What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2021-11-02 · 253 added, 299 removed, 321 unchanged (63% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis should be read in conjunction with our financial statements and the accompanying notes included in this report and the audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Our financial results for the three and nine months ended September 30, 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 months ended March 31, 2022 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 of 1933, as amended (Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), that involve risks and uncertainties.

We usually use words such as “may,” “will,” “would,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” or the negative of these terms or similar expressions to identify these forward-looking statements.

We usually use words such as “may,” “will,” “would,” “should,” “could,” “expect,” “plan,” “anticipate,” “might,” “believe,” “estimate,” “predict,” “intend,” or the negative of these terms or similar expressions to identify these forward-looking statements.

These statements appear throughout this Quarterly Report on Form 10-Q and are statements regarding our current expectations, beliefs or intent, primarily with respect to our operations and related industry developments.

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our business and scientific strategies;

risks and uncertainties associated with the commercialization and marketing of TAVALISSE in the U.S.

and in Europe;

risks that the United States Food and Drug Administration (FDA), European Medicines Agency (EMA) or other regulatory authorities may make adverse decisions regarding fostamatinib;

risks and uncertainties associated with the commercialization and marketing of TAVALISSE in the US and in Europe;

risks that the FDA, EMA or other regulatory authorities may make adverse decisions regarding fostamatinib;

the progress of our and our collaborators’ product development programs, including clinical testing, and the timing of results thereof;

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Our pioneering research focuses on signaling pathways that are critical to disease mechanisms.

Our first product approved by the 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 is also commercially available in Europe, the United Kingdom (TAVLESSE) and Canada (TAVALISSE) for the treatment of chronic ITP in adult patients.

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

Our first product approved by the FDA is TAVALISSE® (fostamatinib disodium hexahydrate) tablets, the only oral SYK inhibitor, for the treatment of adult patients with chronic ITP who have had an insufficient response to a previous treatment.

The product is also commercially available in Europe, the UK (TAVLESSE) and Canada (TAVALISSE) for the treatment of chronic ITP in adult patients.

Fostamatinib is currently being studied in a Phase 3 trial for the treatment of wAIHA;

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

a National Institute of Health (NIH)/National Heart, Lung, and Blood Institute (NHLBI) sponsored Phase 3 trial (ACTIV-4 Host Tissue Trial) for the treatment of COVID-19 in hospitalized patients;

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).

and a NIH/NHLBI sponsored Phase 3 trial (ACTIV-4 Host Tissue Trial) for the treatment of COVID-19 in hospitalized patients.

Our other clinical programs include our IRAK inhibitor program and a RIPK1 inhibitor program in clinical development with partner Lilly.

In addition, we have product candidates in clinical development with partners BerGenBio and Daiichi.

Business Update

TAVALISSE IN ITP

For the nine months ended September 30, 2021, net product sales of TAVALISSE were $45.4 million, a 3% increase compared to the same period in 2020.

The increase in our net product sales was primarily driven by the increase in quantities sold particularly during the second quarter of 2021, as well as the increase in price per bottle of TAVALISSE.

Our net product sales during the nine months ended September 30, 2021 however, were negatively impacted by the decrease in level of inventories remaining at our distribution channels at the end of the third quarter of 2021, as well as higher government program rebates.

Incrementally, our first quarter 2021 net sales were impacted by 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 due to COVID-19 pandemic.

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.

These virtual engagements have enabled our field team to support existing prescribers, as well as develop new prescribers to identify appropriate patients for TAVALISSE.

For the three months ended March 31, 2022, net product sales of TAVALISSE were $16.2 million, a 31% increase compared to the same period in 2021.

The increase in our net product sales was primarily driven by the increase in quantities sold as well as the increase in price per bottle of TAVALISSE.

These increases were partially offset by the increase in revenue reserves mainly due to higher rebates on recent contracts entered with certain Pharmacy Benefits Managers (PBMs), and higher government program rebates.

Our first quarter net sales are typically impacted by the first quarter reimbursement issues such as the resetting of co-pays and the Medicare donut hole.

We continue to deploy resources to enable our field-based employees to continue to engage with health care providers, either in-person or virtually.

These engagements have enabled our field team to support existing prescribers, as well as develop relationships with new prescribers to identify appropriate patients for TAVALISSE.

We also conducted market research with chronic ITP prescribers in 2020 to understand the impact of COVID-19 on chronic ITP management.

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

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

During the third quarter of 2021, we expanded our sales force by increasing our territories.

Starting in 2021, we began to see an increase in in-person engagements with health care providers, while also maintaining our level of virtual engagements.

In the third quarter of 2021, we expanded our sales force by increasing our territories.

In the fourth quarter of 2021, we saw an increasing trend of in-person engagements until the Omicron variant surge in December 2021 which again limited our access.

As we see the declining trend in number of COVID-19 cases, we expect to continue to increase the in-person engagements with health care providers.

A post-hoc analysis from our Phase 3 clinical program in adult patients with chronic ITP, 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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Our sales force is sharing this data with physicians.

Fostamatinib in wAIHA

We are on track to report topline data from our FORWARD study, Phase 3 pivotal trial of fostamatinib, an oral SYK inhibitor, in patients with wAIHA, which we initiated in March 2019.

In November 2021, we completed the enrollment of our FORWARD study.

In April 2022, we completed the treatment period for the last patient under the study, and we expect to report topline data in mid-2022 and proceed with regulatory filings if the data is positive.

If approved, fostamatinib has the potential to be the first-to-market therapy for patients with wAIHA in 2023.

Fostamatinib in Hospitalized COVID-19 patients

In April 2021, we reported positive topline results from a multi-center, Phase 2 clinical trial sponsored by the NIH/NHLBI, evaluating the safety of fostamatinib, our oral SYK inhibitor, for the treatment of hospitalized patients with COVID-19.

The trial met its primary endpoint of comparable safety than standard of care (SOC) and showed broad and consistent improvement in numerous efficacy endpoints, including mortality, ordinal scale assessment, and number of days in the ICU.

In May 2021, the trial data were submitted as part of a request for an EUA from the FDA for the fostamatinib as a treatment for hospitalized patients with COVID-19.

In August 2021, the FDA informed us that the clinical data submitted from the NIH/NHLBI-sponsored Phase 2 trial of fostamatinib to treat hospitalized patients suffering from COVID-19 were insufficient to support an EUA.

In September 2021, the data from the NIH/NHLBI-sponsored Phase 2 trial was published in Clinical Infectious Diseases, an official publication of the Infectious Disease Society of America.

In November 2020, we launched a Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients without respiratory failure that have certain high-risk prognostic factors.

As of May 2, 2022, we enrolled approximately 268 of the targeted 308 patients.

Due to the recent decline in COVID-19 hospitalizations, we are reviewing strategies to complete enrollment and report topline results before the end of fiscal year 2022, including potentially completing the trial with fewer than the initial targeted enrollment of 308 patients.

We continue to focus on enrolling patients in our Phase 3 clinical trial and anticipate providing further safety and efficacy data from this larger trial of fostamatinib in COVID-19 patients.

If this trial meets its endpoints, we plan to resubmit an application for EUA with this additional data.

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.

