What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-05 · 263 added, 257 removed, 422 unchanged (55% of the section changed)

3 unchanged sentences

(In thousands)

September 30,

Current assets:

14 unchanged sentences

Deferred revenue, current portion

Other long-term liabilities, current portion

Total current liabilities

Long-term portion of deferred revenue

Long-term portion of lease liabilities

4 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive loss

Accumulated deficit

2 unchanged sentences

Total stockholders’ equity

(1) The balance sheet at December 31, 2019 has been derived from the audited financial statements included in Rigel’s Annual Report on Form 10-K for the year ended December 31, 2019 .

See Accompanying Notes.

(1) The balance sheet as of December 31, 2020 has been derived from the audited financial statements included in Rigel’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 2, 2021 .

See Accompanying Notes to Condensed Financial Statements.

RIGEL PHARMACEUTICALS, INC.

1 unchanged sentence

(In thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Product sales, net

Contract revenues from collaborations

Government contract

Total revenues

4 unchanged sentences

Total costs and expenses

Loss from operations

Income from operations

Interest income

Interest expense

Net loss per share, basic and diluted

Weighted average shares used in computing net loss per share, basic and diluted

See Accompanying Notes.

Income before income taxes

Provision for income taxes

Net income per share

Weighted average shares used in computing net income per share

See Accompanying Notes to Condensed Financial Statements

RIGEL PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Other comprehensive income (loss):

Net unrealized gain (loss) on short-term investments

Comprehensive loss

See Accompanying Notes.

Three Months Ended March 31,

Other comprehensive income:

Net unrealized gain on short-term investments

Comprehensive income

See Accompanying Notes to Condensed Financial Statements

RIGEL PHARMACEUTICALS, INC.

10 unchanged sentences

( 1,266,472 )

Net unrealized loss on short-term investments

Issuance of common stock upon participation in Purchase Plan

Stock compensation expense

Balance at June 30, 2020

( 1,272,561 )

Net unrealized loss on short-term investments

Issuance of common stock upon exercise of options

Stock compensation expense

Balance at September 30, 2020

( 1,286,735 )

Comprehensive

Stockholders’

Balance at January 1, 2020

5 unchanged sentences

( 1,254,985 )

Net unrealized gain on short-term investments

Issuance of common stock upon exercise of options and participation in Purchase Plan

Stock compensation expense

Balance at June 30, 2019

( 1,247,538 )

Net unrealized loss on short-term investments

Issuance of common stock upon exercise of options

Stock compensation expense

Balance at September 30, 2019

( 1,259,028 )

See Accompanying Notes to Condensed Financial Statements

RIGEL PHARMACEUTICALS, INC.

1 unchanged sentence

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Stock-based compensation expense

Depreciation and amortization

Non-cash operating lease expense

Non-cash interest expense

Net amortization and accretion of discount on short-term investments and term loan

2 unchanged sentences

Prepaid and other current assets

Right-of-use assets

Accounts payable

4 unchanged sentences

Deferred revenue

Other current and long-term liabilities

Net cash used in operating activities

3 unchanged sentences

Capital expenditures

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Financing activities

Net proceeds from term loan financing

Net proceeds from issuances of common stock upon exercise of options and participation in Purchase Plan

Net proceeds from issuances of common stock upon exercise of options

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

2 unchanged sentences

Interest paid

See Accompanying Notes.

See Accompanying Notes to Condensed Financial Statements

Rigel Pharmaceuticals, In c.

1 unchanged sentence

In this report, “Rigel,” “we,” “us” and “our” refer to Rigel Pharmaceuticals, Inc.

Nature of Operations

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.

Nature of O perations

We are a biotechnology company dedicated to discovering, developing and providing novel small molecule drugs that significantly improve the lives of patients with hematologic disorders, cancer and rare immune 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).

Our first product approved by the United States Food and Drug Administration (FDA) is TAVALISSE® (fostamatinib disodium hexahydrate) tablets, the only approved 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 is also commercially available in Europe (TAVLESSE) and Canada (TAVALISSE) for the treatment of chronic immune thrombocytopenia in adult patients.

Fostamatinib is currently being studied in a Phase 3 trial for the treatment of warm autoimmune hemolytic anemia (wAIHA);

a Phase 3 clinical trial for the treatment of hospitalized patients with COVID-19, a National Institutes of Health (NIH)/National Heart, Lung, and Blood Institute (NHLBI)-sponsored Phase 2 trial for the treatment of hospitalized patients with COVID-19, in collaboration with Inova Health System;

and a Phase 2 trial for the treatment of COVID-19 being conducted by Imperial College London.

Our other clinical programs include our interleukin receptor-associated kinase (IRAK) inhibitor program and a receptor-interacting serine/threonine-protein kinase (RIP1) inhibitor program in clinical development with partner Eli Lilly and Company (Lilly).

In addition, we have product candidates in clinical development with partners AstraZeneca AB (AZ), BerGenBio ASA (BerGenBio) and Daiichi Sankyo (Daiichi).

Basis of Presentation

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Interim-period results are not necessarily indicative of results of operations or cash flows for a full-year or any subsequent interim period.

The balance sheet at December 31, 2019 has been derived from audited financial statements at that date but does not include all disclosures required by U.S.

The balance sheet as of December 31, 2020 has been derived from audited financial statements at that date but does not include all disclosures required by U.S.

GAAP for complete financial statements.

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Summary of Significant Accounting Policies

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13— Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which represents a new credit loss standard that will change the impairment model for most financial assets and certain other financial instruments.

Specifically, this guidance

will require entities to utilize a new “expected loss” model as it relates to trade and other receivables.

In addition, entities will be required to recognize an allowance for estimated credit losses on available-for-sale debt securities, regardless of the length of time that a security has been in an unrealized loss position.

This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods.

We adopted this new standard on January 1, 2020 with no material impact on our financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13 —Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13) , which modifies the disclosure requirements on fair value measurements.

This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods therein.

We adopted this new standard on January 1, 2020 with no material impact on our financial statements and related disclosures.

