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Item 2. Management’s Discussion and Analysis

2021-08-03 compared with 2021-05-05 · 190 added, 178 removed, 398 unchanged (48% of the section changed)

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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, 2020.

Our financial results for the three months ended March 31, 2021 are not necessarily indicative of results that may occur in future interim periods or for the full fiscal year.

Our financial results for the three and six months ended June 30, 2021 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.

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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;

a Phase 3 clinical trial for the treatment of hospitalized high-risk patients with COVID-19;

a Phase 3 trial sponsored by National Institute of Health (NIH)/National Heart, Lung, and Blood Institute (NHLBI), the ACTIV-4 Host Tissue Trial, is evaluating treatments, including fostamatinib in hospitalized patients with COVID-19;

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

An NIH/ NHLBI-sponsored Phase 2 trial for the treatment of hospitalized patients with COVID-19, in collaboration with Inova Health System, was recently completed.

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).

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TAVALISSE IN ITP

In the first quarter of 2021, net product sales of TAVALISSE was $12.4 million which represented a decrease of 2% compared to same period in 2020.

During the quarter, we experienced lower than anticipated sales of TAVALISSE due to continuing impacts of the COVID-19 pandemic as well as the typical first quarter reimbursement issues such as the resetting of co-pays and the Medicare donut hole, along with physician and patient access issues created by the COVID-19 pandemic.

Incrementally, our net product sales were negatively impacted by the decrease in level of inventories remaining at our distribution channels.

In the first half of 2021, net product sales of TAVALISSE were $29.4 million, a 6% increase compared to the same period in 2020.

The increase was primarily driven by increase in net product sales during the second quarter of 2021 compared to the same period in 2020 due to increased quantities sold and price per bottle.

The increase was partially offset by lower product sales in the first quarter of 2021 compared to the same period in 2020 due to impacts of the COVID-19 pandemic as well as the typical first quarter reimbursement issues such as the resetting of co-pays and the Medicare donut hole, along with physician and patient access issues created by the COVID-19 pandemic.

Incrementally, our net product sales in the first quarter of 2021 were negatively impacted by the decrease in level of inventories remaining at our distribution channels.

Due to the evolving effects of the COVID-19 pandemic, we continue to deploy resources to enable our field-based employees to continue to engage virtually with health care providers.

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This is because clinicians have found it challenging to both start a therapy, and switch to new therapies.

In the second quarter of 2021, we began to see an increase in in-person engagements with health care providers, while maintaining our level of virtual engagements.

We believe that the increase in interactions led to an increase in sales.

Additionally, we are also expanding our sales force by increasing our territories which is expected to be in place by the second half of 2021.

A post-hoc analysis from our Phase 3 clinical program in adult patients with cITP, highlighting the potential benefit of using TAVALISSE in earlier lines of therapy, was published in the British Journal of Haematology in July 2020.

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Global Strategic Partnership with Lilly

In February 2021, we entered into a global exclusive license agreement and strategic collaboration with 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.

In February 2021, we entered into a global exclusive license agreement and strategic collaboration with Lilly, to develop and commercialize R552, a RIP1 inhibitor, for the treatment of non-central nervous system (non-CNS) diseases.

In addition, the collaboration is aimed at developing additional RIP1 inhibitors for the treatment of central nervous system (CNS) diseases.

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If we exercise our first opt-out right, 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.

We are responsible for performing and funding initial discovery and identification of CNS disease development candidates, which is nearly completed.

We are responsible for performing and funding initial discovery and identification of CNS disease development candidates.

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 an upfront cash payment of $125.0 million, which we subsequently received in April 2021, with the 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.

Under the terms of the license agreement, we were entitled to receive an upfront cash payment of $125.0 million, which we received in April 2021, with the 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.

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This trial was conducted in collaboration with the National Heart, Lung, and Blood Institute (NHLBI), part of the National Institutes of Health (NIH), and Inova Health System.

The NHLBI is expected to publish a full analysis of the trial data in a peer-reviewed journal.

We are discussing the results with the health authorities, including the FDA, and intend to apply for Emergency Use Authorization (EUA) for the fostamatinib as a treatment for hospitalized patients with COVID-19.

The trial data were submitted as part of a request for an Emergency Use Authorization (EUA) from the FDA for the fostamatinib as a treatment for hospitalized patients with COVID-19.

In June 2021, we announced that fostamatinib has been selected for NIH ACTIV-4 (Accelerating COVID-19 Therapeutic Inventions and Vaccines) trial in hospitalized patients with COVID-19.

ACTIV-4 Host Tissue trial is a large, multi-site trial funded by NHLBI and coordinated by Vanderbilt University Medical Center.

The trial is evaluating treatments, including fostamatinib, that aim to protect and heal host tissues in hospitalized patients with COVID-19.

The ACTIV-4 Host Tissue study will evaluate fostamatinib in targeted 308 hospitalized patients with COVID-19.