The ACTIV-4 Host study, initiated and funded by NHLBI, is a randomized, placebo-controlled trial of therapies, including fostamatinib, targeting the host response to COVID-19 in hospitalized patients.

The ACTIV-4 Host Tissue study will evaluate fostamatinib in a population targeted to include approximately 300 hospitalized patients with COVID-19.

Global Strategic Partnership with Lilly

In February 2021, we entered into a global exclusive license agreement and strategic collaboration with Lilly (the Lilly Agreement), 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.

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

In February 2021, we entered into a global exclusive license agreement and strategic collaboration with Lilly (the Lilly Agreement), to develop and commercialize R552, a RIPK1 inhibitor, for the treatment of non-central nervous system (non-CNS) diseases.

In addition, the collaboration is aimed at developing additional RIPK1 inhibitors for the treatment of central nervous system (CNS) diseases.

Pursuant to the terms of the license agreement, we granted to Lilly the exclusive rights to develop and commercialize R552 and related RIPK1 inhibitors in all indications worldwide.

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

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

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

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

We are responsible for 20% of development costs for R552 in the US, 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 are required 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.

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

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

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

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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.

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.

Fostamatinib in Hospitalized COVID-19 patients

The trial met its primary endpoint of comparable safety than standard of care and showed broad and consistent improvement in numerous efficacy endpoints, including mortality, ordinal scale assessment, and number of days in the ICU.

In late-May 2021, 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.

We continue to focus on enrolling patients in our Phase 3 clinical trial and anticipates providing further safety and efficacy data from this larger trial of fostamatinib in COVID-19 patients.

If this trial meets its endpoints, we plan to resubmit an application for EUA with this additional data.

In September 2021, the data from the NIH/NHLBI-sponsored Phase 2 trial was published in Clinical Infectious Diseases, an official publication of the Infectious Disease Society of America.

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.

The ACTIV-4 Host Tissue study will evaluate fostamatinib in a population targeted to include approximately 300 hospitalized patients with COVID-19.

Lilly continues to advance R552, a potent and selective RIPK1 inhibitor, with the initial Phase 2 study in an immunologic disease indication anticipated to begin in the first quarter of 2023.

RIPK1 is implicated in a broad range of key inflammatory cellular processes and plays a key role in Tumor Necrosis Factor (TNF) signaling, especially in the induction of pro-inflammatory necroptosis.

The program also includes RIPK1 compounds that cross the blood-brain barrier (CNS-penetrants) to address neurodegenerative diseases such as Alzheimer’s disease and Amyotrophic Lateral Sclerosis ( ALS).

We are completing early discovery work on a potential candidate that Lilly may advance into clinical development.

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 to reduce the number of people exposed to the virus .

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.

We have a COVID-19 Headquarters Policy (Plan) in place to provide guidelines when working onsite.

We continue to evaluate the workplace for compliance with the local, state and federal guidance and may modify or update at any time to ensure the safety of our employees, contractors and visitors.

Recently, we updated our Plan as we move towards a hybrid schedule, reinstituting more in-person interactions back into our business beginning April 2022.

We endeavor to provide the safest and most effective work environment under the circumstances, but we cannot guarantee that employees who come to the office will not be exposed to COVID-19 while at the office.

It will be the responsibility of all employees to participate and cooperate in safety and cleaning protocols.

We expect all employees, contractors, and visitors to our facility to comply with the Plan.

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.

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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.

Starting in 2021, we began to see an increase in in-person engagements

with health care providers.

During 2021, w e began to see an increase in in-person engagements with health care providers, particularly as we completed our sales force expansion in the third quarter of 2021, which increased the territories we cover.

That growth of in-person interactions continued until December 2021 when the Omicron variant surge, which again limited our access.

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 recently completed our sales force expansion which increased the territories we cover.

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

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

However, we do not know the full extent of the impact on our supply chain if the COVID-19 pandemic continues and persists for an extended period of time .

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Disease background.

Chronic ITP affects an estimated 81,300 adult patients in the U.S.

Chronic ITP affects an estimated 81,300 adult patients in the US.

In patients with ITP, the immune system attacks and destroys the body’s own blood platelets, which play an active role in blood clotting and healing.

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The study showed that 18% of patients receiving fostamatinib achieved a stable platelet response compared to none receiving a placebo control (p=0.0261).

In October 2016, we announced the results of the second FIT study, reporting that the response rate was consistent with the first study.

In October 2016, we announced the results of the second FIT study, reporting that the response rate (16% in the treatment group, versus 4% in the placebo group) was consistent with the first study, although the difference was not statistically significant.

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.

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 US in May 2018.

In January 2020, the EC granted our Marketing Authorization Application (MAA) in Europe for fostamatinib for the treatment of chronic ITP in adult patients who are refractory to other treatments.

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Commercial activities, including sales and marketing

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

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

In July 2020, Grifols S.A.

(Grifols) launched TAVLESSE in the United Kingdom (UK) and Germany.

In September 2021, Grifols announced that it began commercializing TAVLESSE in France, Italy and Spain.

The phased rollout across the rest of Europe planned over the following months will include the Czech Republic, Denmark, Finland, Norway and Sweden.

A significant portion of our business operations is related to our commercial activities for TAVALISSE.

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

In addition, our collaborative partner Grifols has launched TAVLESSE in the UK, Germany, France, Italy, Spain, the Czech Republic and Norway and continues a phased rollout across the rest of Europe which is expected to include Denmark, Finland and Sweden.

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.

using customary pharmaceutical company practices, and we concentrate our efforts on hematologists and hematologists-oncologists.

Our sales team promotes TAVALISSE in the US 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.

To facilitate our commercial activities in the US, 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 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

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.

Also, to help ensure that all eligible patients in the US 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 TAVALISSE 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.

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Even with the above treatment options, a significant number of patients remain severely thrombocytopenic for long durations and are subject to risk of spontaneous or trauma-induced hemorrhage.

The addition of fostamatinib to the treatment options could be beneficial since it has a different mechanism of action than any of the therapies that are currently available.

The addition of fostamatinib to the currently available treatment options could be beneficial because it has a different mechanism of action than any of the therapies that are currently available.

Fostamatinib is a potent and relatively selective SYK inhibitor, and its inhibition of Fc receptors and B-cell receptors of signaling pathways make it a potentially broad immunomodulatory agent.

Other products in the U.S.

that are approved by the FDA to increase platelet production through binding and TPO receptors on megakaryocyte precursors include PROMACTA ® (Novartis International AG (Novartis)), Nplate ® (Amgen, Inc.) and DOPTELET ® (Swedish Orphan Biovitrum AB).

Other products in the US that are approved by the FDA to increase platelet production through binding and TPO receptors on megakaryocyte precursors include PROMACTA ® (Novartis International AG (Novartis)), Nplate ® (Amgen, Inc.) and DOPTELET ® (Swedish Orphan Biovitrum AB).

Fostamatinib in Global Markets

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Fostamatinib in Europe/Turkey

In January 2019, we entered into an exclusive commercialization license agreement with Grifols to commercialize fostamatinib for the treatment, palliation, or prevention of human diseases, including chronic or persistent ITP and AIHA in Europe and Turkey.

