined as Hgb > 10 g/dL and > 2 g/dL increase from baseline and durability measure, with the response not being attributed to rescue therapy.
In May 2019, we enrolled the first patient in the FORWARD study. Currently, we have enrolled 57 patients of the 90 patients targeted for enrollment. The FORWARD study has over 90 active clinical trial sites established across 22 countries and a number of clinical trial sites have resumed screening patients after a temporary pause due to the ongoing COVID-19 pandemic. Given the uncertainty of the COVID-19 pandemic, we are unable to provide an update on anticipated enrollment completion.
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In January 2018, the FDA granted our request for Orphan Drug designation for fostamatinib for the treatment of AIHA.
Fostamatinib—in Hospitalized COVID-19 patients
Disease background. COVID-19 is the infectious disease caused by Severe Acute Respiratory Syndrome Coronavirus-2 (SARS-CoV-2). SARS-CoV-2 primarily infects the upper and lower respiratory tract and can lead to acute respiratory distress syndrome (ARDS). Additionally, some patients develop other organ dysfunction including myocardial injury, acute kidney injury, shock resulting in endothelial dysfunction and subsequently micro and macrovascular thrombosis. Much of the underlying pathology of SARS-CoV-2 is thought to be secondary to a hyperinflammatory immune response associated with increased risk of thrombosis. SYK is involved in the intracellular signaling pathways of many different immune cells. Therefore, SYK inhibition may improve outcomes in patients with COVID-19 via inhibition of key Fc gamma receptor (FcγR) and c-type lectin receptor (CLR) mediated drivers of pathology such as inflammatory cytokine release by monocytes and macrophages, production of neutrophil extracellular traps (NETs) by neutrophils, and platelet aggregation. Furthermore, SYK inhibition in neutrophils and platelets may lead to decreased thromboinflammation, alleviating organ dysfunction in critically ill patients with COVID-19.
Orally available fostamatinib program. In November 2020, we announced that we will launch a Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients without respiratory failure that have certain high-risk prognostic factors. This multi-center, double-blind, placebo-controlled, adaptive design study will randomly assign either fostamatinib plus standard of care (SOC) or matched placebo plus SOC (1:1) to over 300 evaluable patients. Treatment will be administered orally twice daily for 14 days with follow up to day 60. The primary endpoint of this study is the proportion of subjects who progress to severe/critical disease within 29 days.
In September 2020, we announced a Phase 2 clinical trial to be sponsored by the NIH/NHLBI in order to evaluate the safety of fostamatinib for the treatment of hospitalized COVID-19 patients. This multi-center, double-blind, placebo-controlled study will randomly assign fostamatinib or matched placebo (1:1) to approximately 60 evaluable patients. Treatment will be administered orally twice daily for 14 days. There will be a follow-up period to day 60. The primary endpoint of this study is cumulative incidence of serious adverse events (SAE) through day 29. The trial also includes multiple secondary endpoints designed to assess the early efficacy and clinically relevant endpoints of disease course. In November 2020, we announced that the trial has enrolled 9 patients.
In July 2020, we announced a Phase 2 clinical trial sponsored by Imperial College London in order to evaluate the efficacy of fostamatinib for the treatment of COVID-19 pneumonia. This is a two-stage, open label, controlled clinical trial with patients randomized (1:1:1) to fostamatinib plus SOC, ruxolitinib plus SOC, or standard of care alone. Treatment will be administered twice daily for 14 days and patients will receive a follow-up assessment at day 14 and day 28 after the first dose. The primary endpoint of this study is progression from mild to severe COVID-19 pneumonia within 14 days in hospitalized patients. In November 2020, we announced that the Imperial College London-sponsored clinical trial began enrolling patients.
Researchers at MIT and Harvard led a recent screen to identify FDA-approved compounds that reduce mucin-1 (MUC1) protein abundance. MUC1 is a biomarker used to predict the development of ALI and ARDS and correlates with poor clinical outcomes. Of the 3,713 compounds that were screened, fostamatinib was the only compound identified which both decreased expression of MUC1 and is FDA approved. Fostamatinib demonstrated preferential depletion of MUC1 from epithelial cells without affecting cell viability. The research was focused on drug repurposing for the much lower risk of toxicity and the ability of FDA-approved treatments to be delivered on a shortened timescale, which is critical for patients afflicted with lung disease resulting from COVID-19.
In addition, recent in vitro studies led by the Amsterdam University Medical Center at the University of Amsterdam, showed that R406, the active metabolite of fostamatinib, blocked macrophage hyperinflammatory responses to a combination of immune complexes formed by anti-Spike IgG in serum from severe COVID-19 patients. Anti-Spike IgG levels are known to correlate with the severity of COVID-19. These results suggest that by inhibiting anti-Spike
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IgG-mediated hyperinflammation, R406 could potentially play a role in the prevention of cytokine storms as well as pulmonary edema and thrombosis associated with severe COVID-19.
R835, an IRAK1/4 Inhibitor for Autoimmune and Inflammatory Diseases
Orally Available IRAK 1/4 Inhibitor Program. During the second quarter of 2018, we selected R835, a proprietary molecule from our IRAK 1/4 preclinical development program, for human clinical trials. This investigational candidate was an orally administered, potent and selective inhibitor of IRAK1 and IRAK4 that blocks inflammatory cytokine production in response to toll-like receptor (TLR) and the interleukin-1 (IL-1R) family receptor signaling. TLRs and IL-1Rs play a critical role in the innate immune response and dysregulation of these pathways can lead to a variety of inflammatory conditions including psoriasis, rheumatoid arthritis, inflammatory bowel disease and gout (among others). R835 prevents cytokine release in response to TLR and IL-1R activation in vitro. R835 is active in multiple rodent models of inflammatory disease including psoriasis, arthritis, lupus, multiple sclerosis and gout. Preclinical studies show that R835 inhibits both the IRAK1 and IRAK4 signaling pathways, which play a key role in inflammation and immune responses to tissue damage. Dual inhibition of IRAK1 and IRAK4 allows for more complete suppression of pro-inflammatory cytokine release.