Update on Current and Potential Future Impact of COVID-19 on our Business

We are continuing to monitor the impact of the evolving effects of the COVID-19 pandemic and 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.

Although we have recently initiated the first phase of our return-to-work initiatives, the majority of our employees continue to work remotely .

Through our existing Crisis Management Team (CMT), we implemented and continue to monitor 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.

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 products, 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 ability to grow our product sales and may continue to negatively affect our product sales in the future.

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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.

In the second quarter of 2021, we began to see an increase in in-person engagements with health care providers.

We have plans in place to continue implementing both virtual and live initiatives to ensure we are able to meet the needs of health care providers as the pandemic continues to evolve.

Additionally, we are also expanding our sales force by increasing our territories which is expected to be in place by the second half of 2021.

With respect to our supply chain, we currently do not anticipate significant disruption in the supply chain for our commercial product, TAVALISSE.

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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).

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.

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 the ITP double-blind studies, the most commonly-reported adverse reactions occurring in at least 5% of patients treated with TAVALISSE were diarrhea, hypertension, nausea, dizziness, increased alanine aminotransferase (ALT), increased aspartate aminotransferase (AST), respiratory infection, rash, abdominal pain, fatigue, chest pain, and neutropenia.

Serious adverse drug reactions occurring in at least 1% of patients treated with TAVALISSE in the ITP double-blind studies were febrile neutropenia, diarrhea, pneumonia, and hypertensive crisis.

TAVALISSE was approved by the FDA in April 2018 for the treatment of ITP in adult patients who have had an insufficient response to a previous treatment, and successfully launched in the U.S.

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A significant portion of our business operations was related to our commercial 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.

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

Specifically, our marketing and sales efforts are focused on hematologists and hematologist-oncologists in the U.S., who manage chronic adult ITP patients.

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

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.

using customary pharmaceutical company practices, and we 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.

We believe that our commercial team and distribution practices are adequate to ensure that our marketing efforts reach relevant 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.

have appropriate access to TAVALISSE, we have established a 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 also provide free drug to uninsured or under-insured patients who meet certain established clinical and financial eligibility criteria.

In addition, ROC is designed to provide reimbursement support, such as information related to prior authorizations, benefits investigations and appeals.

Competitive landscape for TAVALISSE

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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.

Currently, corticosteroids remain the most common first line therapy for ITP, occasionally in conjunction with intravenous immunoglobulin (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.

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In May 2019, we enrolled the first patient in the FORWARD study.

Currently, we have enrolled 72 patients of the 90 patients targeted for enrollment.

As of August 2, 2021, we have enrolled 80 patients of the 90 patients targeted for enrollment.

The FORWARD study has over 90 clinical trial sites established across 22 countries and a limited number of clinical trial sites have resumed screening patients after a temporary pause due to the ongoing COVID-19 pandemic.

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Department of Defense's (DOD) Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense (JPEO-CBRND) to support this Phase 3 clinical trial.

This multi-center, double-blind, placebo-controlled, adaptive design study will randomly assign either fostamatinib plus SOC or matched placebo plus SOC (1:1) to approximately 308 evaluable patients.

This multi-center, double-blind, placebo-controlled, adaptive design study will randomly assign either fostamatinib plus SOC or matched placebo plus SOC (1:1) to 308 targeted evaluable patients.

Treatment will be administered orally twice daily for 14 days with follow up to day 60.

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In addition, our COVID-19 program includes an investigator-sponsored trial currently being conducted by Imperial College London.

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.

We are currently enrolling patients under this study.

In September 2020, we announced a Phase 2 clinical trial 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 randomly assigned fostamatinib or matched placebo (1:1) to approximately 60 evaluable patients.

Treatment will be administered orally twice daily for 14 days.

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Of these, there was a reduction for the disease related SAE of hypoxia in the fostamatinib group compared to placebo (1 vs 3, respectively;

Based on these data, we are discussing these results with the health authorities, including the FDA, and intend to apply for EUA for fostamatinib for treatment of hospitalized patients with COVID-19.

These data were submitted as part of a request for EUA from the FDA for fostamatinib in hospitalized patients with COVID-19.

These data have been submitted for publication in a peer-reviewed medical journal.

Key findings from the NIH/NHLBI Phase 2 clinical data readout include:

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Both patients in the fostamatinib group improved within 7 days and came off the ventilator, while both patients in the placebo group deceased.

● Fostamatinib was superior to placebo in accelerating improvement in clinical status by day 15 (mean change -3.6 compared to -2.6, p=0.035) and by day 29 (mean change -4.2 compared to -3.3, p=0.12) using ordinal scale assessments.

● Fostamatinib was superior to placebo in accelerating improvement in clinical status by day 15 (mean

change -3.6 compared to -2.6, p=0.035) and by day 29 (mean change -4.2 compared to -3.3, p=0.12) using ordinal scale assessments.