Pursuant to the terms of the license agreement, Grifols has exclusive rights to commercialize, and non-exclusive rights to develop, fostamatinib in Europe and Turkey.

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We are responsible for performing and funding certain development activities for fostamatinib for ITP and AIHA and Grifols is responsible for all other development activities for fostamatinib in such territories.

responsible for the manufacture and supply of fostamatinib for all development and commercialization activities under the agreement.

We remain responsible for the manufacturing and supply of fostamatinib for all development and commercialization activities under the agreement.

Under the terms of the agreement, we received an upfront cash payment of $30.0 million and will be eligible to receive regulatory and commercial milestones of up to $297.5 million.

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The efficacy and safety of orally administered fostamatinib will be assessed by comparing it with placebo in a randomized, double-blind study.

Japan has the third highest prevalence of chronic ITP in the world behind the United States and Europe.

Japan has the third highest prevalence of chronic ITP in the world behind the US and Europe.

In February 2020, Kissei was granted orphan drug designation from the Japanese Ministry of Health, Labor and Welfare for R788 (fostamatinib) in chronic ITP.

Kissei has completed the enrollment of its Phase 3 clinical trial of fostamatinib in adult Japanese patients with chronic ITP.

In December 2021, Kissei reported positive topline results for a Phase 3 clinical trial of fostamatinib in adult Japanese patients with chronic ITP, meeting its primary endpoint.

The Phase 3 clinical study showed that patients receiving fostamatinib achieved a stable platelet response significantly higher than patients receiving a placebo control.

A stable platelet response was defined as achieving greater than or equal to 50,000 platelets per μL of blood on at least four of the last six scheduled visits between weeks 14 and 24 of treatment.

Based on the positive Phase 3 results, in April 2022, Kissei has submitted an NDA to Japan’s Pharmaceuticals and Medical Devices Agency for fostamatinib in chronic ITP.

Fostamatinib in Canada/Israel

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In November 2020, Health Canada approved the New Drug Submission for TAVALISSE for the treatment of thrombocytopenia in adult patients with chronic ITP who have had an insufficient response to other treatments.

In August 2021, Medison Israel received the licenses for registrational approval from the Ministry of Health, which triggered the first milestone that is the regulatory approval of the product in Israel for the first indication, for a non-refundable payment of $75,000.

Clinical Stage Programs

Fostamatinib—AIHA

Fostamatinib in wAIHA

Disease background .

A utoimmune hemolytic anemia ( AIHA) is a rare, serious blood disorder where the immune system produces antibodies that result in the destruction of the body's own red blood cells.

A utoimmune hemolytic anemia is a rare, serious blood disorder where the immune system produces antibodies that result in the destruction of the body’s own red blood cells.

Symptoms can include fatigue, shortness of breath, rapid heartbeat, jaundice or enlarged spleen.

While no medical treatments are currently approved for AIHA, physicians generally treat acute and chronic cases of the disorder with corticosteroids,

other immuno-suppressants, or splenectomy.

While no medical treatments are currently approved for AIHA, physicians generally treat acute and chronic cases of the disorder with corticosteroids, other immuno-suppressants, or splenectomy.

Research has shown that inhibiting SYK with fostamatinib may reduce the destruction of red blood cells.

This disorder affects an estimated 45,000 Americans, for whom no approved treatment options currently exist.

AIHA affects an estimated 45,000 Americans, and approximately 36,000 of those patients have wAIHA, where no approved treatment options currently exist.

Orally-available fostamatinib program .

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Adverse events were manageable and consistent with those previously reported with fostamatinib.

In March 2019, we initiated our wAIHA pivotal Phase 3 clinical study of fostamatinib, known as FORWARD study.

In February 2022, the American Journal of Hematology published the data from our Phase 2 clinical trial of fostamatinib in adults with wAIHA who have failed at least one prior treatment.

The published data demonstrate that fostamatinib rapidly and durably increased hemoglobin (Hgb) levels, with clinically meaningful Hgb responses observed in nearly half of the patients, and a safety and tolerability profile consistent with the existing fostamatinib safety database of patients across multiple disease programs studied.

In March 2019, we initiated our wAIHA pivotal Phase 3 clinical study of fostamatinib, known as the FORWARD study.

The clinical trial protocol calls for a placebo-controlled study of approximately 90 patients with primary or secondary wAIHA who have failed at least one prior treatment.

The primary endpoint will be a durable Hgb response, defined as Hgb > 10 g/dL and > 2 g/dL increase from baseline and durability measure, with the response not being attributed to rescue therapy.

To date, we completed the enrollment of this study.

Following the six-month treatment period after the last patient enrollment, we expect to report topline data from the 24-week study in mid-2022 and proceed with regulatory filings if the data is positive.

If approved, TAVALISSE has the potential to be the first to market therapy for patients with wAIHA.

The primary endpoint is a durable Hgb response, defined as Hgb >10 g/dL and >2 g/dL increase from baseline and durability measure, with the response not being attributed to rescue therapy.

In November 2020, we reached an agreement with the FDA on the durable response measure for the primary efficacy endpoint of the study as well as the inclusion of additional secondary endpoints.

In January 2021, we announced that the FDA had granted Fast Track designation to TAVALISSE for the treatment of wAIHA.

The FDA previously granted TAVALISSE Orphan Drug designation for the treatment of wAIHA in January 2018.

In November 2021, we completed the enrollment of this study.

In April 2022, we completed the treatment period for the last patient under the study, and we expect to report topline data in mid-2022 and proceed with regulatory filings if the data is positive.

If approved, fostamatinib has the potential to be the first to market therapy for patients with wAIHA.

In January 2021, we announced that the FDA had granted Fast Track designation to fostamatinib for the treatment of wAIHA.

The FDA previously granted fostamatinib Orphan Drug designation for the treatment of wAIHA in January 2018.

Fostamatinib in Hospitalized COVID-19 Patients

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We were awarded $16.5 million from the U.S.

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 308 targeted evaluable patients.

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

The primary endpoint of this study is the proportion of subjects who progress to severe/critical disease within 29 days.

As of November 1, 2021, we enrolled approximately 210 of the targeted 300 patients.

In January 2021, we were awarded $16.5 million from the US Department of Defense’s 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 randomly assigns either fostamatinib plus SOC or matched placebo plus SOC (1:1) to 308 targeted evaluable patients.

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

In December 2021, we expanded the inclusion criteria to include patients with more severe disease (NIAID Ordinal Scale 6) to more accurately reflect the clinically predominant patient population hospitalized with COVID-19 and help speed enrollment .

In collaboration with the FDA and Department of Defense, we also updated the primary endpoint for the study from progression to severe disease within 29 days, to the number of days on oxygen through day 29.

This endpoint allows for closer comparison of the results with earlier results from the NIH/NHLBI Phase 2 trial with fostamatinib and various other NIH-sponsored trials, such as ACTIV-4, which uses a similar outcome measure as a primary endpoint.

We continue to focus on enrolling patients in our Phase 3 clinical trial and anticipate providing further safety and efficacy data from this larger trial of fostamatinib in COVID-19 patients.

If this trial meets its endpoints, we plan to resubmit an application for EUA with this additional data.