In October 2019, we announced results from a Phase 1 clinical trial of R835 in healthy subjects to assess safety, tolerability, PK and pharmacodynamics. The Phase 1 study was a randomized, placebo-controlled, double-blind trial in 91 healthy subjects, ages 18 to 55. The Phase 1 trial showed positive tolerability and PK data as well as established proof-of-mechanism by demonstrating the inhibition of inflammatory cytokine production in response to a lipopolysaccharide (LPS) challenge.
R552, a RIP1 Inhibitor for Autoimmune and Inflammatory Diseases
Orally Available RIP1 Inhibitor Program. R552, is a potent and selective inhibitor of RIP1. RIP1 is believed to play a critical role in induction of necroptosis. Necroptosis is a form of regulated cell death where the rupturing of cells leads to the dispersion of their inner contents, which activates immune responses and enhances inflammation.
Initial data from our ongoing Phase 1 in healthy volunteers suggests that R552 has an attractive PK and safety profile with a half-life of approximately 14 hours which may allow for once a day dosing. In preclinical studies, R552 prevented joint and skin inflammation in a RIP1-mediated murine model of inflammation and tissue damage. In addition, we intend to search for a central nervous system molecule to potentially advance into the clinic.
Partnered Clinical Programs
R548 (ATI-501 and ATI-502) - Aclaris
Aclaris is developing ATI-501 and ATI-502, an oral and topical janus kinase (JAK) 1/3 inhibitor discovered in Rigel’s laboratories. ATI- 501 is being developed as an oral treatment for patients with alopecia areata (AA), including the more severe forms of AA that result in total scalp hair loss, known as alopecia totalis (AT), and total hair loss on the scalp and body, known as alopecia universalis (AU).
In December 2018, Aclaris also reported on the enrollment and/or results for a number of Phase 2 studies with ATI-502 for the topical treatment of AA and Vitiligo, including results from its AUATB-201 study.
In June 2019, Aclaris reported positive results from its Phase 2 clinical trial of ATI-502 topical (AGA-201) in patients with androgenetic alopecia (AGA), a condition commonly known as male/female-pattern baldness. There were no treatment-related serious adverse events. Later in June 2019, Aclaris reported that its Phase 2 clinical trial of ATI-502 topical (AA-201) in patients with AA did not meet its endpoints. ATI-502 was observed to be generally well-tolerated. Adverse events were primarily mild or moderate in severity. No treatment-related serious adverse events were reported.
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In July 2019, Aclaris announced that ATI-501 achieved statistically significant improvement over placebo in several measures of hair growth, including the primary endpoint and certain secondary endpoints of this trial. ATI-501 was observed to be generally well-tolerated at all doses. There were no serious adverse events reported. All adverse events (AEs) were mild or moderate in severity and rates of AEs were similar across all groups. No thromboembolic events were observed in the trial.
Aclaris is currently seeking a development and commercialization partner for ATI-501 and ATI-502 as potential treatments for alopecia.
BGB324 - BerGenBio
BerGenBio is conducting Phase 1/2 studies with BGB324 (bemcentinib), a first-in-class selective AXL kinase inhibitor, as a single agent in relapsed acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS); and in combination with erlotinib (Tarceva®) in advanced (EGFR-positive) non-small-cell lung carcinoma . BerGenBio is also conducting Phase 2 studies with BGB324 in combination with KEYTRUDA® (pembrolizumab) in non-small cell adenocarcinoma of the lung and triple negative breast cancer in collaboration with another company.
In November 2019, BerGenBio showed that the primary endpoint of Overall Response Rate had been met in Cohort A of its Phase 2 clinical trial evaluating bemcentinib in combination with KEYTRUDA as a potential new treatment regimen for previously treated advanced non-small cell lung cancer (NSCLC). The primary efficacy endpoint requires that at least 25% evaluable patients achieve a clinical response when treated with the novel drug combination, defined as either complete or partial response, as measured by Response Evaluation Criteria in Solid Tumor. A secondary endpoint of median Progression Free Survival (PFS) reported significant 3-fold improvement in AXL positive versus negative patients, as defined by BerGenBio’s composite AXL tumor-immune score.
In December 2019, BerGenBio reported results in combination with low-dose cytarabine (LDAC) in elderly AML patients. The bemcentinib-LDAC combination was safe and well tolerated in elderly AML patients. The overall response rate and duration surpass historical benchmarks and compare favorably to other LDAC combinations.
In April 2020, BerGenBio announced that bemcentinib has been selected as the first potential treatment to be fast-tracked in a new UK national multi-center randomized Phase 2 clinical trial initiative to potentially receive an early indication of bemcentinib’s effectiveness in treating the most vulnerable patients with COVID-19.
In June 2020, BerGenBio confirmed dosing the first COVID-19 patient with bemcentinib at the University Hospital Southampton NHS Foundation Trust. The Phase 2 trial has commenced in seven more sites across the UK, with the plan to recruit approximately 120 subjects to assess safety and efficacy of bemcentinib as an add-on therapy to standard of care in approximately 60 hospitalized COVID-19 patients with the other approximately 60 control group patients receiving standard of care. Bemcentinib has exhibited potent anti-viral activity in preclinical models against several enveloped viruses, including Ebola and Zika virus and as of recently, to the COVID-19 virus. Bemcentinib is a small molecule inhibitor that targets a cell-surface protein called AXL, which is one of several cell surface receptors used by enveloped viruses to enter cells. Bemcentinib inhibits virus entry into cells and also prevents inhibition of Type I Interferon, the cell’s anti-viral defense mechanism, suggesting potential use in the treatment of COVID-19 infection.
In June 2020, BerGenBio announced positive interim clinical and translational data from Cohort B, stage 1 of the Phase 2 trial (BGBC008) evaluating bemcentinib in combination with Merck & Co.’s Keytruda TM in previously treated NSCLC patients with confirmed progression on prior immune checkpoint therapy. The trial is recruiting patients in the second stage of the cohort.