● The median number of days in the ICU was reduced by 4 days, from 7 days in the placebo group to 3 days in the fostamatinib group (p=0.07).

● Despite general SOC use of both steroids and remdesivir in all 59 patients, there was a consistently greater reduction in NETosis and other inflammatory biomarkers (CRP, Ferritin, D-Dimer, Fibrinogen) in the fostamatinib group as compared to the placebo group.

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.

● Despite general SOC use of both steroids and remdesivir in all 59 patients, there was a greater reduction in NETosis and other inflammatory biomarkers (CRP, Ferritin, D-Dimer, Fibrinogen) at most timepoints in the fostamatinib group as compared to the placebo group.

Following the recently completed NIH/NHLBI-sponsored Phase 2 study as discussed above, in June 2021, we announced that fostamatinib has been selected for an NIH ACTIV-4 (Accelerating COVID-19 Therapeutic Inventions and Vaccines) trial in hospitalized patients with COVID-19.

The ACTIV-4 Host Tissue trial is a large, multi-site trial funded by NHLBI and coordinated by Vanderbilt University Medical Center.

The trial is evaluating treatments, including fostamatinib, that aim to protect and heal host tissues in hospitalized patients with COVID-19.

The ACTIV-4 Host Tissue study will evaluate fostamatinib in hospitalized patients with COVID-19.

As of August 2, 2021, we enrolled approximately 150 of the targeted 308 patients and expects to complete enrollment by end of 2021.

In July 2020, we announced a Phase 2 clinical trial sponsored by Imperial College London 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.

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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, and as of the date hereof, there are 112 patients enrolled under this study.

In November 2020, we announced that the Imperial College London-sponsored clinical trial began enrolling patients, and we are currently enrolling patients under this study.

Researchers at MIT and Harvard led a recent screen to identify FDA-approved compounds that reduce MUC1 protein abundance.

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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).

(among others).

R835 prevents cytokine release in response to TLR and IL-1R activation in vitro.

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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.

We continue to advance the development of our IRAK1/4 program, which includes R835, an orally available, potent and selective inhibitor that inhibits both IRAK1 and IRAK4.

We are currently identifying therapeutic opportunities in the areas of hematology/oncology and rare immune diseases.

We began the discussions with the FDA regarding initiating a Phase 2 clinical trial in low-risk myelodysplastic syndrome (MDS) and are also in discussions regarding academic medical collaborations in this indication.

In rare immune diseases, we are exploring opportunities including palmoplantar pustulosis (PPP), hidradenitis suppurativa (HS), and others.

We continue to advance the development of our IRAK1/4 program, recently completing the evaluation of a new pro-drug formulation of R835, R289, in single-ascending and multiple ascending dose studies with positive results.

Recent feedback received from FDA on our clinical program to explore R289 in low-risk myelodysplastic syndromes (MDS), is being incorporated into a clinical trial design.

In June 2021, we entered into a research collaboration with MD Anderson Cancer Center to evaluate novel IRAK 1/4 inhibitors in a series of preclinical studies of MDS and chronic myelomonocytic leukemia (CMML).

The translational research generated from these studies will add to the body of data generated to-date on R835 and further elucidate the therapeutic potential of targeting deregulated innate immune signaling in MDS and CMML.

In other immune diseases, we are exploring opportunities including palmoplantar pustulosis (PPP), hidradenitis suppurativa (HS), and others.

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.

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.

The collaboration agreement with Aclaris was terminated on April 30, 2021.

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 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 (ORR) 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 Tumors (RECIST).

A secondary endpoint of median Progression Free Survival (mPFS) reported significant 3-fold improvement in AXL positive vs 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 that its first patient was 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 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 2 trial assessing bemcentinib as a potential treatment for COVID-19 patients in India and South Africa and in December 2020, BerGenBio announced that the first patient has been enrolled with bemcentinib in the UK Research and Innovation (UKRI) funded COVID-19 ACCORD clinical study.

In March 2021, BerGenBio announced that it has closed recruitment into the company sponsored randomised Phase 2 clinical trial (BGBC020), assessing the efficacy and safety of bemcentinib for the treatment of hospitalized COVID-19 patients in South Africa and India.

Further, BerGenBio announced that the effect of bemcentinib demonstrated potent antiviral effects in preclinical SARS-CoV-2 and other coronavirus models.

Further, the findings supported BerGenBio’s ongoing Phase 2 trial evaluating bemcentinib for the treatment of hospitalized COVID-19 patients in South Africa and India.

In April 2021, BerGenBio announced that BGBC020 completed 96% of its targeted enrolment with a total of 115 patients participating (60 in India and 55 in South Africa, with 58 receiving bemcentinib).

Throughout the study, bemcentinib was well tolerated by patients and no safety signals of concern were reported.

In June 2011, Rigel entered into an exclusive, worldwide research, development and commercialization agreement with BerGenBio for our investigational AXL receptor tyrosine kinase (AXL) inhibitor, BGB324/R428 (now referred to as bemcentinib).