NIH/NHLBI-sponsored Phase 2 Trial.

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 59

evaluable patients.

This multi-center, double-blind, placebo-controlled study randomly assigned fostamatinib or matched placebo (1:1) to 59 evaluable patients.

Treatment was administered orally twice daily for 14 days, and a follow-up period to day 60.

The primary endpoint of this study was cumulative incidence of SAE through day 29.

The primary endpoint of this study was cumulative incidence of Serious Adverse Events (SAEs) through day 29.

The trial also included multiple secondary endpoints designed to assess the early efficacy and clinically relevant endpoints of disease course.

The study completed the enrollment in March 2021 and in April 2021, w e announced that this Phase 2 clinical trial met its primary endpoint of safety.

In September 2021, the data from the NIH/NHLBI-Sponsored Phase 2 trial was published in Clinical Infectious Diseases, an official publication of the Infectious Disease Society of America.

Key findings within the fostamatinib Phase 2 trial include:

● The study met the primary endpoint showing fostamatinib did not increase the incidence of serious adverse events (SAEs) compared with placebo.

● The overall incidence of SAEs by Day 29 was approximately 50% less in the fostamatinib group (10.5%) compared with the placebo group (22.0%) (p=0.2).

The most frequent SAE reported by Day 29 was hypoxia, occurring in 1 patient receiving fostamatinib and 3 patients receiving placebo.

● At Day 29, in the overall population there were zero deaths in the fostamatinib group of 30 patients compared to three deaths in the placebo group of 29 patients (p=0.07).

In more severe patients, those with an ordinal scale assessment of 6 or 7, the difference was zero of nineteen patients compared to three of seventeen patients (p=0.049), respectively.

● There were four intubated patients in the trial on mechanical ventilation (ordinal scale 7) with two patients randomized to each treatment group.

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

● 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).

● The median number of days on oxygen was 8 in the fostamatinib group compared to 20 in the placebo group (p=0.2).

The difference was even greater in more severe patients with the fostamatinib group at 10 days compared to placebo at 28 days (p=0.027).

● At Day 15, 65.5% of patients were free of supplemental oxygen in the fostamatinib group compared to 39.9% in the placebo group (p=0.08).

In more severe patients, the difference was 57.9% compared to 20% (p=0.016).

● 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 time to recovery was 8 days in both groups.

The greatest benefits were observed in more severe patients where the median time to recovery was reduced from 13 days in the placebo group to 10 days in the fostamatinib group.

● 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.

The study completed the enrollment in March 2021.

In April 2021, we announced that the Phase 2 clinical trial met its primary endpoint of safety.

Fostamatinib reduced the incidence of SAEs by half.

By day 29, there were three SAEs in the fostamatinib plus SOC group of thirty patients compared to six SAEs in the placebo plus SOC group of twenty-nine patients (p=0.23).

Of these, there was a reduction for the disease related SAE of hypoxia in the

fostamatinib group compared to placebo (1 vs 3, respectively;

The data from the NIH/NHLBI-Sponsored Phase 2 trial was published in Clinical Infectious Diseases, an official publication of the Infectious Disease Society of America in September 2021.

In May 2021, the NIH/NHLBI Phase 2 clinical data were submitted as part of a request for EUA from the FDA for fostamatinib as a treatment for hospitalized patients with COVID-19.

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Following the 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

study, initiated and funded by NHLBI, is a randomized, placebo-controlled trial of therapies, including fostamatinib, targeting the host response to COVID-19 in hospitalized patients.

The master protocol for this study is designed to be flexible in the number of study arms, the use of a single placebo group, and the stopping and adding of new therapies.

Each active arm will include approximately 300 patients.

Eligible participants will include patients hospitalized for COVID-19 with laboratory-confirmed SARS-CoV-2 infection on oxygen therapy.

The primary outcome is oxygen-free days through day 28.

Secondary outcomes include hospital mortality, use of mechanical ventilation, and severity of disease as measured by World Health Organization scale scores.

Secondary outcomes include hospital mortality, use of mechanical ventilation, and severity of disease as measured by World Health Organization (WHO) scale scores.

Imperial College of London Phase 2 Trial.

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.

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

Treatment will be administered twice daily for 14 days and patients will receive a follow-up assessment at day 14 and day 28 after the first dose.

The primary endpoint of this study is progression from mild to severe COVID-19 pneumonia within 14 days in hospitalized patients.

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

Treatment was administered twice daily for 14 days and patients receive a follow-up assessment at day 14 and day 28 after the first dose.

The primary endpoint of this study is progression from mild to severe COVID-19 pneumonia within 14 days in hospitalized patients (WHO COVID-19 Severity Scale 3-4).

In April 2022, Imperial College of London completed a pre-planned interim analysis of the primary endpoint, patients progressing from mild or moderate (modified WHO COVID-19 scale 3-4) to severe disease (modified WHO COVID-19 scale ≥5) within 14 days, in the Phase 2 MATIS trial.

The independent data monitoring committee determined that the fostamatinib plus standard of care arm did not meet the prespecified criteria for continuation to the next stage of the study.

No safety concerns were identified.

The study remains blinded and Imperial College of London plans to share results with us and scientific community once the trial is complete.

Other Publications.

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NETs contribute to thromboinflammation and have been associated with mortality in COVID-19.

These data provide insights for how fostamatinib may mitigate neutrophil-associated mechanisms contributing to COVID-19 immunopathogenesis.

These data provide insights for how

fostamatinib may mitigate neutrophil-associated mechanisms contributing to COVID-19 immunopathogenesis.

R289, an Oral IRAK1/4 Inhibitor for Autoimmune, Inflammatory and Hematology-Oncology Diseases

Orally Available IRAK 1/4 Inhibitor Program.

During the second quarter of 2018, we selected R835, a proprietary molecule from our IRAK 1/4 preclinical development program, for human clinical trials.

This investigational candidate was an orally administered, potent and selective inhibitor of IRAK1 and IRAK4 that blocks inflammatory cytokine production in response to toll-like receptor (TLR) and the interleukin-1 (IL-1R) family receptor signaling.

During the second quarter of 2018, we selected R835, the active metabolite of R289 , a proprietary molecule from our IRAK 1/4 preclinical development program, for human clinical trials.

This investigational candidate is 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).

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Dual inhibition of IRAK1 and IRAK4 allows for more complete suppression of pro-inflammatory cytokine release.

In October 2019, we announced results from a Phase 1 clinical trial of R835 in healthy subjects to assess safety, tolerability, PK and pharmacodynamics.

The Phase 1 study was a randomized, placebo-controlled, double-blind trial in

91 healthy subjects, ages 18 to 55.

In October 2019, we announced results from a Phase 1 clinical trial of R835 in healthy subjects to assess safety, tolerability, protein kinase (PK) and pharmacodynamics.

The Phase 1 study was a randomized, placebo-controlled, double-blind trial in 91 healthy subjects, ages 18 to 55.

The Phase 1 trial showed positive tolerability and PK data as well as established proof-of-mechanism by demonstrating the inhibition of inflammatory cytokine production in response to a lipopolysaccharide (LPS) challenge.

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.