In July 2020, BerGenBio announced first patient dosed in a trial assessing bemcentinib in recurrent glioblastoma (GBM). The trial is sponsored by Ichiro Nakano, MD, Professor in the Department of Neurosurgery and co-leader of the Neuro-Oncology Program at University of Alabama at Birmingham, and is funded by the National Cancer Institute. This is an open label, multi-center, intra-tumoral tissue PK study of bemcentinib in patients with recurrent GBM for whom a surgical resection is medically indicated. The trial intends to enroll up to 20 recurrent GBM
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patients, at up to 15 sites in the U.S. The end points of the study include an evaluation of bemcentinib’s ability to cross the blood brain barrier, AXL expression, PK, safety and tolerability, as well as efficacy assessments including PFS and Overall Survival.
In October 2020, BerGenBio announced first patient enrolled in Phase II trial assessing bemcentinib as a potential treatment for COVID-19 patients in South Africa.
DS-3032 - Daiichi
DS-3032 is an investigational oral selective inhibitor of the murine double minute 2 (MDM2) protein currently being investigated by Daiichi in three Phase 1 clinical trials for solid and hematological malignancies including AML, acute lymphocytic leukemia, chronic myeloid leukemia in blast phase, lymphoma and MDS.
Preliminary safety and efficacy data from a Phase 1 study of DS-3032 suggests that DS-3032 may be a promising treatment for hematological malignancies including relapsed/refractory AML and high-risk MDS. Evaluation of additional dosing schedules of DS-3032 is underway and combination studies with fostamatinib are currently being conducted by Daiichi.
For the three and nine months ended September 2020, we recognized $2.1 million of revenue as a result of the achievement of a milestone in accordance with the Amended Collaboration Agreement dated April 20, 2005 with Daiichi. All deliverables under the agreement had been previously delivered, as such the above payment has been recognized as revenue in the third quarter of 2020. We received the milestone payment from Daiichi in October 2020.
AZ-D0449 – AZ
AZ is currently conducting a Phase 1 study in healthy volunteers and patients with mild asthma to investigate the safety, anti-inflammatory effect of inhaled AZ-D0449. The study, which follows the single and multiple ascending doses, is currently recruiting patients.
Research/Preclinical Programs
We are conducting proprietary research in the broad disease areas of inflammation/immunology, immuno-oncology and cancers. Within these disease areas, our researchers are investigating mechanisms of action as well as screening compounds against potential novel targets and optimizing those leads that appear to have the greatest potential.
Commercialization and Sponsored Research and License Agreements
We conduct research and development programs independently and in connection with our corporate collaborators. As of September 30, 2020, we are a party to collaboration agreements with ongoing performance obligations with Kissei for the development and commercialization of fostamatinib in Japan, China, Taiwan and the Republic of Korea and with Grifols to commercialize fostamatinib in all indications, including chronic ITP and AIHA, in Europe and Turkey and with Medison Pharma Ltd. (Medison) to commercialize fostamatinib in all indications, including chronic ITP and AIHA in Canada and Israel. As of September 30, 2020, we are also a party to collaboration agreements, but do not have ongoing performance obligations, with Aclaris for the development and commercialization of JAK inhibitors for the treatment of alopecia areata and other dermatological conditions, AZ for the development and commercialization of R256, an inhaled JAK inhibitor, BerGenBio for the development and commercialization of AXL inhibitors in oncology, and Daiichi to pursue research related to MDM2 inhibitors, a novel class of drug targets called ligases.
Under these agreements, which we entered into in the ordinary course of business, we received or may be entitled to receive upfront cash payments, payments contingent upon specified events achieved by such partners and royalties on any net sales of products sold by such partners under the agreements. Total future contingent payments to us under all of these agreements could exceed $607.2 million if all potential product candidates achieved all of the payment
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triggering events under all of our current agreements (based on a single product candidate under each agreement). Of this amount, up to $67.5 million relates to the achievement of development events, up to $163.7 million relates to the achievement of regulatory events and up to $376.0 million relates to the achievement of certain commercial or launch events. This estimated future contingent amount does not include any estimated royalties that could be due to us if the partners successfully commercialize any of the licensed products. Future events that may trigger payments to us under the agreements are based solely on our partners’ future efforts and achievements of specified development, regulatory and/or commercial events.
In July 2020, Grifols launched TAVLESSE® in Germany and the UK. Due to the COVID-19 pandemic, the commercial launch of fostamatinib in Europe by our partner, Grifols, was delayed and undertaken in a virtual manner. Grifols expects a phased roll-out over the next 18 months across Europe. In addition, our partner, Kissei is currently conducting a Phase 3 clinical trial for fostamatinib in ITP in Japan the timing and completion of which could be delayed due to the COVID-19 pandemic. At this time, we cannot fully forecast the scope of impacts that the COVID-19 pandemic may have on these partnerships.
Grifols License Agreement
In January 2019, we entered into an exclusive license agreement with Grifols to commercialize fostamatinib in all indications, including chronic ITP and AIHA, in Europe and Turkey. Under the agreement, we received an upfront payment of $30.0 million, with the potential for $297.5 million in total regulatory and commercial milestones, which included a $20.0 million payment upon approval from the EMA for fostamatinib in chronic ITP as discussed below. We will also receive stepped double-digit royalty payments based on tiered net sales which may reach 30% of net sales. In return, Grifols will receive exclusive rights to fostamatinib in human diseases, including chronic ITP and AIHA, in Europe and Turkey. The agreement also requires us to conduct the Phase 3 trial in AIHA.
In January 2020, we received European Commission’s approval of our MAA for fostamatinib for the treatment of chronic immune thrombocytopenia in adult patients who are refractory to other treatments. With this approval, we received in February 2020 a $20.0 million non-refundable payment, which is comprised of a $17.5 million payment for EMA approval of fostamatinib for the first indication and a $2.5 million creditable advance royalty payment, based on the terms of our collaboration agreement with Grifols. The above milestone payment was allocated to the distinct performance obligations in the collaboration agreement with Grifols.
We accounted for this agreement under ASC 606 and identified the following distinct performance obligations at inception of the agreement: (a) granting of the license, (b) performance of research and regulatory services related to our ongoing long-term open-label extension study on patients with ITP, and (c) performance of research services related to our Phase 3 study in AIHA. In October 2020, we entered into a commercial supply agreement for the licensed territories. We concluded each of these performance obligations is distinct. We based our assessment on the following: (i) our assessment that Grifols can benefit from the license on its own by developing and commercializing the underlying product using its own resources, and (ii) the fact that the manufacturing services are not highly specialized in nature and can be performed by other vendors. Upon execution of our agreement with Grifols, we determined that the upfront fee of $5.0 million, which is the non-refundable portion of the $30.0 million upfront fee, represented the transaction price. In the first quarter of 2020, we revised the transaction price to include the $25.0 million of the upfront payment that is no longer refundable under our agreement and the $20.0 million payment received that is no longer constrained. We allocated the updated transaction price to the distinct performance obligations in our collaboration agreement based on our best estimate of the relative standalone selling price as follows: (a) for the license, we estimated the standalone selling price using the adjusted market assessment approach to estimate its standalone selling price in the licensed territories; (b) for the research and regulatory services, we estimated the standalone selling price using the cost plus expected margin approach. As a result of the adjusted transaction price, adjustments are recorded on a cumulative catch-up basis, and recorded as part of contract revenues from collaborations in the first quarter of 2020.
The remaining future variable consideration of $277.5 million related to future regulatory and commercial milestones were fully constrained due to the fact that it was probable that a significant reversal of cumulative revenue would occur, given the inherent uncertainty of success with these future milestones. We will recognize revenues related
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the research and regulatory services throughout the term of the respective clinical programs using the input method. For sales-based milestones and royalties, we determined that the license is the predominant item to which the royalties or sales-based milestones relate. Accordingly, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
During the three months ended September 30, 2020, we recognized no revenues related to the licensed rights in intellectual property and the research services performed. During the nine months ended September 30, 2020, we recognized $39.9 million in revenues related to the licensed rights in intellectual property and $3.6 million in revenues related to the research services performed. Deferred revenues related to the performance of research services as of September 30, 2020 was $1.8 million.
During the nine months ended September 30, 2020, we also recognized $651,000 in revenues for a one-time delivery of drug supply to Grifols for commercialization.
Kissei License Agreement
In October 2018, we entered into an exclusive license and supply agreement with Kissei to develop and commercialize fostamatinib in all current and potential indications in Japan, China, Taiwan and the Republic of Korea. Kissei is responsible for performing and funding all development activities for fostamatinib in the above-mentioned territories. We received an upfront cash payment of $33.0 million, with the potential for up to an additional $147.0 million in development, regulatory and commercial milestone payments, and will receive mid to upper twenty percent, tiered, escalated net sales-based payments for the supply of fostamatinib. Under the agreement, we granted Kissei the license rights to fostamatinib in the territories above and are obligated to supply Kissei with drug product for use in clinical trials and pre-commercialization activities. We are also responsible for the manufacture and supply of fostamatinib for all future development and commercialization activities under the agreement.
We accounted for this agreement under ASC 606 and identified the following distinct performance obligations at inception of the agreement: (a) granting of the license, (b) supply of fostamatinib for clinical use and (c) material right associated with discounted fostamatinib that are supplied for use other than clinical or commercial. In addition, we will provide commercial product supply if the product is approved in the licensed territory. We concluded that each of these performance obligations is distinct. We based our assessment on the following: (i) our assessment that Kissei can benefit from the license on its own by developing and commercializing the underlying product using its own resources and (ii) the fact that the manufacturing services are not highly specialized in nature and can be performed by other vendors. Moreover, we determined that the upfront fee of $33.0 million represented the transaction price and was allocated to the performance obligations based on our best estimate of the relative standalone selling price as follows: (a) for the license, we estimated the standalone selling price using the adjusted market assessment approach to estimate its standalone selling price in the licensed territories; (b) for the supply of fostamatinib and the material right associated with discounted fostamatinib, we estimated the standalone selling price using the cost plus expected margin approach. Variable consideration of $147.0 million related to future development and regulatory milestones was fully constrained due to the fact that it was probable that a significant reversal of cumulative revenue would occur, given the inherent uncertainty of success with these future milestones. We will recognize revenues related to the supply of fostamatinib and material right upon delivery of fostamatinib to Kissei. For sales-based milestones and royalties, we determined that the license is the predominant item to which the royalties or sales-based milestones relate to. Accordingly, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
We did not recognize any revenues during the three and nine months ended September 30, 2020. At September 30, 2020, deferred revenues related to the unsatisfied performance obligations related to the supply of fostamatinib and material right associated with discounted fostamatinib supply was $1.4 million.
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Medison Commercial and License Agreements
In October 2019, we entered into two exclusive commercial and license agreements with Medison for the commercialization of fostamatinib for chronic ITP in Israel and in Canada pursuant to which we received a $5.0 million upfront payment under our agreement in Canada. We accounted for the agreement made with an upfront payment under ASC 606 and identified the following combined performance obligations at inception of the agreement: (a) granting of the license and (b) obtaining regulatory approval in Canada of fostamatinib in ITP. We determined that the non-refundable upfront fee of $5.0 million represented the transaction price. However, under the agreement, we have the option to buy back all rights to the product in Canada within six months that we obtain regulatory approval in Canada of the product for the indication of AIHA. The buyback option precludes us from transferring control of the license to Medison under ASC 606. We believe that the buyback provision, if exercised, will require us to repurchase the license at an amount equal to or more than the upfront $5.0 million. As such this arrangement is accounted for as a financing arrangement. Accrued interest related to this financing arrangement as of September 30, 2020 is immaterial.