The product is being investigated in two Phase 2 clinical trials for the treatment of hospitalized patients with COVID-19.

Clinical trials are also ongoing across oncology indications with high unmet medical need including acute myeloid leukemia (AML), myelodysplastic syndrome (MDS), and non-small cell lung cancer (NSCLC).

DS-3032 - Daiichi

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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.

In September 2020, worldwide rights to DS-3032 were out-licensed from Daiichi to Rain Therapeutics Inc.

In July 2021, Rain announced that it initiated the Phase 3 study that will evaluate the efficacy and safety of milademetan (RAIN-32), a MDM2 inhibitor, for the treatment of de-differentiated liposarcoma, a rare cancer originating from fat cells located in the soft tissues of the body.

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.

The study, which follows the single and multiple ascending doses, has completed its enrollment.

Research/Preclinical Programs

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Results of Operations

Three Months Ended March 31, 2021 and 2020

Three and Six Months Ended June 30, 2021 and 2020

Three Months Ended

Six Months Ended

(in thousands)

Product sales, net

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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:

Three Months Ended

Six Months Ended

ASD Healthcare and Oncology Supply

Product sales during the three months ended March 31, 2021 and 2020 were related to sales of TAVALISSE in the U.S.

McKesson Specialty Care Distribution Corporation

Cardinal Healthcare

Product sales during the three and six months ended June 30, 2021 and 2020 were related to sales of TAVALISSE in the U.S.

TAVALISSE has been prescribed across all lines of therapy in steroid refractory patients in ITP.

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We recognize product sales, net of discounts and allowances.

For the three months ended March 31, 2021, net product sales decreased by 2% compared to the same period in 2020 mainly due to continuing impacts of the COVID-19 pandemic as well as the typical first quarter reimbursement issues such as the resetting of co-pays and the Medicare donut hole, along with physician and patient access issues created by the COVID-19 pandemic .

Incrementally, our net product sales were negatively impacted by the decrease in level of inventories remaining at our distribution channels.

Contract revenues from collaborations of $65.6 million in the three months ended March 31, 2021 is comprised of $60.6 million revenue related to our license agreement with Lilly, $4.0 million revenue related to grant of non-exclusive license of a certain patent to an unrelated third-party company, and $1.0 million revenue for the delivery of drug supply under our collaboration agreement with Grifols.

Contract revenues from collaborations of $43.1 million in the three months ended March 31, 2020 pertained to the revenue from upfront fee we 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.

Government contract revenue was related to the income we recognized from the $16.5 million government award granted to us, pursuant to the agreement we entered in January 2021 with the U.S.

For the three and six months ended June 30, 2021, our net product sales of TAVALISSE increased by 14% and 6%, respectively, compared to the same periods in 2020.

The increase was primarily driven by increased quantities sold and price per bottle.

In the first quarter of 2021, we experienced lower than anticipated sales of TAVALISSE due to impacts of the COVID-19 pandemic as well as the typical first quarter reimbursement issues such as the resetting of co-pays and the Medicare donut hole, along with physician and patient access issues created by the COVID-19 pandemic.

Incrementally, our net product sales in the first quarter of 2021 were negatively impacted by the decrease in level of inventories remaining at our distribution channels.

Contract revenues from collaborations of $3.7 million in the three months ended June 30, 2021 was comprised of $3.3 million in revenue related to our license agreement with Lilly and $381,000 in revenue related to the research and development services with Grifols.

Contract revenues from collaborations of $69.4 million in the six months ended June 30, 2021 was comprised of $63.9 million revenue related to our license agreement with Lilly, $4.0 million revenue related to grant of non-exclusive license of a certain patent to an unrelated third-party company, $1.0 million revenue for the delivery of drug supply under our collaboration agreement with Grifols and $381,000 in revenue related to the research and development services with Grifols.

Contract revenues from collaborations of $1.0 million and $44.1 million in the three and six months ended June 30, 2020, respectively, pertained to the revenue from upfront fee we 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.

Government contract revenue for the three and six months ended June 30, 2021 of $5.5 million and $8.5 million, respectively, were related to the income we recognized from the $16.5 million government award granted to us, pursuant to the agreement we entered in January 2021 with 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.

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W e cannot currently fully forecast the extent of the impacts that the COVID-19 pandemic may have on our product sales.

As of March 31, 2021, we had deferred revenues of $9.5 million which we will recognize as revenue upon satisfaction of our remaining performance obligations under our collaboration agreements with Lilly, Grifols and Kissei.

As of June 30, 2021, we had deferred revenues of $5.8 million, which we will recognize as revenue upon satisfaction of our remaining performance obligations under our collaboration agreements with Lilly, Grifols and Kissei.