We continue to advance the development of our IRAK1/4 program, completing the evaluation of a new pro-drug formulation of R835, R289, in single-ascending and multiple ascending dose studies with positive results in 2021.

In January 2022, we received clearance from the FDA on our clinical trial design to explore R289 in low-risk myelodysplastic syndromes (LR MDS).

The open-label, Phase 1b study will determine the tolerability and preliminary efficacy of R289 in patients with LR MDS who are relapsed, refractory/resistant, intolerant or have inadequate response to prior therapies such as erythropoietin (EPO), thrombopoietin (TPO), luspatercept, or hypomethylating agents (HMAs) for MDS.

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

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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.

Rain also plans to commence two additional Phase 2 trials for RAIN-32 in late 2021 or early 2022, an open-label MDM2-amplified tumor-agnostic basket trial and an open-label trial in patients with intimal sarcoma, a rare sarcoma also exhibiting MDM2-amplification.

In July 2021, Rain announced that it initiated the Phase 3 study which 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.

In late 2021, Rain commenced its second clinical trial for RAIN-32 in patients with MDM2-applified advance solid tumors.

AZ-D0449 – AZ

We have an agreement with AZ for exclusive, worldwide rights to develop and commercialize our proprietary JAK inhibitor.

The JAK inhibitor, R256 (AZ-D099) is being pursued in patients with chronic asthma.

We had an agreement with AZ for exclusive, worldwide rights to develop and commercialize our proprietary JAK inhibitor.

In preclinical studies, this molecule was shown to be a potent inhibitor of IL-13 and IL-4 signaling.

Inhibiting the IL-13 and IL-14 pathways could reduce the severity of inflammation and improve lung function by mechanisms associated with several hallmarks of asthma such as bronchoconstriction, mucus overproduction and airway remodeling.

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, has completed its enrollment.

In December 2021, AZ provided a notice of termination of the agreement effective April 19, 2022 and returned to us the full rights to our propriety JAK inhibitor.

Research/Preclinical Programs

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Commercialization and Sponsored Research and License Agreements

For a discussion of our Sponsored Research and License Agreements and Government Contract, see Note 8 to our “Notes to Condensed Financial Statements” contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For a discussion of our Sponsored Research and License Agreements and Government Contract, see “Note 4 - Sponsored Research and License Agreements and Government Contract” to our “Notes to Condensed Financial Statements” contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Results of Operations

Three and Nine months Ended September 30, 2021 and 2020

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Three months ended March 31, 2022 and 2021

Three Months Ended March 31,

(in thousands)

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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

Nine Months Ended

September 30,

ASD Healthcare and Oncology Supply

Three Months Ended March 31,

McKesson Specialty Care Distribution Corporation

ASD Healthcare and Oncology Supply

Cardinal Healthcare

Product sales during the three and nine months ended September 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.

It has been utilized by an increasingly broad base of prescribers and community physicians, with growing early line use and strong refill rates.

We recognize product sales, net of discounts and allowances.

For the three and nine months ended September 30, 2021, our net product sales of TAVALISSE decreased by 2% and increased by 3%, respectively, compared to the same periods in 2020.

Our net product sales for the three months ended September 30, 2021 decreased compared to the same period in 2020 mainly due to lower quantities sold, negatively impacted by the decrease in level of inventories remaining at our distribution channels, as well as higher government program rebates.

For the nine months ended September 30, 2021, our net product sales increased compared to the same period in 2020 primarily driven by the increase in quantities sold particularly during the second quarter of 2021, as well as the increase in price per bottle of TAVALISSE.

Our net product sales during the nine months ended September 30, 2021, however, were negatively impacted by the decrease in level of inventories remaining at our distribution channels at the end of the third quarter of 2021, as well as higher government program rebates.

Contract revenues from collaborations of $4.5 million in the three months ended September 30, 2021 were comprised of $2.4 million in revenue related to our license agreement with Lilly, $1.8 million in revenue related to a milestone payment under our collaboration agreement with Daiichi, $225,000 in revenue related to the research and development services with Grifols and $75,000 milestone payment under our commercial and license agreement with Medison.

Contract revenues from collaborations of $73.9 million in the nine months ended September 30, 2021 were comprised of $66.4 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, $1.8 million in revenue related to the achievement of milestone under our collaboration agreement with Daiichi, $1.0 million revenue for the delivery of drug supply under our collaboration agreement with Grifols, $605,000 in revenue related to the research and development services with Grifols and $75,000 milestone payment under our commercial and license agreement with Medison.

Contract revenues from collaborations of $2.1 million in the three months ended September 30, 2020 was related to a milestone payment under our collaboration agreement with Daiichi.

Contract revenues from collaborations of $46.2 million in the nine months ended September 30, 2020 comprised of $44.1 million revenue recognized from Grifols related to the upfront fee previously in the first quarter of 2019 and the milestone payment received in the first quarter of 2020 upon EC approval of the MAA for fostamatinib in Europe, and the $2.1 million in revenue from the milestone payment under our collaboration agreement with Daiichi.

Government contract revenue for the three and nine months ended September 30, 2021 of $1.0 million and $9.5 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.

We expect to receive the remaining award of $7.0 million and will recognize as income throughout the period we conduct our clinical trial, when there is reasonable assurance that the conditions of the grant will be met, and the grant will be received.

Our potential future revenues may include product sales from TAVALISSE, payments from our current partners and from new partners with whom we enter into agreements in the future, if any, the timing and amount of which is unknown at this time.

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

As of September 30, 2021, we had deferred revenues of $3.2 million, which we will recognize as revenue upon satisfaction of our remaining performance obligations under our respective collaboration agreements.

Net product sales during the periods presented pertained to sales of TAVALISSE in the US, net of chargebacks, discounts and fees, government and other rebates and returns.

For the three months ended March 31, 2022, net product sales of TAVALISSE increased by $3.8 million or 31% compared to the same period in 2021.

The increase was primarily driven by the increase in quantities sold mainly due to the recent sales force expansion and increased in-person engagements, as well as the increase in price per bottle of TAVALISSE.

These increases were partially offset by the increase in revenue reserves mainly due to higher rebates on contracts we recently entered with certain PBMs, and higher government program rebates.

Our first quarter net sales are typically impacted by the first quarter reimbursement issues such as the resetting of co-pays and the Medicare donut hole.

Contract revenues from collaborations in the three months ended March 31, 2022 were comprised primarily of $0.2 million in revenue related to our license agreement with Lilly, and $0.3 million in revenue related to the research and development services with Grifols.

C ontract revenues from collaborations in the three months ended March 31, 2021 were 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.

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

For the three months ended March 31, 2022 and 2021, we recognized no revenue and $3.0 million of revenue, respectively, related to this grant.

As of March 31, 2022, we expect to receive the remaining award of $6.0 million and will recognize as income throughout the period we conduct our clinical trial, when there is reasonable assurance that the conditions of the grant will be met, and the grant will be received.

Our potential future revenues may include product sales from TAVALISSE;

payments from our collaboration partners and from new collaboration partners with whom we enter into agreements in the future, if any;

and from existing government grants and any future grants we may be entitled to, if any;

the timing and amount of which is unknown at this time.