Other license agreements
For the three and nine months ended September 2020, we recognized $2.1 million of revenue as a result of the achievement of a milestone in accordance with the Amended Collaboration Agreement dated April 20, 2005 with Daiichi. All deliverables under the agreement had been previously delivered, as such the above payment has been recognized as revenue in the third quarter of 2020. We received the milestone payment from Daiichi in October 2020.
Results of Operations
Three and Nine Months Ended September 30, 2020 and 2019
Revenues
Three Months Ended
Nine Months Ended
September 30,
Aggregate
September 30,
Aggregate
2020
2019
Change
2020
2019
Change
(in thousands)
(in thousands)
Product sales, net
$
16,289
$
11,716
$
4,573
$
43,943
$
29,943
$
14,000
Contract revenues from collaborations
2,100
9,141
(7,041)
46,228
13,945
32,283
Total revenues
$
18,389
$
20,857
$
(2,468)
$
90,171
$
43,888
$
46,283
The following table summarizes revenues from each of our customers and collaboration partners who individually accounted for 10% or more (wherein * denotes less than 10%) of our total revenues for the three and nine months ended September 30, 2020 and 2019 (as a percentage of total revenues):
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
ASD Healthcare and Oncology Supply
48%
28%
26%
34%
McKesson Specialty Care Distribution Corporation
34%
22%
20%
27%
Daiichi
11%
—
*
—
Aclaris
—
19%
—
*
Celgene
—
18%
—
*
Grifols
—
*
49%
11%
Product sales during the three and nine months ended September 30, 2020 and 2019 related to sales of TAVALISSE in the U.S. and represent increasing sales volume since we launched in May 2018. For the three and nine months ended September 30, 2020, the increase in product sales was mainly due to TAVALISSE sales volume increases of 27% and 30%, respectively, compared to the same periods in 2019, as well as increases in the selling price of TAVALISSE. TAVALISSE has been prescribed across all lines of therapy in steroid refractory patients in ITP. It has
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been utilized by an increasing broad base of prescribers and community physicians, with growing early line use and continued strong refill rates.
We recognize product sales, net of discounts and allowances, as described in “Note 3” to our “Notes to Condensed Financial Statements” contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Contract revenues from collaborations of $2.1 million in the three months ended September 30, 2020 relate to a milestone payment under our collaboration agreement with Daiichi. Contract revenues from collaborations of $46.2 million in the nine months ended September 30, 2020 relate to revenue from the upfront fee previously received from Grifols in the first quarter of 2019 as well as the milestone payment received from Grifols in the first quarter of 2020 upon EC approval of the MAA for fostamatinib in Europe and the milestone payment under our collaboration agreement with Daiichi. For the same periods in 2019, we recognized contract revenues of $9.1 million and $13.9 million primarily related to the license and milestone revenues from our collaboration agreements with Aclaris and Celgene as well as portions of the upfront fees from our collaboration agreements with Grifols and Kissei recognized as revenue from licenses and upon our performance of certain research and development services and supply of fostamatinib.
Our potential future revenues may include product sales from TAVALISSE, payments from our current partners and from new partners with whom we enter into agreements in the future, if any, the timing and amount of which is unknown at this time. W e cannot currently fully forecast the extent of the impacts that the COVID-19 pandemic may have on our product sales. As of September 30, 2020, we had deferred revenues of $3.2 million which we will recognize as revenue upon satisfaction of our remaining performance obligations under our collaboration agreements with Grifols and Kissei.
Cost of Product Sales
Three Months Ended
Nine Months Ended
September 30,
Aggregate
September 30,
Aggregate
2020
2019
Change
2020
2019
Change
(in thousands)
(in thousands)
Cost of product sales
$
140
$
310
$
(170)
$
574
$
728
$
(154)
We recognized $140,000 and $574,000 in cost of product sales during the three and nine months ended September 30, 2020 related to our product, TAVALISSE. Prior to the FDA approval, manufacturing and related costs were charged to research and development expense. Therefore, these costs were not capitalized and as a result, are not fully reflected in the costs of product sales during the three and nine months ended September 30, 2020 and 2019. We will continue to have a lower cost of product sales that excludes the cost of the active pharmaceutical ingredient (API) that was produced prior to FDA approval until we sell TAVALISSE that includes newly manufactured API. We expect that this will be the case for the near-term and as a result, our cost of product sales will be less than we anticipate it will be in future periods. As we produce TAVALISSE in the future, our inventory cost in the Balance Sheet and Cost of Product Sales will increase reflecting the full cost of manufacturing.
Research and Development Expense
Three Months Ended
Nine Months Ended
September 30,
Aggregate
September 30,
Aggregate
2020
2019
Change
2020
2019
Change
(in thousands)
(in thousands)
Research and development expense
$
14,600
$
14,463
$
137
$
44,963
$
38,638
$
6,325
Stock-based compensation expense included in research and development expense
$
532
$
487
$
45
$
1,684
$
2,185
$
(501)
The increase in research and development expense for the three months ended September 30, 2020, compared to the same period in 2019, was primarily due to the increases of $235,000 in personnel-related expenses and $161,000 in
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third-party costs partially offset by the decrease of $259,000 in research and development costs mainly for the Phase 1 trial of our RIP1 inhibitor program and Phase 1 trial in our IRAK 1/4 inhibitor program.
The increase in research and development expense for the nine months ended September 30, 2020, compared to the same period in 2019, was primarily due to the increases of $6.7 million in research and development cost for our on-going Phase 3 trial in warm AIHA, Phase 1 trial in our RIP 1 inhibitor program and Phase 1 trial in our IRAK 1/4 inhibitor program and $275,000 in personnel-related expenses partially offset by the decreases of $500,000 in stock-based compensation expense and $150,000 in third-party costs.
We expect our research and development expense for the remainder of 2020 to increase as we continue our activities in our Phase 3 warm AIHA studies, RIP1 and IRAK 1/4 programs and other fostamatinib programs. We have resumed new patient enrollment in the majority of the clinical trial sites for our FORWARD study for warm AIHA and we expect to continue to incur expenses in managing the study and expenses related to measures to implement remote and virtual approaches, including remote patient monitoring and other alternative course of actions to maintain our study in warm AIHA. W e cannot currently fully forecast the scope the evolving effects of COVID-19 pandemic may have on our ability to continue to treat patients enrolled in our trials, enroll and assess new patients, supply study drug, obtain complete data points in accordance with the study protocol, and overall impact on, and timing of, clinical study results.
Our research and development expenditures include costs related to preclinical and clinical trials, scientific personnel, supplies, equipment, consultants, sponsored research, stock-based compensation, and allocated facility costs.
We do not track fully burdened research and development costs separately for each of our drug candidates. We review our research and development expenses by focusing on three categories: research, development, and other. Our research team is focused on creating a portfolio of product candidates that can be developed into small molecule therapeutics in our own proprietary programs or with potential collaborative partners and utilizes our robust discovery engine to rapidly discover and validate new product candidates in our focused range of therapeutic indications. “Research” expenses relate primarily to personnel expenses, lab supplies, fees to third party research consultants and compounds. Our development group leads the implementation of our clinical and regulatory strategies and prioritizes disease indications in which our compounds may be studied in clinical trials. “Development” expenses relate primarily to clinical trials, personnel expenses, costs related to the submission and management of our NDA, lab supplies and fees to third party research consultants. “Other” expenses primarily consist of allocated facilities costs and allocated stock-based compensation expense relating to personnel in research and development groups.
In addition to reviewing the three categories of research and development expenses described in the preceding paragraph, we principally consider qualitative factors in making decisions regarding our research and development programs, which include enrollment in clinical trials and the results thereof, the clinical and commercial potential for our drug candidates and competitive dynamics. We also make our research and development decisions in the context of our overall business strategy, which includes the evaluation of potential collaborations for the development of our drug candidates.
We do not have reliable estimates regarding the timing of our clinical trials. Preclinical testing and clinical development are long, expensive and uncertain processes. In general, biopharmaceutical development involves a series of steps, beginning with identification of a potential target and including, among others, proof of concept in animals and Phase 1, 2 and 3 clinical trials in humans. Significant delays in clinical testing could materially impact our product development costs and timing of completion of the clinical trials. We do not know whether planned clinical trials will begin on time, will need to be halted or revamped or will be completed on schedule, or at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a trial, delays from scale up, delays in reaching agreement on acceptable clinical trial agreement terms with prospective clinical sites, delays in obtaining institutional review board approval to conduct a clinical trial at a prospective clinical site or delays in recruiting subjects to participate in a clinical trial.
We currently do not have reliable estimates of total costs for a particular drug candidate to reach the market. Our potential products are subject to a lengthy and uncertain regulatory process that may involve unanticipated
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additional clinical trials and may not result in receipt of the necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us from commercializing the product candidates affected. In addition, clinical trials of our potential products may fail to demonstrate safety and efficacy, which could prevent or significantly delay regulatory approval.
The following table presents our total research and development expense by category (in thousands).
Three Months Ended
Nine Months Ended
September 30,
September 30,
From January 1, 2007*
2020
2019
2020
2019
to September 30, 2020
Categories:
Research
$
2,295
$
2,407
$
7,126
$
7,652
$
253,856
Development
10,308
10,073
31,668
24,236
436,672
Other
1,997
1,983
6,169
6,750
253,084
$
14,600
$
14,463
$
44,963
$
38,638
$
943,612
* We started tracking research and development expense by category on January 1, 2007.
“Other” expenses mainly represent allocated facilities costs of approximately $1.5 million each for the three months ended September 30, 2020 and 2019 and allocated stock-based compensation expense of approximately $532,000 and $487,000 for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, allocated facilities costs were approximately $4.5 million and $4.6 million, respectively, and allocated stock-based compensation expense were approximately $1.7 million and $2.1 million, respectively.
For the three and nine months ended September 30, 2020 and 2019, a major portion of our total research and development expense was associated with our AIHA, RIP1, and IRAK programs, salaries of our research and development personnel and allocated facilities costs.
Selling, General and Administrative Expense
Three Months Ended
Nine Months Ended
September 30,
Aggregate
September 30,
Aggregate
2020
2019
Change
2020
2019
Change
(in thousands)
(in thousands)
Selling, general and administrative expense
$
17,430
$
18,121
$
(691)
$
54,780
$
56,276
$
(1,496)
Stock-based compensation expense included in selling, general and administrative expense
$
1,352
$
1,611
$
(259)
$
3,981
$
5,519
$
(1,538)
The decrease in selling, general and administrative expense for the three months ended September 30, 2020 compared to the same period in 2019 was primarily due to the decreases of $2.1 million in costs related to commercial activities and $259,000 in stock-based compensation expense partially offset by the increases of $1.4 million in personnel-related costs and $268,000 costs of consultants.
The decrease in selling, general and administrative expense for the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to the decreases of $2.1 million in costs of consultants and third party services, $1.5 million in stock-based compensation expense and $784,000 in costs related to commercial activities partially offset by the increases of $2.8 million in personnel costs and $88,000 in various expense items.
We expect our selling, general and administrative expense to increase for the remainder of 2020 as we continue to expand our commercial activities for TAVALISSE. As discussed above, resources have been deployed to enable our
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field-based employees to continue to engage remotely with healthcare providers during the ongoing COVID-19 pandemic. These virtual engagements have enabled our field team to support existing prescribers as well as partner with new prescribers to identify appropriate patients for TAVALISSE. However, we are not currently able to fully forecast the scope of impacts that the COVID-19 pandemic may have on our commercial activities and sales of TAVALISSE.
Interest Income
Three Months Ended
Nine Months Ended
September 30,
Aggregate
September 30,
Aggregate
2020
2019
Change
2020
2019
Change
(in thousands)
(in thousands)
Interest income
$
36
$
555
$
(519)
$
563
$
2,068
$
(1,505)
Interest income results from our interest-bearing cash and investment balances. The decreases in interest income for the three and nine months ended September 30, 2020 as compared to the same period in 2019 were primarily due to decrease in yield on our investments.
Interest Expense
Three Months Ended
Nine Months Ended
September 30,
Aggregate
September 30,
Aggregate
2020
2019
Change
2020
2019
Change
(in thousands)
(in thousands)
Interest expense
$
(429)
$
(8)
$
(421)
$
(924)
$
(8)
$
(916)
Interest expense for the three and nine months ended September 30, 2020 was related to the outstanding balance on our term loan from Midcap.
Critical Accounting Policies and the Use of Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including any potential impact of the COVID-19 pandemic to the carrying values of our assets and liabilities, those related to revenue recognition on product sales and collaboration agreements, recoverability of our assets, including accounts receivables and inventories, stock-based compensation, the probability of achievement of corporate performance-based milestone for our performance-based stock option awards, impairment issues, the estimated useful life of assets, estimated accruals, particularly research and development accruals, and estimates related our valuation of the operating lease right-of-use asset and lease liability, including the incremental borrowing rate used. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that there have been no significant changes in our critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC.
Recent Accounting Pronouncements
For a discussion of new accounting pronouncements, see “Note 3” to our “Notes to Condensed Financial Statements” contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Liquidity and Capital Resources
Cash Requirements
From inception, we have financed our operations primarily through sales of equity securities, contract payments under our collaboration agreements and from sales of TAVALISSE beginning in May 2018. We have consumed substantial amounts of capital to date as we continue our research and development activities, including preclinical studies and clinical trials and our ongoing commercial launch of TAVALISSE.
As of September 30, 2020, we had approximately $72.8 million in cash, cash equivalents and short-term investments, as compared to approximately $98.1 million as of December 31, 2019, a decrease of approximately $25.3 million. The decrease was primarily attributable to payments associated with funding our operating expenses during the nine months ended September 30, 2020.
In September 2019, we entered into a $60.0 million term loan credit facility with MidCap. At closing, $10.0 million was funded to us in an initial tranche. We accessed the second $10.0 million tranche from our term loan credit facility with MidCap which we received in May 2020. The facility provides the Company with access to an additional $40.0 million which is subject to the achievement of certain customary conditions. In August 2020, we entered into a Sales Agreement with Jefferies, pursuant to which we may sell, through Jefferies, up to an aggregate of $65.0 million in shares of our common stock. In October 2020, we received $2.1 million representing payment for a milestone under our collaboration agreement with Daiichi.
In October 2018, we entered into an exclusive license and supply agreement with Kissei to develop and commercialize fostamatinib in all current and potential indications in Japan, China, Taiwan and the Republic of Korea, in which we received an upfront payment of $33.0 million. In January 2019, we entered into an exclusive commercialization license agreement with Grifols to commercialize fostamatinib for the treatment, palliation, or prevention of human diseases, including chronic or persistent ITP, AIHA, and IgAN in Europe and Turkey, in which we received an upfront payment of $30.0 million, with the potential for $297.5 million in payments related to regulatory and commercial milestones, which includes a $20.0 million payment received in February 2020, comprised of a $17.5 million for EMA approval of fostamatinib for the first indication and a $2.5 million creditable advance royalty payment due upon EMA approval of fostamatinib in the first indication in chronic ITP. We will also receive stepped double-digit royalty payments based on tiered net sales which may reach 30% of net sales of fostamatinib. In return, Grifols receives exclusive rights to fostamatinib in human diseases, including chronic ITP and AIHA in Europe and Turkey. We retain the global rights to fostamatinib outside the Kissei, Grifols and Medison territories.
In December 2014, we entered into a sublease agreement with an unrelated third party to occupy a portion of our research and office space. This sublease agreement was amended in February 2017 to sublease additional research and office space. Effective July 2017, the sublease agreement was amended primarily to extend the term of the sublease through January 2023. During the nine months ended September 30, 2020, we received approximately $4.0 million of sublease income and reimbursements. We expect to receive approximately $10.7 million in future sublease income (excluding our subtenant’s share of facility’s operating expenses) through January 2023.
We believe that our existing capital resources will be sufficient to support our current and projected funding requirements, including the ongoing commercial launch of TAVALISSE in the U.S., through at least the next 12 months from the filing date of this report. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with commercial launch, the development of our product candidates and other research and development activities, we are unable to estimate with certainty our future product revenues, our revenues from our current and future collaborative partners, the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials and other research and development activities.
Our operations will require significant additional funding for the foreseeable future. Unless and until we are able to generate a sufficient amount of product, royalty or milestone revenue, we expect to finance future cash needs
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through public and/or private offerings of equity securities, debt financings and/or collaboration and licensing arrangements, and to a much lesser extent through the proceeds from exercise of stock options and interest income earned on the investment of our excess cash balances and short-term investments. However, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. Our ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the U.S. and worldwide resulting from the pandemic. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make important, opportunistic investments. In addition, any additional capital we raise by issuing equity securities, our stockholders could at that time experience substantial dilution. Our current credit facility with MidCap and any debt financing that we are able to obtain in the future may involve operating covenants that may restrict our business. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some of our rights to our technologies or product candidates or grant licenses on terms that are not favorable to us.
Our future funding requirements will depend upon many factors, including, but not limited to:
● the ongoing costs to commercialize TAVALISSE for the treatment of ITP in the U.S., or any other future product candidates, if any such candidate receives regulatory approval for commercial sale;
● the progress and success of our clinical trials and preclinical activities (including studies and manufacture of materials) of our product candidates conducted by us;
● our ability to meet operating covenants under our current and future credit facilities, if any;
● our ability to enter into partnering opportunities across our pipeline within and outside the U.S.;
● the costs and timing of regulatory filings and approvals by us and our collaborators;
● the progress of research and development programs carried out by us and our collaborative partners;
● any changes in the breadth of our research and development programs;
● the ability to achieve the events identified in our collaborative agreements that may trigger payments to us from our collaboration partners;
● our ability to acquire or license other technologies or compounds that we may seek to pursue;
● our ability to manage our growth;
● competing technological and market developments;
● the costs and timing of obtaining, enforcing and defending our patent and other intellectual property rights; and
● expenses associated with any unforeseen litigation, including any arbitration and securities class action lawsuits.
Insufficient funds may require us to delay, scale back or eliminate some or all of our commercial efforts and/or research or development programs, to lose rights under existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose or may adversely affect our ability to operate as a going concern.
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For the three and nine months ended September 30, 2020 and 2019, we maintained an investment portfolio primarily in money market funds, U.S. treasury bills, government-sponsored enterprise securities, and corporate bonds and commercial paper. Cash in excess of immediate requirements is invested with regard to liquidity and capital preservation. Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk. We will continue to monitor the impact of the changes in the conditions of the credit and financial markets to our investment portfolio and assess if future changes in our investment strategy are necessary.
Cash Flows from Operating, Investing and Financing Activities
Nine Months Ended September 30,
2020
2019
(in thousands)
Net cash provided by (used in):
Operating activities
$
(36,613)
$
(31,861)
Investing activities
38,755
(16,039)
Financing activities
11,904
10,671
Net (decrease) increase in cash and cash equivalents
$
14,046
$
(37,229)
Net cash used in operating activities was approximately $36.6 million for the nine months ended September 30, 2020, compared to approximately $31.9 million for the nine months ended September 30, 2019. Net cash used in operating activities for the nine months ended September 30, 2020 was related to our research and development programs and our ongoing commercialization of TAVALISSE, partially offset by the $20.0 million payment received from Grifols and proceeds from sale of TAVALISSE. Net cash used in operating activities for the nine months ended September 30, 2019 was related to our research and development programs and our commercialization of TAVALISSE partially offset by the $30.0 million upfront fee received from Grifols. The timing of cash requirements may vary from period to period depending on our ongoing commercial activities related to TAVALISSE, timing of collaboration revenues, our ability to access additional funds from our credit facility with MidCap, our research and development activities, including our planned preclinical and clinical trials, and future requirements to establish commercial capabilities for any products that we may develop.
Net cash provided by investing activities was approximately $38.8 million for the nine months ended September 30, 2020, compared to net cash used in investing activities of approximately $16.0 million for the nine months ended September 30, 2019. Net cash provided by investing activities during the nine months ended September 30, 2020 related to net maturities of short-term investments, partially offset by capital expenditures. Net cash used in investing activities during the nine months ended September 30, 2019 related to net purchases of short-term investments and capital expenditures. Capital expenditures were approximately $758,000 for the nine months ended September 30, 2020, compared to approximately $844,000 for the same period in 2019.
Net cash provided by financing activities was approximately $11.9 million for the nine months ended September 30, 2020, compared to approximately $10.7 million for the nine months ended September 30, 2019. Net cash provided by financing activities for the nine months ended September 30, 2020 related to the proceeds from funding of the second $10.0 million tranche from our term loan credit facility with MidCap and exercise of stock options and participation in the Purchase Plan. Net cash provided by financing activities for the nine months ended September 30, 2019 related to the funding of the first $10.0 million tranche from our term loan credit facility with MidCap and proceeds from exercise of stock options and participation in the Purchase Plan.
Off-Balance Sheet Arrangements
As of September 30, 2020, we had no off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K under the Exchange Act).
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Contractual Obligations
We conduct our commercial activities and research and development programs internally and through third parties that include, among others, arrangements with collaboration partners, vendors, consultants, contract research organizations (CRO) and universities. We have contractual arrangements with these parties, however our contracts with them are cancelable generally on reasonable notice within one year and our obligations under these contracts are primarily based on services performed. We do not have any purchase commitments under any collaboration arrangements.
We have agreements with certain CROs to conduct our clinical trials and with third parties relative to our commercialization of TAVALISSE. The timing of payments for any amounts owed under the respective agreements will depend on various factors including, but not limited to, patient enrollment and other progress of the clinical trial and various activities related to commercial launch. We will continue to enter into contracts in the normal course of business with various third parties who support our clinical trials, support our preclinical research studies, and provide other services related to our operating purposes as well as our commercial launch of TAVALISSE. We can terminate these agreements at any time, and if terminated, we would not be liable for the full amount of the respective agreements. Instead, we will be liable for services provided through the termination date plus certain cancellation charges, if any, as defined in each of the respective agreements. In addition, these agreements may, from time to time, be subjected to amendments as a result of any change orders executed by the parties. As of September 30, 2020, we do not have material contractual commitments with respect to the arrangements discussed above, but we had the following contractual commitments related to our facilities lease and credit facility:
Less than
Payment Due By Period
More than
Total
1 Year
1 - 3 Years
3 - 5 Years
5 Years
(in thousands)
Facilities lease (1)
$
23,875
$
9,985
$
13,890
$
—
$
—
Credit facility with MidCap (2)
23,632
1,430
15,280
6,922
—
Total
$
47,507
$
11,415
$
29,170
$
6,922
$
—
(1) In December 2014, we entered into a sublease agreement, which was amended in 2017, with an unrelated third party to lease up a portion of the research and office space. The facilities lease obligations above do not include the sublease income of approximately $10.7 million which we expect to receive over the term of the sublease through January 2023.
(2) In September 2019, we entered into a Credit Agreement with MidCap. We received funding for the first tranche of $10.0 million. In March 2020, we accessed the second $10.0 million tranche from our term loan credit facility with MidCap which we received in May 2020. Under the agreement, we are obligated to make interest payments at an annual rate of one-month LIBOR plus 5.65% for the first 24 months and the interest plus principal amortization for the next 36 months. We will be obligated to pay administrative fees annually and a final fee upon final payment.
We are also subject to claims related to the patent protection of certain of our technologies, as well as purported securities class action lawsuit, other litigations, and other contractual agreements. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual matter.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
During the nine months ended September 30, 2020, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2019.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.