Cost of Product Sales

Three Months Ended

Six Months Ended

(in thousands)

Cost of product sales

The cost of product sales during the three months ended March 31, 2021 and 2020 were related to our product, TAVALISSE.

The cost of product sales during the three and six months ended June 30, 2021 and 2020 were 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 months ended March 31, 2021 and 2020.

Therefore, these costs were not capitalized and as a result, are not fully reflected in the costs of product sales during the three months ended June 30, 2021 and 2020.

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.

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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.

The increase in cost of product sales during the three months ended March 31, 2021 compared to the same period in 2020 was mainly due to the delivery of drug supply to Grifols for its commercialization in the current quarter.

The decrease in cost of product sales during the three months ended June 30, 2021 compared to the same period in 2021 was primarily due to the delivery of drug supply to Grifols for its commercialization in the second quarter of 2020.

The cost of product sales remained flat for the six months ended June 30, 2021 compared to the same period in 2020.

During the first quarter of 2021, we delivered drug supply to Grifols, which offsets the decrease in cost of product sales in the second quarter of 2021 as discussed above.

Research and Development Expense

Three Months Ended

Six Months Ended

(in thousands)

Research and development expense

Stock-based compensation expense included in research and development expense

The increase in research and development expense for the three months ended March 31, 2021, compared to the same period in 2020, was primarily due to the increase in research and development costs related to our ongoing Phase 3 clinical trial on hospitalized COVID-19 patients of $3.5 million and development of our IRAK 1/4 inhibitor program of $576,000, partially offset by decrease due to the completion of Phase 1 clinical trial in our RIP 1 inhibitor program of $3.0 million, research-related supplies of $126,000, stock-based compensation of $108,000 and various other costs of $175,000.

We expect our research and development expense in 2021 to increase as we continue our activities in our Phase 3 warm AIHA and COVID-19 studies.

The increase in research and development expense for the three months ended June 30, 2021, compared to the same period in 2020, was primarily due to the increases in research and development costs related to our ongoing Phase 3 clinical trial on hospitalized COVID-19 patients of $4.0 million, development of our IRAK 1/4 inhibitor program of $401,000, and various other studies of $192,000, partially offset by decrease due to the completion of clinical trial in our RIP1 inhibitor program of $2.0 million.

The increase in research and development expense for the six months ended June 30, 2021, compared to the same period in 2020, was primarily due to the increase in research and development costs related to our ongoing Phase 3 clinical trial on hospitalized COVID-19 patients of $7.5 million and development of our IRAK 1/4 inhibitor program of $1.0 million, partially offset by decrease due to the completion of clinical trial in our RIP1 inhibitor program of $5.0

million and various other research and development costs of $230,000.

We expect our research and development expense for the remainder of 2021 to increase as we continue our activities in our Phase 3 warm AIHA and COVID-19 studies.

We have resumed new patient enrollment in certain 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 delays in new patient enrollment, remote patient monitoring and other alternative course of actions to maintain our study in warm AIHA.

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Three Months Ended

Six Months Ended

From January 1, 2007*

to March 31, 2021

to June 30, 2021

* 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 for each of the three months ended March 31, 2021 and 2020, and allocated stock-based compensation expense of approximately $586,000 and $694,000 for the three months ended March 31, 2021 and 2020, respectively.

For the three months ended March 31, 2021, a major portion of our total research and development expense was associated with our COVID-19, AIHA and IRAK programs, personnel-related costs of our research and development personnel and allocated facilities costs.

For the three months ended March 31, 2020, a major portion of our total research and development expense was associated with our AIHA, RIP1, and IRAK programs, personnel-related costs of our research and development personnel and allocated facilities costs.

“Other” expenses mainly represent allocated facilities costs of approximately $1.5 million for each of the three months ended June 30, 2021 and 2020, and allocated stock-based compensation expense of approximately $534,000 and $458,000 for the three months ended June 30, 2021 and 2020, respectively.

For each of the six months ended June 30, 2021 and 2020, allocated facilities costs were approximately $3.0 million, and allocated stock-based compensation expense was approximately $1.1 million and $1.2 million, for the six months ended June 30, 2021 and 2020, respectively.

For the three and six months ended June 30, 2021, a major portion of our total research and development expense was associated with our COVID-19, AIHA and IRAK programs, personnel-related costs of our research and development personnel and allocated facilities costs.

For the three and six months ended June 30, 2020, a major portion of our total research and development expense was associated with our AIHA, RIP1, and IRAK programs, personnel-related costs of our research and development personnel and allocated facilities costs.

Selling, General and Administrative Expense

Three Months Ended

Six Months Ended

(in thousands)

Selling, general and administrative expense

Stock-based compensation expense included in selling, general and administrative expense

The increase in selling, general and administrative expense for the three months ended March 31, 2021 compared to the same period in 2020 was primarily due to the increases in costs of consultants and third-party services of $1.3 million, personnel-related costs of $1.2 million, stock-based compensation of $723,000 and professional fees of $614,000, partly offset by decreases in commercial activities and other various costs of $146,000.