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

Our net product sales may be impacted by changes to the government program rebates and new private payer rebate contracts we entered or may enter in the future.

As of March 31, 2022, we had deferred revenues of $2.1 million, which we will recognize as revenue upon satisfaction of our remaining performance obligations under our respective collaboration agreements.

Cost of Product Sales

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Three Months Ended March 31,

(in thousands)

Cost of product sales

The cost of product sales during the three and nine months ended September 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 September 30, 2021 and 2020.

The cost of product sales for the periods presented was related to our product, TAVALISSE.

Prior to the FDA approval in May 2018, 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 cost of product sales during the periods presented.

We expect we will continue to have a lower cost of product sales that excludes the cost of the active pharmaceutical ingredient (API) that was produced prior to FDA approval until we sell TAVALISSE that includes newly manufactured API.

We expect that this will be the case for the near-term and as a result, our cost of product sales will be less than we anticipate it will be in future periods.

As we produce TAVALISSE in the future, our inventory cost in the Balance Sheet and Cost of Product Sales will increase reflecting the full cost of manufacturing.

The cost of product sales remained flat for the three and nine months ended September 30, 2021 compared to the same periods in 2020.

As we produce TAVALISSE in the future, our inventory cost in the condensed balance sheet and cost of product sales will increase reflecting the full cost of manufacturing.

The cost of product sales decreased in three months ended March 31, 2022 compared to the same period in 2021 primarily due to higher cost of product sales during the three months ended March 31, 2021 as a result of delivery of drug supply under our collaboration agreement with Grifols.

Research and Development Expense

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Three Months Ended March 31,

(in thousands)

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Stock-based compensation expense included in research and development expense

The increase in research and development expense for the three months ended September 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 $3.8 million and development of our IRAK 1/4 inhibitor program of $1.3 million.

These increases were partially offset by decrease due to the completion of clinical trial in our RIP1 inhibitor program of $1.2 million and decrease in research and development costs in our other clinical studies of $200,000.

The increase in research and development expense for the nine months ended September 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 $10.2 million, development of our IRAK 1/4 inhibitor program of $2.3 million, and other research and development costs in our other clinical studies of $670,000.

These increases were partially offset by decrease due to the completion of clinical trial in our RIP1 inhibitor program of $6.2 million .

The decrease in research and development expense in the three months ended March 31, 2022 compared to the same period in 2021 was mainly due to decrease in personnel-related costs of $1.1 million primarily as a result of the restructuring of our early-stage research department in November 2021, decrease in research and development costs on our ongoing Phase 3 clinical trial on hospitalized COVID-19 patients of $0.7 million, decrease in research and development costs in our AIHA study of $0.7 million, and decrease in other various research and development expenses

of $0.4 million.

These decreases were partially offset by the increase in our research and development of our IRAK 1/4 inhibitor program of $1.5 million.

Our research and development expenditures include costs related to preclinical and clinical trials, scientific personnel, supplies, equipment, consultants, sponsored research, stock-based compensation, and allocated facility costs.

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

To date, we completed the enrollment of wAIHA study.

W e expect to continue to incur significant research and development expense as we continue our activities in our Phase 3 wAIHA, COVID-19 and other clinical studies.

In November 2021, we completed enrollment of the wAIHA study.

In April 2022, we completed the treatment period for the last patient under the study, and we expect to report topline data in mid-2022 and proceed with regulatory filings if the data is positive.

If approved, fostamatinib has the potential to be the first-to-market therapy for patients with wAIHA in 2023.

We also continue to enroll patients in our Phase 3 clinical trial of fostamatinib for the treatment of hospitalized high-risk patients with COVID-19.

The $16.5 million grant awarded by the Department of Defense in January 2021 will partially fund our Phase 3 clinical trial for hospitalized COVID-19 patients.

We cannot currently fully forecast the scope the evolving effects of COVID-19 pandemic may have on our ability to continue to treat patients enrolled in our trials, enroll and assess new patients, supply study drug, obtain complete data points in accordance with the study protocol, and overall impact on, and timing of, clinical study results.

In January 2021, the US Department of Defense awarded us a total of $16.5 million grant that will partially fund our Phase 3 clinical trial for hospitalized COVID-19 patients.

Currently, we cannot fully forecast the scope the evolving effects of COVID-19 pandemic may have on our ability to continue to treat patients enrolled in our trials, enroll and assess new patients, supply study drug, obtain complete data points in accordance with the study protocol, and overall impact on, and timing of, clinical study results.

We expect cost savings on our research and development costs because of reduction in workforce, primarily in the research organization.

In November 2021, we announced our plans to exit early-stage research and focus resources on our mid to late-stage development programs and our commercialization efforts.

The strategy will strengthen our ability to execute on near-term value drivers, such as growing ITP sales, expanding the addressable market for fostamatinib with wAIHA and COVID-19, and advancing our wholly-owned IRAK1/4 program in hematology and immunology.

We do not track fully burdened research and development costs separately for each of our drug candidates.

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research, development, and other.

Our research team is focused on creating a portfolio of product candidates that can be developed into small molecule therapeutics in our own proprietary programs or with potential collaborative partners and utilizes our robust discovery engine to rapidly discover and validate new product candidates in our focused range of therapeutic indications.

Our research team is focused on identifying and evaluating product candidates in our focused range of therapeutic indications that can be developed into small molecule therapeutics in our own proprietary programs or with potential collaborative partners.

“Research” expenses relate primarily to personnel expenses, lab supplies, fees to third party research consultants and compounds.

Our development group leads the implementation of our clinical and regulatory strategies and prioritizes disease indications in which our compounds may be studied in clinical trials.

“Development” expenses relate primarily to clinical trials, personnel expenses, costs related to the submission and management of our NDA, lab supplies and fees to third party research consultants.

“Development” expenses relate primarily to clinical trials, personnel expenses, costs related to our regulatory filings, lab supplies and fees to third party research consultants.

“Other” expenses primarily consist of allocated facilities costs and allocated stock-based compensation expense relating to personnel in research and development groups.

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Failure to receive the necessary regulatory approvals would prevent us from commercializing the product candidates affected.

In addition, clinical trials of our potential products may fail to demonstrate safety and efficacy, which could prevent or significantly delay regulatory approval.

In addition, clinical trials of our potential products may fail to demonstrate safety and efficacy, which could prevent or significantly

delay regulatory approval.

The following table presents our total research and development expense by category (in thousands).

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

From January 1, 2007*

to September 30, 2021

to March 31, 2022

* We started tracking research and development expense by category on January 1, 2007.

“Other” expenses for the three months ended September 30, 2021 and 2020 consisted of allocated facilities costs of $1.5 million for both periods, and allocated stock-based compensation expense of $402,000 and $532,000, respectively.

For the nine months ended September 30, 2021 and 2020, “other” expenses include allocated facilities costs of $4.5 million for both periods, and allocated stock-based compensation expense of $1.5 million and $1.7 million, respectively.

For the three and nine months ended September 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 nine months ended September 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.

“Other” expenses for the three months ended March 31, 2022 and 2021 consisted of allocated facilities costs of $1.3 million and $1.5 million, respectively, and allocated stock-based compensation expense of $0.5 million and $0.6 million, respectively.