In November 2018, the FASB issued ASU 2018-18— Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606 .

This standard provides guidance on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) by aligning the unit of account guidance between the two topics and clarifying whether certain transactions between collaborative participants should be accounted for as revenue under Topic 606.

ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

We adopted this new standard on January 1, 2020 with no material impact on our financial statements and related disclosures.

Recently Adopted Accounting Pronouncement

In December 2019, the Financial Accounting Standards Board (FASB) issued ASU No.

2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes by removing variety of exceptions within the framework of ASC 740.

There were nine amendments in the ASU, such as the elimination of the incremental approach to intraperiod tax allocation, recognition of deferred tax liability for outside basis differences, changes to the accounting of hybrid tax regimes, amendments to the accounting of tax basis step-up in goodwill, clarification on separate financial statements of legal entities not subject to tax, guidance on the accounting for ownership changes in investments, and guidance on interim-period accounting for tax law changes and year-to-date loss limitations.

The guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years.

We adopted this new guidance effective in the first quarter of 2021 with no material impact on our financial statements and disclosures.

Inventories are stated at the lower of cost or estimated net realizable value.

3 unchanged sentences

Prior to FDA approval of TAVALISSE, all manufacturing costs were charged to research and development expense in the period incurred.

At September 30, 2020 and December 31, 2019, our physical inventory included active pharmaceutical product of which costs have been previously charged to research and development expense.

As of March 31, 2021 and December 31, 2020, our physical inventory included active pharmaceutical product for which costs have been previously charged to research and development expense.

However, manufacturing of drug product, finished bottling and other labeling activities that occurred post FDA approval are included in the inventory value at each balance sheet date.

6 unchanged sentences

We estimate the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of our customers and individual customer circumstances.

As of March 31, 2021 and December 31, 2020, customer allowance for prompt payment discounts were $ 105,000 and $ 171,000 , respectively.

To date, we have determined that an allowance for doubtful accounts is not required.

52 unchanged sentences

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

For arrangements that require us to share in the development costs but to which we do not participate in the co-development work, the portion of the upfront fee attributed to our share in the future development costs is excluded from the transaction price.

If such share in the development costs is payable beyond 12 months from the delivery of the corresponding license, a significant financing component is deemed to exist.

If a significant financing component is identified, we adjust the transaction price by reducing the upfront fee by the net present value of our share in future development costs over the expected commitment period.

Such discounted amount will be reported as a liability in the balance sheet, with a corresponding interest expense being accreted based on a discount rate applied over the expected commitment period.

Development, Regulatory or Commercial Milestone Payments:

9 unchanged sentences

Sales-based Milestone Payments and Royalties:

(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).

For arrangements that include sales-based royalties, including milestone payments based on the volume of sales, we determine whether the license is deemed to be the predominant item to which the royalties or sales-based milestones relate to and if such is the case, we 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).

Government Contract

As described in Note 8 below, in January 2021, we were awarded up to $ 16.5 million by the U.S.

Department of Defense’s Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense (referred here as U.S.

Department of Defense) to support our ongoing Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients.

We determined that the government award should be accounted for under IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, which is outside the scope of Topic 606, as the U.S.

Department of Defense is not receiving reciprocal value for their contributions.

Revenue is recognized when there is reasonable assurance that the conditions of the grant will be met, and the grant will be received.

Department of Defense’s contract, this occurs when either each milestone has been accepted by Department of Defense or management has concluded that the conditions of the grant have been substantially met.

We currently lease our research and office space under a noncancelable lease agreement with our landlord through January 2023.

In December 2014, we entered into a sublease agreement with an unrelated third party to occupy a portion of our research and office space through January 2023.

All of our leases outstanding as of September 30, 2020 continued to be classified as operating leases.

All of our leases outstanding as March 31, 2021 continued to be classified as operating leases.

We recorded an operating lease right-of-use asset and an operating lease liability on our balance sheet.

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We recognize interest and penalties related to unrecognized tax benefits as a component of income taxes.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law.

The Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net

interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

We are currently analyzing the impact of these changes and therefore an estimate of the impact to income taxes is not yet available.

We do not currently believe it will have a material impact on our financial statements or related disclosures.

On June 29, 2020, Assembly Bill 85 (A.B.

85) was signed into California law.

85 provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $ 5.0 million of California state tax per year.

85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $ 1.0 million or more.

The carryover period for any net operating losses that are suspended under this provision will be extended.

85 also requires that business incentive tax credits including carryovers may not reduce the applicable tax by more than $ 5.0 million for taxable years 2020, 2021 and 2022.

We are currently evaluating the impact of A.B.

85 on our financial statements and related disclosures.

Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period.

Diluted net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period and the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued.

Potentially dilutive securities include stock options, restricted stock units and shares issuable under our stock award plans.

The dilutive effect of these potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method.

Under the treasury stock method, an increase in the fair market value of our common stock can result in a greater dilutive effect from potentially dilutive securities.

The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share amounts):

Three Months Ended

EPS Numerator:

EPS Denominator—Basic:

Weighted-average common shares outstanding

EPS Denominator—Diluted:

Weighted-average common shares outstanding

Dilutive effect of stock options, restricted stock units and shares under ESPP

Weighted-average shares outstanding and common stock equivalents

Net income per common share, basic and diluted

The potential shares of common stock that were excluded from the computation of diluted net income per share for the periods presented because including them would have been antidilutive are as follows:

(in thousands):

Three Months Ended

Outstanding stock options

Restricted stock units

Stock Award Plans

1 unchanged sentence

The 2018 Plan is the successor plan to the 2011 Equity Incentive Plan, the 2000 Equity Incentive Plan, and the 2000 Non-Employee Directors' Stock Option Plan.

To date, we have two stock option plans, our 2018 Plan and the Inducement Plan (collectively, the Equity Incentive Plans), that provide for granting to our officers, directors and all other employees and consultants options to purchase shares of our common stock.

We have two equity plans, our 2018 Plan and the Inducement Plan (collectively, the Equity Incentive Plans), that provide for granting of stock awards to our officers, directors and all other employees and consultants.