We expect our selling, general and administrative expense in 2021 to increase as we continue to expand our commercial activities for TAVALISSE, and assuming we will be able to resume in-person office visits and live engagements with healthcare providers.

The increase in selling, general and administrative expense for the three months ended June 30, 2021 compared to the same period in 2020 was primarily due to the increases in costs of consultants and third-party services of $1.6 million, commercial activities of $672,000, travel -related expenses of $483,000, stock-based compensation of $473,000, and other various sales, general and administrative costs of $230,000.

The increase in selling, general and administrative expense for the six months ended June 30, 2021 compared to the same period in 2020 was primarily due to the increases in costs of consultants and third-party services of $3.0 million, personnel-related costs of $1.1 million, stock-based compensation of $1.2 million, professional fees of $617,000, commercial activities of $535,000 and other various sales, general and administrative costs of $697,000.

We expect our selling, general and administrative expense for the remainder of 2021 to increase as we continue to expand our commercial activities, and assuming we will be able to fully resume in-person office visits and live engagements with healthcare providers.

In response to the limitations on in-person office visits during the ongoing COVID-19 pandemic, we continue to deploy resources to enable our field-based employees to continue to engage virtually with healthcare 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.

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.

These virtual engagements have enabled our field team to support existing prescribers as well as partner with new prescribers to identify appropriate patients for our product.

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 our product.

Interest Income

Three Months Ended

Six Months Ended

(in thousands)

Interest income

Interest income results from our interest-bearing cash and investment balances.

The decreases in interest income for the three months ended March 31, 2021 as compared to the same period in 2020 were primarily due to decrease in yield on our investments.

The decreases in interest income for the three and six months ended June 30, 2021 as compared to the same periods in 2020 were primarily due to decrease in interest rates on our investments.

Interest Expense

Three Months Ended

Six Months Ended

(in thousands)

Interest expense

Interest expense for the three months ended March 31, 2021 and 2020 was related to the outstanding balance on our term loan from Midcap.

The increase in interest expense in the three months ended March 31, 2021 compared with the same period in 2020 was due to the increase in the outstanding term loan credit balance.

The principal balance of loan as of March 31, 2020 was the initial $10.0 million under Tranche 1.

In May 2020, we accessed the Tranche 2 for an additional $10.0 million.

Interest expense for the three and six months ended June 30, 2021 was comprised of interest on the financing liability from our collaboration partners Lily and Medison, and interest on outstanding balance on our term loan from Midcap.

Interest expense for the three and six months ended June 30, 2020 was related to the outstanding balance on our term loan from Midcap.

The increase in interest expense in the three and six months ended June 30, 2021 compared with the same periods in 2020 were mainly due to the interest expense associated with the financing liability from our collaboration partners, and partly due to the increase in the outstanding term loan credit balance.

The principal balance of loan prior to May 2020 was the initial $10.0 million under Tranche 1.

In May 2020, we accessed the Tranche 2 for an additional $10.0 million loan.

Provision for Income Taxes

Three Months Ended

Six Months Ended

(in thousands)

Provision for income taxes

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.

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.

(in thousands)

Provision for (benefit from) income taxes

The benefit from and the provision for income taxes for the three and six months ended June 30, 2021 were determined using our effective tax rate on our year-to-date income (loss).

We estimated a state tax liability over our pre-tax income (loss) for 2021, and is 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 not record provision for income taxes due to our pre-tax book loss.

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 and six months ended June 30, 2020, we did not record provision for income taxes due to our pre-tax book loss.

Critical Accounting Policies and the Use of Estimates

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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, estimates related our valuation of the operating lease right-of-use asset and lease liability, including the incremental borrowing rate used, and net present value of our liability related to our share in the development costs under the Lilly agreement, including the applicable discount rate.

related to our share in the development costs under the Lilly agreement, including the applicable discount rate.

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.

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Liquidity and Capital Resources

As of June 30, 2021, we had approximately $153.4 million in cash, cash equivalents and short-term investments, as compared to approximately $57.3 million as of December 31, 2020.

The increase of approximately $96.1 million was primarily attributable to the upfront cash payment of $125.0 million from Lilly, partially offset by cash used in our operating activities.

As of June 30, 2021 and December 31, 2020, we maintained investment portfolios 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.

We view our investments portfolio as available-for-sale and are available for use in current operations.

Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk.

We 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.

Following summarizes our cash flow activity for the periods presented:

Six Months Ended June 30,

(in thousands)

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Net increase in cash and cash equivalents

Net cash provided in operating activities was $35.3 million for the six months ended June 30, 2021, compared to net cash used in operating activities of $17.1 million for the six months ended June 30, 2020.

Net cash provided by operating activities for the six months ended June 30, 2021 was primarily due to the cash received from Lily for the portion allocated as net transaction price of $67.1 million, proceeds from sales of TAVALISSE, cash received from the awards granted by the U.S.