For the three months ended March 31, 2022 and 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.

Selling, General and Administrative Expense

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Three Months Ended March 31,

(in thousands)

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

The increase in selling, general and administrative expense for the three months ended September 30, 2021 compared to the same period in 2020 was primarily due to the increases in costs of commercial activities of $2.5 million, consultants and third-party services of $1.5 million, personnel-related costs of $408,000, stock-based compensation expense of $448,000, and other various sales, general and administrative costs of $591,000.

The increase in selling, general and administrative expense for the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to the increases in costs of consultants and third-party services of $4.6 million, costs of commercial activities of $3.1 million, personnel-related costs of $1.5 million, stock-based compensation expense of $1.6 million, professional fees of $465,000, and other various sales, general and administrative costs of $1.3 million.

Stock-based compensation expense for the three months ended March 31, 2022 include an incremental charge of approximately $0.8 million as a result of stock option modification in March 2022 related to the extension of exercise period of the stock option grants made to two members of our Board of Directors whose terms will expire in the next stockholders’ meeting in May 2022.

The increase in selling, general and administrative expense in the three months ended March 31, 2022 compared to the same period in 2021 was mainly due to the increase in personnel-related costs and recruitment fees of $2.4 million, increase in costs of commercial activities of $2.2 million, increase in trainings, conferences and travel related costs of $1.1 million, increase in stock-based compensation expense of $0.7 million primarily due to an incremental charge as discussed above, and increase in other various sales, general and administrative costs of $0.3 million.

These increases were partially offset by the decrease in our consulting and third-party services of $1.4 million.

The overall increase in our selling, general and administrative expense was primarily driven by the expansion of our commercial operations.

We expect our selling, general and administrative expense for the remainder of 2022 to increase as we continue to expand our commercial activities, including the effect of the recent sales force expansion.

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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

Nine Months Ended

September 30,

(in thousands)

Interest Income and Interest Expense

Three Months Ended March 31,

(in thousands)

Interest income

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

The decreases in interest income for the three and nine months ended September 30, 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

Nine Months Ended

September 30,

(in thousands)

Interest expense

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

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

The increase in interest expense in the three and nine months ended September 30, 2021 compared with the same periods in 2020 was mainly due to the interest expense associated with the financing liability from our collaboration partners amounting to $886,000 and $2.3 million, respectively.

Incrementally, interest expense increased 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.

See Note 13 to our “Notes to Condensed Financial Statements” in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Interest income is primarily related to our interest-bearing cash and investment balances.

Interest expense for the three months ended March 31, 2022 and 2021 was comprised of interest on outstanding balance on our term loan from Midcap, and interest on the financing liability from our collaboration partner.

The increase in interest expense in the three months ended March 31, 2022 compared with the same period in 2021 was mainly due to the interest expense associated with the financing liability from our collaboration partner amounting to $0.7 million.

Incrementally, interest expense on our term loan from Midcap slightly increased due to the increase in the outstanding term loan credit balance.

In February 2022, we accessed additional $10.0 million term loan (Tranche 3) from our credit facility with Midcap.

See “Note 9 – Debt” to our “Notes to Condensed Financial Statements” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.

Provision for Income Taxes

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Three Months Ended March 31,

(in thousands)

Provision for (benefit from) income taxes

The benefit from and the provision for income taxes for the three and nine months ended September 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 (NOL) carryforwards that were generated prior to the enactment of the Tax Cuts and Jobs Act (Tax Act), as well as significant research and development credit carryforwards.

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 nine months ended September 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

Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles (U.S.

Provision for income taxes

For the three months ended March 31, 2022, we did not recognize provision for income taxes due to our pre-tax book loss as 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.

The provision for income tax for the three months ended March 31, 2021 was estimated 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, which is primarily due to revenue recognized for the Lilly Agreement.

We did not estimate a provision for federal income taxes due to the sufficient net operating loss carryforwards that were generated prior to the enactment of Tax Cuts and Jobs Act, as well as our ability to utilize significant research and development credit carryforwards.

Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with US GAAP.

The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

On an ongoing basis, we evaluate our estimates, including any potential impact of the COVID-19 pandemic to the carrying values of our assets and liabilities, those related to revenue recognition on product sales and collaboration agreements, recoverability of our assets, including accounts receivables and inventories, stock-based compensation, the probability of achievement of corporate performance-based milestone for our performance-based stock option awards, impairment issues, the estimated useful life of assets, estimated accruals, particularly research and development accruals, 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.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

We believe that there have been no significant changes in our critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (SEC).

Our critical accounting estimates are described in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates” in our Annual Report on Form 10-K.

There had been no material changes to these accounting policies.

Our significant accounting policies are described in “Note 1 – Description of Business and Summary of Significant Accounting Policies” to our “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no material changes to these accounting policies.

Recent Accounting Pronouncements

We adopted ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes, in the first quarter of 2021.

See Note 3 to our “Notes to Condensed Financial Statements” contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for related discussions on our adoption of the recent accounting pronouncement.

Additionally, we continue to evaluate accounting standards that were recently issued but not yet adopted, as applicable.

No new accounting guidance adopted during the period.

Recently issued accounting guidance is not applicable

or did not have, or is not expected to have, a material impact to us.

Liquidity and Capital Resources

As of September 30, 2021, we had approximately $143.1 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 $85.8 million was primarily attributable to the upfront cash payment of $125.0 million from Lilly, partially offset by cash used in our other operating activities.

As of September 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.

As of March 31, 2022, we had approximately $107.5 million in cash, cash equivalents and short-term investments, as compared to approximately $125.0 million as of December 31, 2021.

As of March 31, 2022 and December 31, 2021, we maintained investment portfolios primarily in money market funds, US 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.

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Following summarizes our cash flow activity for the periods presented:

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

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Financing activities

Net increase in cash and cash equivalents

Net cash provided by operating activities was $25.0 million for the nine months ended September 30, 2021, compared to net cash used in operating activities of $36.6 million for the nine months ended September 30, 2020.

Net cash provided by operating activities for the nine months ended September 30, 2021 was primarily due to the cash received from Lilly 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 $9.5 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 nine months ended September 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 $86.5 million for the nine months ended September 30, 2021, compared to net cash provided by investing activities of $38.8 million for the nine months ended September 30, 2020.

Net cash used in investing activities during the nine months ended September 30, 2021 was due to net purchases of short-term investments of $85.9 million and capital expenditures of $648,000.

Net cash provided by investing activities during the nine months ended September 30, 2020 was due to net maturities of short-term investments of $39.5 million, partially offset by capital expenditures of $758,000.

Net cash provided by financing activities was approximately $61.6 million for the nine months ended September 30, 2021, compared to approximately $11.9 million for the nine months ended September 30, 2020.

Net cash provided by financing activities for the nine months ended September 30, 2021 was primarily due to the cash received from Lilly for the portion allocated as financing component amounting to $57.9 million, and proceeds from exercise of stock options and participation in our Employee Stock Purchase Plan (Purchase Plan) amounting to $3.7 million.

Net cash provided by financing activities for the nine months ended September 30, 2020 was related to the net proceeds from funding of Tranche 2 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.

Net increase (decrease) in cash and cash equivalents

Net cash used in operating activities for the three months ended March 31, 2022 and 2021 was primarily related to payments for our research and development programs and other operating expenses, partially offset by the proceeds from sales of TAVALISSE, cash received from collaboration partners, and cash received from the award granted by the US Department of Defense.

Increase in cash used in operating activities for the three months ended March 31, 2022 compared to the same period in 2021 was mainly due to higher cash outflows from changes in assets and liabilities primarily due to the timing of payments of our liabilities, lower cash received from our collaboration partners and from US Department of Defense, partly offset by higher cash inflows from sales of TAVALISSE due to increased product sales.

Net cash provided by investing activities for the three months ended March 31, 2022 was comprised of net maturities of short-term investments of $22.9 million, partially offset by capital expenditures of $0.2 million, compared to the three months ended March 31, 2021 which was comprised of net maturities of short-term investments of $7.6 million, partially offset by capital expenditures of $0.1 million.

Net cash provided by financing activities for the three months ended March 31, 2022 was primarily due to the net cash proceeds from term loan financing (Tranche 3) of $10.0 million and proceeds from exercise of stock options of $0.9 million, partially offset by our payment of cost share to Lilly of $2.1 million.

Net cash provided by financing activities for the three months ended March 31, 2021 was related to the proceeds from exercise of stock options of $2.1 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.

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In addition to the upfront cash payment we received from Lilly under the Lilly 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.

Further, under our other sponsored research and license agreements with Grifols, Kissei, Medison, BerGenBio and Daiichi, we may be entitled to receive future 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 Sponsored Research and License Agreements and Government Contract 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.

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

Under the agreement with the U.S.

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 nine months ended September 30, 2021, we recognized income from the awards from the U.S.

Department of Defense of $1.0 million and $9.5 million, respectively.

We expect to receive the remaining awards of $7.0 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.

See further discussions in “Note 4 - Sponsored Research and License Agreements and Government Contract” 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 US Department of Defense to support our ongoing Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients.

Under the agreement with the US 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 US Department of Defense that such events or milestones have been met.

In 2021 and in the first quarter of 2022, we recognized $10.5 million of revenue and no revenue, respectively, from the awards from the US Department of Defense.

As of March 31, 2022, we expect to receive the remaining awards of $6.0 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 US Department of Defense as specified in the agreement.

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.

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

A new automatic shelf registration statement was filed on August 3, 2021 to register the sale of up to a maximum aggregate offering price of $100.0 million of shares of our common stock that may be issued and sold from time to time under the Open Market Sale Agreement.

As of September 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.

On August 3, 2021, we filed a new automatic shelf registration statement as a qualified well-known seasoned issuer (WKSI), such term as defined in Rule 405 of the Securities Act.

The automatic shelf registration statement was filed to register, among other securities, the sale of up to a maximum aggregate offering price of $100.0 million of shares of our common stock that may be issued and sold from time to time under the Open Market Sale Agreement;

and a base prospectus which covers the offering, issuance, and sale by us of the securities identified from time to time in one or more offerings .

On March 1, 2022, we filed a post-effective amendment to the automatic shelf registration statement immediately after filing our Annual Report on Form 10-K for the year ended December 31, 2021, because we no longer qualified as a WKSI upon filing of such Annual Report.

The post-effective amendment registers, among other securities, a base prospectus which covers the offering, issuance, and sale by us of up to $250.0 million in the aggregate of the securities identified from time to time in one or more offerings, which include the $100.0 million of shares of our common stock that may be offered, issued and sold under the Open Market Sale Agreement.

We have a Credit and Security Agreement (Credit Agreement) with MidCap entered in September 2019, and subsequently amended in March 2021 and February 2022.

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.

As of March 31, 2022, we have a principal term loan outstanding with MidCap amounting to $30.0 million, with remaining $30.0 million credit facility available for us to access at our option through March 31, 2023, subject to the achievement of certain customary conditions specified in the Credit Agreement, as amended.

See further discussions of our Credit Agreement with MidCap in “Note 9 – Debt” to our “Notes to Condensed Financial Statements” contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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 September 30, 2021, we expect to receive approximately $6.2 million in future sublease income (excluding our subtenant’s share of facility’s operating expenses) through January 2023.

As of March 31, 2022, we expect to receive approximately $3.9 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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However, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets.

Our ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the U.S.

and worldwide resulting from the pandemic.

If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make important, opportunistic investments.

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Our future funding requirements will depend upon many factors, including, but not limited to:

● the ongoing costs to commercialize TAVALISSE for the treatment of ITP in the U.S., or any other future product candidates, if any such candidate receives regulatory approval for commercial sale;

● the ongoing costs to commercialize TAVALISSE for the treatment of ITP in the US, or any other future product candidates, if any such candidate receives regulatory approval for commercial sale;

● our ability to generate expected revenue from our commercialization efforts;

● the progress and success of our clinical trials and preclinical activities (including studies and manufacture of materials) of our product candidates conducted by us;

● our ability to meet operating covenants under our current and future credit facilities, if any;

● our ability to enter into partnering opportunities across our pipeline within and outside the U.S.;

● our ability to enter into partnering opportunities across our pipeline within and outside the US;

● the costs and timing of regulatory filings and approvals by us and our collaborators;

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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 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.

As discussed in detail in “Note 4 – Sponsored Research and License Agreements and Government Contract” of our “Notes to Condensed Financial Statements” contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, 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 US, Europe, and Japan, up to $65.0 million through April 1, 2024.

Through March 31, 2022, Lilly billed us $4.9 million of the funding development costs, of which, $2.1 million was paid as of March 31, 2022.

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, as set forth in the agreement.

As of September 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

(in thousands)

Facilities lease (1)

Credit facility with MidCap (2)

(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.

As of March 31, 2022, we have a contractual commitment related to our facilities lease which will expire in January 2023 amounting to $8.8 million.

This amount excludes the expected sublease income as discussed above.

As discussed above, we have a contractual commitment with respect to our credit facility with Midcap.

Under our Credit Agreement with MidCap, we are obligated to make interest payments at an annual rate of one-month LIBOR (or a comparable applicable index rate determined pursuant to the Credit Agreement if the LIBOR is no longer available) plus 5.65%, subject to a LIBOR floor of 1.50% and payable monthly in arrears, 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 (first interest-only extension) and again to 48 months (second interest-only extension) upon the satisfaction of certain conditions set forth in the Credit Agreement.

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

As of March 31, 2022, the outstanding principal amount of the loan was $30.0 million, with $7.5 million payable within 12 months under the current 36 month interest-only period.

As of March 31, 2022, we deemed that it is probable that we will satisfy the second interest-only criteria to extend the interest-only period to 48 months or through October 1, 2023.

Accordingly, we classified our outstanding loan as long-term liabilities in the condensed balance sheets.

We are also obligated to pay annual administrative fees and a final fee due at maturity.

Future interest and final fee payments associated with the credit facility amounted to $4.0 million, with $2.0 million payable within 12 months.

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.

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A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual matter.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

We do not have other material contractual commitments with respect to matters discussed above.

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