To date, we granted stock options and restricted stock units under our equity incentive plans.

We also have our Employee Stock Purchase Plan (Purchase Plan), wherein eligible employees can purchase shares of our common stock at a price per share equal to the lesser of 85 % of the fair market value on the first day of the offering period or 85 % of the fair market value on the purchase date.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model which considered our stock price, as well as assumptions regarding a number of complex and subjective variables.

These variables include, but are not limited to, volatility, expected term, risk-free interest rate and dividends.

We estimate volatility over the expected term of the option using historical share price performance.

For expected term, we take into consideration our historical data of options exercised, cancelled and expired.

The risk-free rate is based on the U.S.

Treasury constant maturity rate.

We have not paid and do not expect to pay dividends in the foreseeable future.

The fair value of the restricted stock unit grant is based on the market price of our common stock on the date of grant.

We use the straight-line attribution method over the requisite employee service period for the entire award in recognizing stock-based compensation expense.

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In those cases, we recognize the change in estimate at the time we determine the condition is probable of achievement (by recognizing stock-based compensation expense as cumulative catch-up adjustment as if we had estimated at the grant date that the performance condition would have been achieved) and recognize the remaining compensation cost up to the date when we expect the performance condition will be achieved, if any.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period and the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued.

Because we were in a loss position for

all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been antidilutive.

Potentially dilutive securities include stock options and shares issuable under our stock award plans.

The dilutive effect of these potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method.

Under the treasury stock method, an increase in the fair market value of our common stock can result in a greater dilutive effect from potentially dilutive securities.

We had securities which could potentially dilute basic earnings per share, but were excluded from the computation of diluted loss per share for all periods presented, as their effect would have been antidilutive.

These securities consist of the following (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Outstanding stock options

Purchase Plan

Stock-Based Compensation

Total stock-based compensation related to all of our share-based payments that we recognized for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands):

Total stock-based compensation related to all of our share-based payments that we recognized for the three months ended March 31, 2021 and 2020 were as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Selling, general and administrative

1 unchanged sentence

Total stock-based compensation expense

During the three months ended March 31, 2021, we granted options to purchase 5,339,981 shares of common stock with a grant-date weighted-average fair value of $ 2.32 per share, and 813,854 options to purchase shares were exercised.

As of March 31, 2021, total stock options outstanding was 30,902,155 shares, of which, 2,018,125 shares outstanding are performance-based stock options wherein the achievement of the corresponding corporate-based milestones was not considered as probable.

Accordingly, the related grant date fair value for these performance-based stock options of $ 4.2 million has not been recognized as stock-based compensation expense as of March 31, 2021.

The exercise price of stock options granted under our stock plans is equal to the fair market value of the underlying shares on the date of grant.

Options become exercisable at varying dates and generally expire 10 years from the date of grant.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model.

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The consideration and calculation of the above data gave us reasonable estimates of the expected term for each employee group.

We also considered the vesting schedules of the options granted and factors

surrounding exercise behavior of the option groups, our current market price and company activity that may affect our market price.

We also considered the vesting schedules of the options granted and factors surrounding exercise behavior of the option groups, our current market price and company activity that may affect our market price.

In addition, we considered the optionee type (i.e., officers and directors or all other employees) and other factors that may affect the expected term of the options.

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● Dividend yield—The expected dividend yield is 0 % as we have not paid and do not expect to pay dividends in the future.

The following table summarizes the weighted-average assumptions relating to options granted pursuant to our equity incentive plans for the three and nine months ended September 30, 2020 and 2019:

The following table summarizes the weighted-average assumptions relating to options granted pursuant to our equity incentive plans for the three months ended March 31, 2021 and 2020:

Three Months Ended

Nine Months Ended

September 30,

Risk-free interest rate

2 unchanged sentences

Expected volatility

The exercise price of stock options granted under our stock plans is equal to the fair market value of the underlying shares on the date of grant.

Options become exercisable at varying dates and generally expire 10 years from the date of grant.

We granted options to purchase 8,288,090 shares of common stock during the nine months ended September 30, 2020 with a grant-date weighted-average fair value of $ 1.41 per share.

As of September 30, 2020, we had 1,101,250 shares of outstanding performance-based stock options wherein the achievement of the corresponding corporate-based milestones was not considered as probable.

Accordingly, none of the related stock-based compensation expense of $ 1.7 million has been recognized as expense as of September 30, 2020.

As of September 30, 2020, there were approximately $ 12.6 million of unrecognized stock-based compensation cost related to time-based stock options and performance-based stock options, wherein achievement of the corresponding corporate-based milestones was considered as probable.

At September 30, 2020, there were 13,989,943 shares of common stock available for future grant under our equity incentive plans and 607,486 options to purchase shares were exercised during the nine months ended September 30, 2020.

During the three months ended March 31, 2021, we granted 52,000 restricted stock units with grant-date weighted-average fair value of $ 3.77 per share, and vests over 2 years .

As of March 31, 2021, there were approximately $ 18.2 million of unrecognized stock-based compensation cost which is expected to be recognized over the remaining weighted-average period of 2.37 years, related to time-based stock options, RSUs and performance-based stock options, wherein achievement of the corresponding corporate-based milestones was considered as probable.

As of March 31, 2021, there were 9,702,519 shares of common stock available for future grant under our equity incentive plans.

In January 2021, our Compensation Committee approved the 825,000 shares increase in available number of shares for future grant under our 2018 Plan, contingent and effective upon approval by our stockholders at the annual meeting in May 2021.

Employee Stock Purchase Plan

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The price at which the stock is purchased is equal to the lesser of 85 % of the fair market value of our common stock on the first day of the offering or 85 % of the fair market value of our common stock on the purchase date.

The initial offering period commenced on the effective date of our initial public offering.

The fair value of awards granted under our Purchase Plan is estimated on the date of grant using the Black-Scholes option pricing model, which uses weighted-average assumptions .

1 unchanged sentence

A look-back option is a provision in our Purchase Plan under which eligible employees can purchase shares of our common stock at a price per share equal to the lesser of 85 % of the fair market value on the first day of the offering period or 85 % of the fair market value on the purchase date.

Our Purchase Plan also includes a feature that provides for a new offering period to begin when the fair market value of our common stock on any purchase date during an offering period falls below the fair

market value of our common stock on the first day of such offering period.

This feature is called a “reset.” Participants are automatically enrolled in the new offering period.

We had a “reset” on January 2, 2020 because the fair market value of our stock on December 31, 2019 was lower than the fair market value of our stock on January 1, 2019, the first day of the offering period.

We had a “reset” in January 2020 because the fair market value of our stock on December 31, 2019 was lower than the fair market value of our stock on January 1, 2019, the first day of the offering period.

Following the “reset” in January 2020, January 1, 2020 was the new first day of the two-year offering period of our ESPP program.

We applied modification accounting in accordance with the relevant accounting guidance.

The total incremental fair value associated with this Purchase Plan “reset” was approximately $ 753,000 and is being recognized as expense from January 1, 2020 to December 31, 2021.

We also had another “reset” on July 1, 2020 because the fair market value of our stock on June 30, 2020 was lower than the fair market value of our stock on January 1, 2020, the first day of the offering period.

The total incremental fair value associated with this “reset” was approximately $ 753,000 and is being recognized as expense from January 1, 2020 to December 31, 2021.

In July 2020, we had another “reset” because the fair market value of our stock on June 30, 2020 was lower than the fair market value of our stock on January 1, 2020.

Following the “reset” in July 2020, July 1, 2020 is the new start date of our two-year offering period of our ESPP program.

We applied modification accounting in accordance with the relevant accounting guidance.

The total incremental fair value associated with this Purchase Plan “reset” was approximately $ 535,000 and is being amortized to expenses from July 1, 2020 to June 30, 2022.

As of September 30, 2020, there were 235,795 shares reserved for future issuance under the Purchase Plan and there was $ 887,000 of unrecognized stock-based compensation cost related to our Purchase Plan.

The following table summarizes the weighted-average assumptions related to our Purchase Plan for the nine months ended September 30, 2020 and 2019.

Expected volatilities for our Purchase Plan are based on the historical volatility of our stock.

Expected term represents the weighted-average of the purchase periods within the offering period.

The risk-free interest rate for periods within the expected term is based on U.S.

Treasury constant maturity rates.

Nine Months Ended

September 30,

Risk-free interest rate

Expected term (in years)

Dividend yield

Expected volatility

The total incremental fair value associated with this “reset” was approximately $ 535,000 and is being amortized to expenses from July 1, 2020 to June 30, 2022.

As of March 31, 2021, there were no shares reserved for future issuance under the Purchase Plan.

In January 2021, our Compensation Committee approved the 5,500,000 shares increase in the maximum number of shares authorized for issuance under the Purchase Plan, contingent and effective upon approval by our stockholders at the annual meeting in May 2021.

As of March 31, 2021, unrecognized stock-based compensation cost related to our Purchase Plan amounted to $ 455,000 , which is expected to be recognized over the remaining weighted average period of 0.74 years.

Revenues disaggregated by category were as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Product sales:

1 unchanged sentence

Discounts and allowances

Product sales, net

Total product sales, net

Revenues from collaborations:

2 unchanged sentences

Total revenues from collaborations

Government contract

Total revenues

The following table summarizes revenues from each of our customers who individually accounted for 10 % or more (wherein * denotes less than 10 %) of our total revenues (as a percentage of total revenues):

Three Months Ended

Nine Months Ended

September 30,

The following table summarizes the percentages of revenues from each of our customers who individually accounted for 10% or more (wherein * denotes less than 10%) of the total net product sales and revenues from collaborations:

ASD Healthcare and Oncology Supply

McKesson Specialty Care Distribution Corporation

Our first and only FDA approved product, TAVALISSE ® , was approved by the U.S.

FDA in April 2018.

We commenced commercial sale of TAVALISSE in the U.S.

in May 2018 after FDA approval in April 2018.

Our Marketing Authorization Application (MAA) for fostamatinib for the treatment of chronic ITP in adult patients who are refractory to other treatments was approved by the EC in January 2020.

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.

Grifols launched TAVLESSE in the UK and Germany in July 2020, and thereafter expects a phased roll-out -out over the next 18 months across Europe.

In December 2020, the Scottish Medicines Consortium accepted TAVLESSE for use in NHS in Scotland.

In addition to the distribution agreements with our customers and SDs, we also enter into arrangements with specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of our products which reduced our gross product sales.

Also refer to Revenue Recognition policy discussion in “Note 3” above.

The following table summarizes activity in each of the product revenue allowance and reserve categories for the nine months ended September 30, 2020 and 2019 (in thousands):

The following table summarizes activity in each of the product revenue allowance and reserve categories for the three months ended March 31, 2021 and 2020 (in thousands):

Discounts and

1 unchanged sentence

Provision related to current period sales

Adjustment related to prior period sales

Credit or payments made during the period

Balance at September 30, 2020

Balance at March 31, 2021

Discounts and

2 unchanged sentences

Credit or payments made during the period

Balance at September 30, 2019

Of the $ 10.1 million discounts and allowances from gross product sales for the nine months ended September 30, 2020, $ 9.1 million was accounted for as additions to other accrued liabilities and $ 1.0 million as reductions in accounts receivable and prepaid and other current assets in the balance sheet.

Other accrued liabilities related to the discounts and allowances had a remaining outstanding balance of $ 4.9 million as of September 30, 2020.

Balance at March 31, 2020

Of the $ 3.7 million discounts and allowances from gross product sales for the three months ended March 31, 2021, $ 3.3 million was accounted for as additions to other accrued liabilities and $ 434,000 as reductions in accounts receivable and prepaid and other current assets in the balance sheet.

Other accrued liabilities related to the discounts and allowances had a remaining outstanding balance of $ 5.4 million as of March 31, 2021.

Of the $ 2.7 million discounts and allowances from gross product sales for the three months ended March 31, 2020, $ 2.2 million was accounted for as additions to other accrued liabilities and $ 467,000 as reductions in accounts receivable and prepaid and other current assets in the balance sheet.

Other accrued liabilities related to the discounts and allowances had a remaining outstanding balance of $ 3.5 million as of March 31, 2020.

Sponsored Research and License Agreements and Government Contract

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 Grifols, S.A.

(Grifols) to commercialize fostamatinib in all indications, including chronic ITP and AIHA, in Europe and Turkey, and with Kissei Pharmaceutical Co., Ltd.

(Kissei) for the development and commercialization of fostamatinib in Japan, China, Taiwan and the Republic of Korea, 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.

As of March 31, 2021, we are a party to collaboration agreements with ongoing performance obligations with Eli Lilly (Lilly) to develop and commercialize R552, a receptor-interacting serine/threonine-protein kinase 1 (RIP1) inhibitor, for the treatment of non-central nervous system (non-CNS) diseases and collaboration aimed at developing additional RIP1 inhibitors for the treatment of central nervous system (CNS) diseases;

with Grifols, S.A.

(Grifols) to commercialize fostamatinib in all indications, including chronic i mmune thrombocytopenic purpura ( ITP) and autoimmune hemolytic anemia (AIHA), in Europe and Turkey;

with Kissei Pharmaceutical Co., Ltd.

(Kissei) for the development and commercialization of fostamatinib in Japan, China, Taiwan and the Republic of Korea;

and with Medison Pharma Trading AG and Medison Pharma Ltd.

(collectively, Medison) to commercialize fostamatinib in all indications, including chronic ITP and AIHA, in Canada and Israel, respectively.

Further, we are also a party to collaboration agreements, but do not have ongoing performance obligations, with AZ for the development and commercialization of R256, an inhaled JAK inhibitor;

with BerGenBio for the development and commercialization of AXL inhibitors in oncology;

and with Daiichi to pursue research related to MDM2 inhibitors, a novel class of drug targets called ligases.

We had a collaboration agreement with Aclaris for the development and commercialization of JAK inhibitors for the treatment of alopecia areata and other dermatological conditions.

Our collaboration agreement with Aclaris was terminated effective April 30, 2021.

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 triggering events under all of our current agreements (based on a single product candidate under each agreement).

Total future contingent payments to us under all of these agreements could exceed $ 1.5 billion if all potential product candidates achieved all of the payment triggering events under all of our current agreements (based on a single product candidate under each agreement).

Of this amount, $ 437.5 million relates to the achievement of development events, $ 313.7 million relates to the achievement of regulatory events and $ 816.0 million relates to the achievement of certain commercial or launch events.

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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.

Global Exclusive License Agreement with Eli Lilly

On February 18, 2021, we entered into a global exclusive license agreement and strategic collaboration with Lilly, which became effective on March 27, 2021, to develop and commercialize R552, a receptor-interacting serine/threonine-protein kinase 1 (RIP1) inhibitor, for the treatment of non-CNS diseases.

In addition, the collaboration is aimed at developing additional RIP1 inhibitors for the treatment of CNS diseases.

Pursuant to the terms of the license agreement, we granted to Lilly exclusive rights to develop and commercialize R552 and related RIP1 inhibitors in all indications worldwide.

The agreement became effective in March 2021 upon clearance under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976.

The parties’ collaboration is governed through a joint governance committee and appropriate subcommittees.

We are responsible for 20 % of development costs for R552 in the U.S., Europe, and Japan, up to a specified cap.

Lilly is responsible for funding the remainder of all development activities for R552 and other non-CNS disease development candidates.

We have the right to opt-out of co-funding the R552 development activities in the U.S., Europe and Japan at two different specified times.

If we exercise our first opt-out right (no later than September 30, 2023), we will continue to fund our share of the R552 development activities in the U.S., Europe, and Japan up to a maximum funding commitment of $ 65.0 million through April 1, 2024.

If we decide not to exercise our opt-out rights, we will be required to share in global development costs of up to certain amounts at a specified cap, as provided for in the agreement.

We are responsible for performing and funding initial discovery and identification of CNS disease development candidates, which is expected to be completed by the end of fiscal year 2021.

Following candidate selection, Lilly will be responsible for performing and funding all future development and commercialization of the CNS disease development candidates.

Under the terms of the license agreement, we were entitled to receive a non-refundable and non-creditable upfront cash payment amounting to $ 125.0 million, which we received in April 2021, and a potential for an additional $ 330.0 million in milestone payments upon the achievement of specified development and regulatory milestones by non-CNS disease products and $ 255.0 million in milestone payments upon the achievement of specified development and regulatory milestones by CNS disease products.

We are also eligible to receive up to $ 100.0 million in sales milestone payments on a product-by-product basis for non-CNS disease products and up to $ 150.0 million in sales milestone payments on a product-by-product basis for CNS disease products.

In addition, depending on the extent of our co-funding of R552 development activities, we would be entitled to receive tiered royalty payments on net sales of non-CNS disease products at percentages ranging from the mid-single digits to high-teens, subject to certain standard reductions and offsets.

We would be entitled to receive tiered royalty payments on net sales of CNS disease products up to low-double digits, subject to certain standard reductions and offsets.

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 rights over the non-CNS penetrant intellectual property (IP), and (b) granting of the license rights over the CNS penetrant IP which will be delivered to Lilly upon completion of the additional research and development efforts specified in the agreement.

We concluded each of these performance obligations is distinct.

We based our assessment on the assumption that Lilly can benefit from each of the licenses on its own by developing and commercializing the underlying product using its own resources.

Under the agreement, we are required to share 20 % of the development costs for R552 in the U.S., Europe and Japan up to a specified cap.

Given our rights to opt out from the development of R552, we believe at the minimum, we have a commitment to fund the development costs up to $ 65.0 million as discussed above.

We considered this commitment to fund the development costs as a significant financing component of the contract, which we accounted for as a reduction of the upfront fee to derive the transaction price.

This financing component was recorded as a liability at its net present value of approximately $ 57.9 million, and interest expense will be accreted on such liability over the expected commitment period using the 6.4 % discount rate applied.

We allocated the net transaction price of $ 67.1 million to each performance obligation based on our best estimate of its relative standalone selling price using the adjusted market assessment approach.

We concluded that the license rights over the non-CNS penetrant IP represents functional IP that is not expected to change over time, and we have no ongoing or undelivered obligations relative to such IP that Lilly will benefit from the use of such IP on the delivery date.

As such, the transaction price allocated to the non-CNS penetrant IP of $ 60.4 million was recognized as revenue for the three months ended March 31, 2021 upon delivery of the non-CNS penetrant IP to Lilly in March 2021.

For the delivery of license rights over the CNS penetrant IP, we are obligated to perform additional research and development efforts before Lilly can accept the license.

The allocated transaction price of $ 6.7 million will be recognized as revenue from the effective date of the agreement through the eventual acceptance by Lilly using the input method.

We recognized revenue during the three months ended March 31, 2021 of $ 243,000 , relative to the delivery of CNS penetrant IP.

As of March 31, 2021, the remaining deferred revenue amounted to $ 6.5 million and the outstanding financing liability of $ 58.0 million is included within other current and long-term liabilities in the condensed balance sheet.

Interest expense accreted during the three months ended March 31, 2021 was $ 60,000 .

The remaining future variable consideration related to future milestone payments as discussed above were fully constrained because we cannot conclude that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur, given the inherent uncertainty of success with these future milestones.

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.

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 European Medicines Agency (EMA) for fostamatinib in chronic ITP as discussed below.

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 $ 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 in chronic ITP.

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 EC’s 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 non-refundable payment in February 2020, which is comprised of a $ 17.5 million for EMA approval of fostamatinib for the first indication and a $ 2.5 million creditable advance royalty payment, based on the terms of the collaboration agreement.

The $ 20.0 million payment was allocated to the distinct performance obligations in the collaboration agreement with Grifols.

In return, Grifols received exclusive rights to fostamatinib in human diseases, including chronic ITP, AIHA, and IgAN, 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).

In November 2020, Grifols exercised its option to include these territories as part of the licensed territories under the agreement.

The agreement also required us to continue to conduct our long-term open-label extension study on patients with ITP through EMA approval of ITP in Europe or until the study ends as well as conduct the Phase 3 trial in AIHA.

In December 2019, we entered into a Drug Product Purchase Agreement with Grifols wherein we agreed to supply and sell to Grifols at 30 % mark up the drug product requested under an anticipated first and only purchase order until Grifols enters into a supply agreement directly with a third-party drug product manufacturer.

In October 2020, we entered into a Commercial Supply Agreement with Grifols.

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 clinical services related to our Phase 3 study in AIHA.

(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.

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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.

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:

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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 until we can ascertain that significant reversal of cumulative revenue would not occur, given the inherent uncertainty of success with these future milestones.

We will recognize revenues related the research and regulatory services throughout the term of the respective clinical programs using the input method.

The remaining future variable consideration of $ 277.5 million related to future regulatory and commercial milestones were fully constrained because we cannot conclude that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur, given the inherent uncertainty of success with these future milestones.

We are recognizing revenues related 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.

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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.

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.

Deferred revenues related to the performance of research services as of September 30, 2020 was $ 1.8 million.

As of March 31, 2021 and December 31, 2020, the remaining deferred revenue was $ 1.6 million related to the performance of research services.

We did no t recognize revenues during the three months ended March 31, 2021 related to the research and development services.

During the three months ended March 31, 2021, we recognized $ 1.0 million in revenues for the delivery of drug supplies to Grifols for its commercialization.

During the three months ended March 31, 2020, we recognized $ 39.9 million in revenues related to the licensed rights in intellectual property and $ 3.2 million in revenues related to the research services performed.

Kissei License Agreement

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(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.

Variable consideration of $ 147.0 million related to future development and regulatory milestones was fully constrained because we cannot conclude that it is probable that a significant reversal in the amount of cumulative revenue recognized will not 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.

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.

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 no t 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.

We did no t recognize any revenues during the three months ended March 31, 2021 and 2020.

As of March 31, 2021, 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.

Medison Commercial and License Agreements

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As such this arrangement is accounted for as a financing arrangement.

Accrued interest expense related to this financing arrangement as of September 30, 2020 is immaterial.

Accrued interest expense related to this financing arrangement as of March 31, 2021 and December 31, 2020 was immaterial.

Pursuant to this exclusive commercialization license agreement, in August 2020, we entered into a commercial supply agreement with Medison.

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.

As of September 30, 2020 and December 31, 2019, we have the following inventories (in thousands):

September 30,

In February 2021, we entered into a non-exclusive license agreement with an unrelated third party whereby we granted such unrelated third-party rights to a certain patent.

In consideration for the license rights granted, we received a one-time fee of $ 4.0 million .

All the deliverables under the agreement had been delivered and the one-time fee was recognized as revenue during the three months ended March 31, 2021.

Government Contract

Department of Defense’s JPEO-CBRND

In January 2021, we were awarded up to $ 16.5 million by the U.S.

Department of Defense to support our ongoing Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients.

The amount of award we will receive from the U.S.

Department of Defense is subject to submission of proper documentation as evidence of completion of certain clinical trial events or milestones as specified in the agreement, and approval by the U.S.

Department of Defense that such events or milestones have been met.

We determined that this government award should be accounted for under IAS 2, Accounting for Government Grants and Disclosure of Government Assistance, which is outside of the scope of Topic 606, as the U.S.

Department of Defense is not receiving reciprocal value for their contributions.

We will record grant income in the statement of operations in the same period it is probable that we will receive the award, which is when we comply with the conditions associated with the award and obtain approval from the U.S.

Department of Defense that such conditions have been met.

For the three months ended March 31, 2021, we recognized $ 3.0 million related to this grant, of which $ 1.0 million had been invoiced but not yet collected and is included within accounts receivable on the accompanying balance sheet as of March 31, 2021.

We expect to receive the remaining award of $ 13.5 million throughout the period we conduct our clinical trial, subject to us meeting certain clinical trial events or milestones and approval by the U.S.

Department of Defense as specified in the agreement.

As of March 31, 2021 and December 31, 2020, we have the following inventories (in thousands):

Raw materials

Work in process

Finished goods

As of September 30, 2020, we have $ 4.2 million in advance payments to our manufacturer of our raw materials, which is included as part of “Prepaid and other current assets” in our condensed balance sheet.

We take ownership of such raw materials when they are completed and delivered to us.

As of December 31, 2020, we have $ 4.0 million in advance payments to our manufacturer of our raw materials, which was included as part of Prepaid and Other Current Assets in our condensed balance sheet.

During the three months ended March 31, 2021, the production of raw materials was completed and ownership was transferred to us.

Accordingly, such advance payments were reclassified to inventories and were included within raw materials account balance as of March 31, 2021.

Cash, Cash Equivalents and Short-Term Investments

Cash, cash equivalents and short-term investments consisted of the following (in thousands):

September 30,

Money market funds

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Cash equivalents and short-term investments include the following securities with gross unrealized gains and losses (in thousands):

September 30, 2020

treasury bills

March 31, 2021

Government-sponsored enterprise securities

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Corporate bonds and commercial paper

As of September 30, 2020, our cash equivalents and short-term investments, which have contractual maturities within one year, had a weighted-average time to maturity of approximately 64 days .

As of March 31, 2021 and December 31, 2020, our cash equivalents and short-term investments, which have contractual maturities within one year, had a weighted-average time to maturity of approximately 39 days and 78 days , respectively.

We view our short-term investments portfolio as available for use in current operations.

We have the ability to hold all investments as of September 30, 2020 through their respective maturity dates.

At September 30, 2020 , we had no investments that had been in a continuous unrealized loss position for more than 12 months.

As of September 30, 2020 , a total of 11 individual securities had been in an unrealized loss position for 12 months or less, and the losses were determined to be temporary.

The gross unrealized losses above were caused by interest rate fluctuations.

We have the ability to hold all investments as of March 31, 2021 through their respective maturity dates.

As of March 31, 2021, we had no investments that had been in a continuous unrealized loss position for more than 12 months.

As of March 31, 2021, a total of 18 individual securities had been in an unrealized loss position for 12 months or less, and the losses were determined to be temporary.

The gross unrealized losses above were caused by interest rate increases.

No significant facts or circumstances have arisen to indicate that there has been any significant deterioration in the creditworthiness of the issuers of the securities held by us.

Based on our review of these securities, including the assessment of the duration and severity of the unrealized losses and our ability and intent to hold the investments until maturity, there were no other-than-temporary impairments for these securities at September 30, 2020 .

The following table shows the fair value and gross unrealized losses of our investments in individual securities that are in an unrealized loss position, aggregated by investment category (in thousands):

September 30, 2020

March 31, 2021

Unrealized Losses

treasury bills

Corporate bonds and commercial paper

Under FASB ASC 820, Fair Value Measurements and Disclosures , fair value is defined as the price at which an asset could be exchanged, or a liability transferred in a transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability.

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Financial assets measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations (in thousands):

Assets at Fair Value as of September 30, 2020

Assets at Fair Value as of March 31, 2021

Money market funds

treasury bills

Government-sponsored enterprise securities

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We expect to receive approximately $ 8.5 million in future sublease income (excluding our subtenant’s share of facilities operating expenses) through January 2023.

We adopted ASU No.

2016-02 – Leases , and related amendments (Topic 842) on January 1, 2019 using a modified retrospective approach and elected the transition method and the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification and our assessment on whether a contract is or contains a lease.

We also elected to combine lease and non-lease components, such as common area maintenance charges, as single lease, and elected to use the short-term lease exception permitted by the standard.

As a result of the adoption of Topic 842 on January 1, 2019, we recognized $ 32.8 million in operating right-of-use asset and $ 33.2 million in lease liability, and derecognized $ 399,000 of deferred rent in the balance sheet at adoption date.

These were calculated using the present value of our remaining lease payments using an estimated incremental borrowing rate of 9 % , which represented the weighted average discount rate for our lease.

There was no cumulative-effect adjustment on our accumulated deficit as of January 1, 2019.

As of September 30, 2020, we had operating lease right-of-use asset of $ 19.9 million and lease liability of $ 21.3 million in the balance sheet.

The weighted average remaining term of our lease as of September 30, 2020 was 2.33 years.

As of September 30, 2020, we received from our landlord leasehold improvement incentives amounting to $ 563,000 related to leasehold improvements.

We recorded rent expense on a straight-line basis for our lease, net of sublease income.

For our sublease arrangement which we classified as an operating lease, our loss on the sublease was comprised of the present value of our future payments to our landlord less the present value of our future rent payments expected from our subtenant over the term of the sublease.

As of March 31, 2021 and December 31, 2020, we had operating lease right-of-use asset of $ 15.9 million and $ 17.9 million, respectively, and lease liability of $ 17.2 million and $ 19.3 million, respectively, in the condensed balance sheet.

The weighted average remaining term of our lease as of March 31, 2021 was 1.83 years.

As of March 31, 2021, we received from our landlord leasehold improvement incentives amounting to $ 563,000 related to leasehold improvements.

We record these leasehold improvement incentives as a reduction to operating lease right-of-use asset and lease liability until the lease ends and the asset is transferred.

For the three and nine months ended September 30, 2020, the components of our operating lease expense were as follows (in thousands):

For the three months ended March 31, 2021 and 2020, the components of our operating lease expense were as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Fixed operating lease expense

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Total operating lease expense

Supplemental information related to the Company’s operating lease for the three and nine months ended September 30, 2020 were as follow (in thousands):

Supplemental information related to our operating lease for the three months ended March 31, 2021 and 2020 were as follow (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Cash payments included in the measurement of operating lease liabilities

The following table presents the future lease payments of our operating lease liabilities as of September 30, 2020 (in thousands):

Remainder of 2020

Total operating lease payments

imputed interest

Total operating lease liabilities

For the three and nine months ended September 30, 2020, we have the following operating sublease information (in thousands):

For the three months ended March 31, 2021 and 2020, we have the following operating sublease information (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Fixed sublease expense

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Sublease income

The following table presents the future lease payments we expect to receive under our sublease as of September 30, 2020 (in thousands):

The following table presents the future lease payments of our operating lease liabilities as of March 31, 2021 (in thousands):

Operating Lease

Sublease Receipts

Remainder of 2021

Total operating lease liabilities

Total minimum payments required

On September 27, 2019, we entered into a Credit and Security Agreement (Credit Agreement), dated as of September 27, 2019 (Closing Date) with MidCap Financial Trust (MidCap).

The Credit Agreement provides for a $ 60.0 million term loan credit facility with the following tranches:

(i) on the Closing Date, $ 10.0 million aggregate principal amount of term loans, (ii) until December 31, 2020, an additional $ 10.0 million term loan facility at our option, (iii) until March 31, 2021, an additional $ 20.0 million term loan facility subject to the satisfaction of certain conditions and at our option and (iv) until March 31, 2022, an additional $ 20.0 million term loan facility subject to the satisfaction of certain conditions and at our option.

(i) on the Closing Date, $ 10.0 million aggregate principal amount of term loans (Tranche 1), (ii) until December 31, 2020, an additional $ 10.0 million term loan facility at our option (Tranche 2), (iii) until March 31, 2021, an additional $ 20.0 million term loan facility subject to the satisfaction of certain conditions and at our option (Tranche 3) and (iv) until March 31, 2022, an additional $ 20.0 million term loan facility subject to the satisfaction of certain conditions and at our option (Tranche 3).

The obligations under the Credit Agreement are secured by a perfected security interest in all of our assets except for intellectual property and certain other customary excluded property pursuant to the terms of the Credit Agreement.

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The interest-only period will be extended to 36 months and again to 48 months upon the satisfaction of certain conditions set forth in the Credit Agreement.

All unpaid principal and accrued interest is due and payable no later than September 1, 2024.

All unpaid principal and accrued interest are due and payable no later than September 1, 2024.

A final payment fee of 2.5 % of principal is due on the final payment of the term loan.

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In March 2020, we signed a credit extension form for the second tranche amounting to $ 10.0 million, which we received in May 2020.

The facility also gives us the ability to access an additional $ 40.0 million at our option, subject to the achievement of certain customary conditions.

The following table presents the future minimum payments we expect to make on our outstanding loan as of September 30, 2020 (in thousands):

Year Ending December 31,

In April 2021, we amended the Credit Agreement to extend the period through which Tranche 3 will be available through March 31, 2022, subject to the satisfaction of certain conditions and at our option.

To date, the facility gives us the ability to access an additional $ 40.0 million at our option, subject to the achievement of certain customary conditions.

As of March 31, 2021 and December 31, 2020, the outstanding balance of the loan, net of unamortized debt discount was $ 19.8 million.

Debt issuance costs are recorded as a direct deduction from the term loan on the balance sheet and are being amortized ratably as interest expense over the term of the loan, using the effective interest method.

As of March 31, 2021 and December 31, 2020, the unamortized issuance costs and debt discounts amounted to $ 156,000 and $ 185,000 , respectively.

The following table presents the future minimum principal payments of the outstanding loan as of March 31, 2021 under the current Credit Agreement (in thousands):

Remainder of 2021

Principal amount (Tranches 1 and 2)

We paid certain costs and fees totaling $ 236,000 which were recorded as a direct deduction from the term loan on the balance sheet and are being amortized ratably as interest expense over the term of the loan, using the effective interest method.

As of September 30, 2020, the unamortized issuance costs and debt discounts amounted to $ 164,000 .

Interest expense, including amortization of the debt discount and accretion of the final fees, related to the Credit Agreement was $ 429,000 and $ 1.0 million, respectively, for the three and nine months ended September 30, 2020.

Accrued interest was $ 233,000 as of September 30, 2020.

As of September 30, 2020, the outstanding balance of the loan was $ 19.8 million, net of unamortized debt discount.

The Credit Agreement contains certain covenants which, among others, require us to deliver financial reports at designated times of the year and maintain minimum net revenues and $ 10.0 million of cash in order to draw tranche three or tranche four.

As of September 30, 2020, we were not in violation of any covenants.

Our Credit Agreement provides us an option to extend the principal amortization of our outstanding loan, subject to certain conditions.

Subject to us providing the evidence that we met the extension conditions and approval by MidCap, the extended amortization start date shall be the earlier of October 1, 2022 if we satisfy the first extension condition but fails to satisfy the second extension condition, or October 1, 2023 if we satisfy both first and second extension conditions.

For the three months ended March 31, 2021 and 2020, interest expense, including amortization of the debt discount and accretion of the final fees related to the Credit Agreement was $ 425,000 and $ 241,000 , respectively.

As of March 31, 2021, we were not in violation of any covenants.

The quarterly provision for or benefit from income taxes is based on applying the estimated annual effective tax rate to the year-to-date pre-tax income (loss), plus any discrete items.

We update our estimate of our annual effective tax rate at the end of each quarterly period.

The estimate considers annual forecasted income (loss) before income taxes and any significant permanent tax items.

For the three months ended March 31, 2021, we recorded provision for income tax of $ 1.8 million.

The provision for income taxes for the three months ended March 31, 2021 was primarily related to state tax on our pre-tax book income.

We estimated a state tax liability over our forecasted pre-tax income for 2021, primarily due to revenue recognized for the Lilly agreement.

We do not expect to owe federal income taxes due to the sufficient net operating loss carryforwards that were generated prior to the enactment of the Tax Cuts and Jobs Act, as well as significant research and development credit carryforwards.

Although we are projecting book income for 2021, we continue to record a full valuation allowance on our deferred tax assets considering our cumulative losses in prior years and forecasted losses in the future.

For the three months ended March 31, 2020, we did no t record provision for income taxes due to our pre-tax book loss.

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

What changed 10-Q

Item 1. Financial Statements