Department of Defense of $4.5 million, cash received related to a non-exclusive license agreement with an unrelated third party of $4.0 million, and cash received from Grifols of $1.0 million for a delivery of drug supply for its commercialization.

These increases were partially offset by payments of our research and development programs and other operating expenses.

Net cash used in operating activities for the six months ended June 30, 2020 was primarily related to cash payments for our research and development programs and other operating expenses, partially offset by the $20.0 million payment received from Grifols and proceeds from sale of TAVALISSE.

Net cash used in investing activities was $42.1 million for the six months ended June 30, 2021, compared to net cash provided by investing activities of $19.2 million for the six months ended June 30, 2020.

Net cash used in investing activities during the six months ended June 30, 2021 was due to net purchases of short-term investments of $41.6 million and capital expenditures of $478,000.

Net cash provided by investing activities during the six months ended June 30, 2020 was due to net maturities of short-term investments of $19.8 million, partially offset by capital expenditures of $563,000.

Net cash provided by financing activities was approximately $61.3 million for the six months ended June 30, 2021, compared to approximately $11.9 million for the six months ended June 30, 2020.

Net cash provided by financing activities for the six months ended June 30, 2021 was primarily due to the cash received from Lily for the portion allocated as financing component amounting to $57.9 million, and proceeds from exercise of stock options and participation in the Purchase Plan.

Net cash provided by financing activities for the six months ended June 30, 2020 was related to the net proceeds from funding of the second tranche from our term loan credit facility with MidCap of $10.0 million and exercise of stock options and participation in the Purchase Plan of $1.9 million.

We believe that our existing capital resources will be sufficient to support our current and projected funding requirements, including the continued commercialization of TAVALISSE, through at least the next 12 months from the Form 10-Q filing date.

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 commercializing a product, 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.

Capital Resources

Since 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 March 31, 2021, we had approximately $39.3 million in cash, cash equivalents and short-term investments, as compared to approximately $57.3 million as of December 31, 2020.

The decrease of approximately $18.0 million was primarily attributable to the cash used in our operating activities.

In February 2021, we entered into a global exclusive license agreement with Lilly to develop and commercializ e R552, wherein we were entitled to receive a non-refundable and non-creditable upfront cash payment of $125.0 million, which we subsequently received in April 2021, and may also be eligible for potential development, regulatory, and commercial milestone payments totaling up to an additional $835.0 million, as well as tiered royalties on net sales of non-CNS and CNS disease products up to low-double digits that will vary depending upon our clinical development investment.

We have consumed substantial amounts of capital resources to date as we continue our research and development activities, including preclinical studies and clinical trials and our ongoing commercial launch of TAVALISSE.

In addition to the upfront cash payment we received from Lilly under the G lobal E xclusive License Agreement, we may also be eligible for potential development, regulatory, and commercial milestone payments totaling up to an additional $835.0 million, as well as tiered royalties on net sales of non-CNS and CNS disease products up to low-double digits that will vary depending upon our clinical development investment.

Further, under our other sponsored research and license agreements with Griffols, Kissei, Medison, AZ, BerGenBio and Daiichi, we may be entitled to receive upfront cash payments, payments contingent upon specified events achieved by such partners.

Total future contingent payments to us under such agreements (excluding Lilly) could exceed $500.0 million if all potential product candidates achieved all of the payment triggering events under such agreements (based on a single product candidate under each agreement).

See further discussions of our Commercialization and Sponsored Research and License Agreements and Government Grants in Note 8 to our “Notes to Condensed Financial Statements” contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

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Under the agreement with the U.S.

Department of Defense, we are entitled to receive such award based on the agreed-upon payment schedule, dependent on certain triggering events.

During the three months ended March 31, 2021, we recognized income from the awards from the U.S.

Department of Defense of $3.0 million.

Department of Defense, we are entitled to receive such award based on the agreed-upon payment schedule, 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.

During the three and six months ended June 30, 2021, we recognized income from the awards from the U.S.

Department of Defense of $5.5 million and $8.5 million, respectively.

We expect to receive the remaining awards of $8.0 million throughout the period of which 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.

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.

As of March 31, 2021, we have principal term loan outstanding with MidCap amounting to $20.0 million, pursuant to the Credit and Security Agreement (Credit Agreement) we entered in September 2019.

In August 2020, we entered into an Open Market Sale Agreement SM with Jefferies LLC, as a sole agent, pursuant to which we may sell from time to time, through Jefferies, shares of our common stock in sales deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act, subject to conditions specified in the Open Market Sale Agreement, including maintaining an effective registration statement covering the sale of shares under the Open Market Sale Agreement.

In April 2021, the registration statement registering the sale of shares under the Open Market Sale Agreement expired.

From the time of implementation of the Open Market Sale Agreement through expiration of the registration statement, no sales of shares occurred.

A new shelf registration statement will be filed concurrent with the filing of this Quarterly Report on Form 10-Q to register the sale of additional shares under the Open Market Sale Agreement.

As of June 30, 2021, we have principal term loan outstanding with MidCap amounting to $20.0 million, pursuant to the Credit and Security Agreement (Credit Agreement) we entered in September 2019.

The Credit Agreement provides for $60.0 million term loan credit facility.

To date, the credit facility provides us with access for an additional $40.0 million term loan subject to the achievement of certain customary conditions.

In August 2020, we entered into an Open Market Sale Agreement with Jefferies LLC, as a sole 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.

As of March 31, 2021, we have not yet sold any shares under the Open Market Sale Agreement.

We have a sublease agreement originally entered in December 2014, amended in February 2017 and July 2017, with an unrelated third party to occupy a portion of our research and office space which expire in January 2023.

As of March 31, 2021, we expect to receive approximately $8.5 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 continued commercial launch of TAVALISSE in the U.S., through at least the next 12 months from the Form 10-Q filing date.

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.

We have a sublease agreement originally entered in December 2014, and subsequently amended in February 2017 and July 2017, with an unrelated third party to occupy a portion of our research and office space which expire in January 2023.

As of June 30, 2021, we expect to receive approximately $7.4 million in future sublease income (excluding our subtenant’s share of facility’s operating expenses) through January 2023.

Our operations will require significant additional funding for the foreseeable future.

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● 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.

As of March 31, 2021 and December 31, 2020, 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

Three Months Ended March 31,

(in thousands)

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Net (decrease) increase in cash and cash equivalents

Net cash used in operating activities was approximately $20.0 million for the three months ended March 31, 2021, compared to approximately $3.1 million for the three months ended March 31, 2020.

Net cash used in operating activities for the three months ended March 31, 2021 was primarily related to payments of our research and development programs and other operating expenses, partially offset by the proceeds from sales of TAVALISSE, cash received related to a non-exclusive license agreement with an unrelated third party of $4.0 million, cash received from the awards granted by the U.S.

Department of Defense of $2.0 million and cash received from Grifols of $1.0 million for a delivery of drug supply for its commercialization.

Net cash used in operating activities for the three months ended March 31, 2020 was primarily related to cash payments for our research and development programs and other operating expenses, partially offset by the $20.0 million payment received from Grifols and proceeds from sale of TAVALISSE.

Net cash provided by investing activities was approximately $7.5 million for the three months ended March 31, 2021, compared to net cash used in investing activities of approximately $24.4 million for the three months ended March 31, 2020.

Net cash provided by investing activities during the three months ended March 31, 2021 related to net maturities of short-term investments of $7.6 million, partially offset by capital expenditures.

Net cash provided by investing activities during the three months ended March 31, 2020 related to net maturities of short-term investments of $25.1 million, partially offset by capital expenditures.

Net cash provided by financing activities was approximately $2.1 million for the three months ended March 31, 2021, compared to approximately $1.3 million for the three months ended March 31, 2020.

Net cash provided by financing activities for the three months ended March 31, 2021 and 2020 were related to the proceeds from exercise of stock options.

Off-Balance Sheet Arrangements

As of March 31, 2021, we had no off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K under the Exchange Act).

Contractual Obligations

adversely affect our ability to operate as a going concern.

Material Cash Requirements

We conduct our commercial activities and research and development programs internally and through third parties that include, among others, arrangements with vendors, consultants, contract research organizations (CRO) and universities.

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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 March 31, 2021, 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:

As discussed in detail in Note 8 of Notes to Condensed Financial Statement, pursuant to our global exclusive license agreement and strategic collaboration agreement with Lilly, we are responsible for funding the development costs for R552 in the U.S., Europe, and Japan, up to $65.0 million through April 1, 2024.

We have the right to opt-out of co-funding of development costs at two different specified times.

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

As of June 30, 2021, we do not have other material contractual commitments with respect to the arrangements discussed above nor we had off-balance sheet arrangements, but we had the following contractual commitments related to our facilities lease and credit facility:

Payment Due By Period

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Credit facility with MidCap (2)

(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 $8.5 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.

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 of 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.

We have the right to opt-out of co-funding of development costs at two different specified times.

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

(1) The facilities lease obligations do not include the sublease income as discussed above.

(2) Under our Credit Agreement with MidCap, we are obligated to make interest payments at an annual rate of one-month LIBOR plus 5.65%, originally for the first 24 months and the interest plus principal amortization for the next 36 months.

Our Credit Agreement provides us an option to extend the interest-only period to 36 months and again to 48 months upon the satisfaction of certain conditions set forth in the Credit Agreement.

In June 2021, we satisfied the conditions under the Credit Agreement which effectively extended the interest-only period to 36 months or through October 1, 2022.

We are also 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.

2 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risk

During the three months ended March 31, 2021, 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, 2020.

Not applicable.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis