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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-03 · 186 added, 126 removed, 448 unchanged (41% of the section changed)

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This discussion and analysis should be read in conjunction with our financial statements and the accompanying notes included in this report and the audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 1, 2022.

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.

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

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our research and development expenses;

protection of our intellectual property;

protection of our intellectual property and our intention to vigorously enforce our intellectual property rights;

sufficiency of our cash and capital resources and the need for additional capital;

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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;

Our portfolio also includes olutasidenib, an oral, small molecule inhibitor of mIDH1 being investigated for the treatment of R/R AML and other malignancies.

We in-licensed olutasidenib from Forma with exclusive, worldwide rights to develop, manufacture, and commercialize the investigational agent.

See further discussions in the “Business Update – License and Transition Services Agreement with Forma” section below.

We conducted a Phase 3 clinical trial evaluating fostamatinib for the treatment of wAIHA.

Fostamatinib is also currently being studied in a Phase 3 clinical trial for the treatment of hospitalized high-risk patients with COVID-19;

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

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TAVALISSE IN ITP

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.

For the six months ended June 30, 2022, net product sales of TAVALISSE were $34.7 million, an 18% 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.

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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.

More than half of respondents reported that COVID-19 had an impact on their management of chronic ITP, and about a third of respondents anticipate a surge of patients post-COVID-19.

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

Since the COVID-19 pandemic was declared, we have observed reduced patient-doctor interactions and our representatives are having fewer visits with health care providers, which negatively affected our ability to grow our product sales.

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.

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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.

In 2022, we have seen increasing demand for TAVALISSE as in-person interactions have increased and more patients have started therapy.

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.

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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.

In June 2022, we announced top-line efficacy and safety data results of our FORWARD study, a Phase 3 pivotal trial of fostamatinib, an oral SYK inhibitor, in patients with wAIHA, which we initiated in March 2019.

We completed the enrollment of our FORWARD study in November 2021 with 90 patients enrolled and completed the treatment period for the last patient under the study in April 2022.

The results of the trial did not demonstrate statistical significance in the primary efficacy endpoint of durable hemoglobin response in the overall study population.

For more detailed discussions of the results of the trial, refer to “Clinical Stage Programs” section below.

We are conducting an in-depth analysis of these data to better understand differences in patient characteristics and outcomes and expect to discuss these findings with the FDA to determine the path forward in wAIHA.

Of the 90 patients that completed the FORWARD Phase 3 study, 71 (79%) enrolled in the open-label extension study which is ongoing.

Data from this study will be reported later.

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.

In April 2021, we reported positive top-line 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 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.

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.

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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 July 2022, we completed enrollment with 280 patients in our pivotal Phase 3 clinical trial evaluating fostamatinib in high-risk patients hospitalized with COVID-19.

The trial had originally targeted a total of 308 patients;

however, we determined the trial would be sufficiently powered with 280 patients to potentially provide a clinically meaningful result and determine the efficacy and safety of fostamatinib in hospitalized COVID-19 patients.

We expect to report top-line results in fourth quarter of 2022 and if the data is positive, file an EUA with the FDA.

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.

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

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

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

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.

Under the terms of the license agreement, we were entitled to receive a non-refundable and non-creditable upfront cash payment amounting to $125.0 million, which we received in April 2021.

We are also entitled for additional milestone payments for non-CNS disease products consisting of up to $330.0 million in milestone payments upon the achievement of specified development, regulatory and commercial milestones, and up to $100.0 million in sales milestone payments on a product-by-product basis.

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 are also eligible to receive milestone payments for CNS disease products consisting of up to $255.0 million in milestone payments upon the achievement of specified development, regulatory and commercial milestones and up to $150.0 million in sales milestone payments on a product-by-product basis.

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.

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.

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 half 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.

License and Transition Services Agreement with Forma

On July 27, 2022, we entered into a license and transition services agreement with Forma for an exclusive license to develop, manufacture and commercialize olutasidenib, Forma’s proprietary inhibitor of mIDH1, for any uses worldwide, including for the treatment of R/R AML and other malignancies.

Pursuant to the terms of the license and transition services agreement, we will pay an upfront fee of $2.0 million, with the potential to pay up to $67.5 million additional payments upon achievement of specified development and regulatory milestones and up to $165.5 million additional payments upon achievement of certain commercial milestones.

The potential development and regulatory milestone payments of $67.5 million include a $2.5 million payment upon achievement of certain near-term regulatory milestone, a $5.0 million payment upon the first regulatory approval of the licensed product, and $10.0 million payment upon the licensed product’s first commercial sale subject to certain other conditions.

In addition, subject to the terms and conditions of the license and transition services agreement, Forma would be entitled to tiered royalty payments on net sales of licensed products at percentages ranging from low-teens to mid-thirties, as well as certain portions of our sublicensing revenue, subject to certain standard reductions and offsets.

Forma has submitted an NDA for olutasidenib to the FDA and the Prescription Drug User Fee Act (PDUFA) action date for the application is February 15, 2023.

Olutasidenib is highly synergistic with our existing hematology-oncology focused commercial infrastructure and if approved, would be our second commercial product in this space.

Patent Infringement Lawsuit

In June 2022, we received a notice letter regarding an Abbreviated New Drug Application (ANDA) submitted to the FDA by Annora Pharma Private Limited (Annora), requesting approval to market a generic version of TAVALISSE.

On July 25, 2022, we filed a lawsuit in the United States District Court for the District of New Jersey against Annora for infringement of certain of our US patents.

For a more detailed discussion of this litigation matter, see “Legal Proceedings” in Part II, Item 1 of this Quarterly Report on Form 10-Q.

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

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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.

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.

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.

In 2022, we have seen increasing demand for TAVALISSE as in-person interactions have increased and more patients have started therapy.

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.

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.

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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.

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

In February 2020, Kissei Pharmaceutical Co., Ltd.

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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).

In the longer term, we may eventually face competition from potential manufacturers of generic versions of our marketed products, including the proposed generic version of TAVALISSE that is the subject of an ANDA submitted to the FDA by Annora, which if approved, could result in significant decreases in the revenue derived from sale of TAVALISSE and thereby materially harm our business and financial condition.

Fostamatinib in Global Markets

We have entered into various license agreements to commercialize fostamatinib globally.

The following describes the arrangements we have in place with Grifols, Kissei and Medison Pharma Trading AG (Medison Canada) and Medison Pharma Ltd.

(Medison Israel, and together with Medison Canada, Medison).

We retain the global rights to fostamatinib outside of the Grifols, Kissei and Medison territories.

The following describes the arrangements we have in place with Grifols, Kissei, Medison and Knight.

We retain the global rights to fostamatinib outside of the Grifols, Kissei, Medison and Knight territories.

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 autoimmune hemolytic anemia (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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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.

In January 2020, the European Commission granted a MA for fostamatinib for the treatment of chronic ITP in adult patients who are refractory to other treatments.

In January 2020, the European Commission (EC) granted a MA for fostamatinib for the treatment of chronic ITP in adult patients who are refractory to other treatments.

With this approval, we received a $20.0 million non-refundable milestone payment, comprised of a $17.5 million payment due upon MAA approval by the EMA of fostamatinib for the first indication and a $2.5 million creditable advance royalty payment due upon EMA approval of fostamatinib in the first indication.

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

In December 2021, Kissei reported positive top-line 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.

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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.

With this milestone event, during the second quarter of 2022, we received $5.0 million non-refundable and non-creditable payment from Kissei based on the terms of our collaboration agreement, and such amount was recognized as revenue in the second quarter of 2022.

Fostamatinib in Canada/Israel

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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 $0.1 million.

Fostamatinib in Latin America

In May 2022, we entered into commercial license agreement with Knight for the commercialization of fostamatinib for approved indications in Latin America, consisting of Mexico, Central and South America, and the Caribbean (Knight territory).

Pursuant to such commercial license agreement, we received a $2.0 million one-time, non-refundable, and non-creditable upfront payment, with potential for up to an additional $20.0 million in regulatory and sales-based commercial milestone payments, and will receive twenty- to mid-thirty percent, tiered, escalated net-sales based royalty payments for products sold in the Knight territory.

We are also responsible for the exclusive manufacture and supply of fostamatinib for all future development and commercialization activities under a Commercial and Supply Agreement.

Clinical Stage Programs

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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 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.

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

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.

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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.

In April 2022, we completed the treatment period for the last patient under the study .

I n June 2022, we announced top-line efficacy and safety data from the FORWARD study with 90 patients.

Patients were randomized 1:1 to receive fostamatinib or matching placebo twice daily for 24 weeks.

The primary efficacy endpoint of Hgb response was defined as achieving a Hgb ≥10 g/dL with an increase from baseline ≥2 g/dL on three consecutive available visits during the 24-week treatment period.

The trial did not demonstrate statistical significance in the primary efficacy endpoint of durable hemoglobin response in the overall study population.

The trial also included key secondary endpoints, including hemoglobin response on at least one visit, change in Hgb from baseline of ≥2 g/dL, use of permitted rescue therapy after week 4, change in Hgb from baseline to end of treatment and change from baseline to week 24 in FACIT-F scale.

Across the trial's overall patient population, fostamatinib was generally well-tolerated.

The safety profile of the product was consistent with prior clinical experience and no new safety issues were discovered.

The most common adverse events (≥10%) with fostamatinib and placebo were diarrhea (26.7% and 6.7%), hypertension (24.4% and 17.8%), fatigue (15.6% and 11.1%), pyrexia (13.3% and 6.7%), nausea (13.3% and 8.9%), and dyspnea (13.3% and 11.1%).

Treatment-related serious adverse events were 6.7% (3/45) for fostamatinib and 4.4% (2/45) for placebo.

There were five deaths on the study (2 with fostamatinib and 3 with placebo), all of which were determined to be unrelated to study drug.

The safety results were consistent with the overall safety profile data collected to date, which includes more than 3,900 patients across multiple diseases.

We are conducting an in-depth analysis of these data to understand the patient disease characteristics and outcomes and expect to discuss these findings with the FDA to determine the path forward in wAIHA.

Of the 90 patients that completed the FORWARD Phase 3 study, 71 (79%) enrolled in the open-label extension study which is ongoing.

Data from this study will be reported later.

Fostamatinib in Hospitalized COVID-19 Patients

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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.

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.

In July 2022, we completed enrollment with 280 patients in our pivotal Phase 3 clinical trial evaluating fostamatinib in high-risk patients hospitalized with COVID-19.

The trial had originally targeted a total of 308 patients;

We expect to report top-line results in fourth quarter of 2022 and if the data is positive, file an EUA with the FDA.

NIH/NHLBI-sponsored Phase 2 Trial.

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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;

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.

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We continue to focus on enrolling patients in our Rigel-led Phase 3 clinical trial.

We 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 our EUA application with this additional data.

ACTIV-4 Host Tissue Phase 3 Trial.

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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

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

We continue to advance the development of our IRAK1/4 program, 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.

We are also exploring indications in rare immune diseases.

Partnered Clinical Programs

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We are conducting proprietary research in the broad disease areas of inflammation/immunology, immuno-oncology and cancers.

Within these disease areas, our researchers are investigating mechanisms of action as well as screening compounds against potential novel targets and optimizing those leads that appear to have the greatest potential.

Within these disease areas, our researchers are investigating mechanisms of action of our clinical-stage compounds potentially revealing and expanding their clinical utility into novel indications or additional biological pathophysiology aspects of disease, as well as screening compounds against potential novel targets and optimizing those leads that appear to have the greatest potential.

Commercialization and Sponsored Research and License Agreements

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Results of Operations

Three months ended March 31, 2022 and 2021

Three Months Ended March 31,

Three months ended June 30, 2022 and 2021

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Product sales, net

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

McKesson Specialty Care Distribution Corporation

ASD Healthcare and Oncology Supply

Cardinal Healthcare

ASD Healthcare and Oncology Supply

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.

For the three and six months ended June 30, 2022, net product sales of TAVALISSE increased by 9% and 18%, respectively, compared to the same periods in 2021.

The increases were 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.

Contract revenues from collaborations in the three and six months ended June 30, 2022 were comprised of $7.5 million and $7.6 million, respectively, in revenue from Kissei related to a milestone payment and delivery of fostamatinib supply, $2.0 million for each of the periods in revenue related to our license agreement with Knight, $1.4 million and $1.7 million, respectively, in revenue related from Grifols related the research and development services and delivery of fostamatinib supply, and $0.3 million and $0.5 million, respectively, in revenue related to our license agreement with Lilly.

Contract revenues from collaborations in the three and six months ended June 30, 2021 were comprised primarily of $3.3 million and $63.9 million, respectively, in revenue related to our license agreement with Lilly and $0.4 million in revenue for each periods related to the research and development services with Grifols.

In addition, contract revenues in the six months ended June 30, 2021 include $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 recognized in the first quarter of 2021.

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.

Through June 30, 2022, we recognized $10.5 million of revenue from this award and 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;

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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.

As of June 30, 2022, we had deferred revenues of $1.5 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Cost of product sales

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

The cost of product sales for the periods presented was related to our product, TAVALISSE, and sale of fostamatinib to our collaborative partners.

Prior to the FDA approval in May 2018, manufacturing and related costs were charged to research and development expense.

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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.

The cost of product sales increased in the three and six months ended June 30, 2022, compared to the same periods in 2021, primarily due to delivery of drug supply pursuant to our supply agreements with our collaborative partners, Grifols and Kissei.

No material increases in our cost of product sales related to our sales of TAVALISSE in the US during the three and six months ended June 30, 2022, compared to the same periods in 2021.

Research and Development Expense

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Research and development expense

Stock-based compensation expense included in research and development expense

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.

The decrease in research and development expense in the three months ended June 30, 2022 compared to the same period in 2021 was mainly due to decrease in personnel-related costs of $1.6 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 $2.5 million, decrease in research and development costs in our AIHA study of $0.9 million, and decrease in other various research and development expenses of $0.9 million.

These decreases were partially offset by the increase in our research and development of our IRAK 1/4 inhibitor program of $2.7 million and increase in consulting and third-party services of $1.2 million .

The decrease in research and development expense in the six months ended June 30, 2022 compared to the same period in 2021 was mainly due to decrease in personnel-related costs of $2.7 million primarily as a result of the restructuring as discussed above, decrease in research and development costs on our ongoing Phase 3 clinical trial on hospitalized COVID-19 patients of $3.2 million, decrease in research and development costs in our AIHA study of $1.6 million, and decrease in other various research and development expenses of $1.3 million.

These decreases were partially offset by the increase in our research and development of our IRAK 1/4 inhibitor program of $4.2 million, and increase in consulting and third-party services of $1.2 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.

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.

In November 2021, we completed enrollment of the wAIHA study and i n April 2022, we completed the treatment period for the last patient under the study.

In June 2022, we announced that top-line results from the trial did not demonstrate statistical significance in the primary efficacy endpoint of durable hemoglobin response in the overall study population.

In July 2022, we completed the enrollment in our Phase 3 clinical trial of fostamatinib for the treatment of hospitalized high-risk patients with COVID-19 and expect to provide top-line results in the fourth quarter of 2022.

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.

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, 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.

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

We believe that this 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 hematologic disease and immunology.

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

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

From January 1, 2007*

to March 31, 2022

to June 30, 2022

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

“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.

“Other” expenses for the three months ended June 30, 2022 and 2021 consisted of allocated facilities costs of $1.0 million and $1.5 million, respectively, and allocated stock-based compensation expense of $0.5 million for each of the periods.

For the six months ended June 30, 2022 and 2021, allocated facilities costs was $2.3 million and $3.0 million, respectively, and allocated stock-based compensation expense was $0.9 million and $1.1 million, respectively.

For the three and six months ended June 30, 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Selling, general and administrative expense

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

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.

Stock-based compensation expense for the six months ended June 30, 2022 include an incremental charge of approximately $0.8 million recorded in the first quarter of 2022 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 former Board of Directors whose terms expired in May 2022.

The increase in selling, general and administrative expense in the three months ended June 30, 2022 compared to the same period in 2021 was mainly due to the increase in personnel-related costs and recruitment fees of $1.9 million, increase in costs of commercial activities of $1.5 million, increase in trainings, conferences and travel related costs of $0.7 million, and increase in other various sales, general and administrative costs of $0.5 million.

The increase in selling, general and administrative expense in the six months ended June 30, 2022 compared to the same period in 2021 was mainly due to the increase in personnel-related costs and recruitment fees of $4.3 million, increase in costs of commercial activities of $3.7 million, increase in trainings, conferences and travel related costs of $1.8 million, increase in stock-based compensation expense of $0.8 million primarily due to an incremental charge as discussed above, and increase in other various sales, general and administrative costs of $0.2 million.

These increases were partially offset by the decrease in our consulting and third-party services of $0.9 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.

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

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

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

patients for our product.

However, we are not currently able to fully forecast the scope of impacts that the COVID-19 pandemic may have on our commercial activities and sales of our product.

Interest Income and Interest Expense

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands)

Interest income

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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.

Interest expense is comprised primarily of interest on the outstanding term loan with MidCap and interest accreted on the outstanding financing liability associated with the license agreements with Lilly and Medison.

The decrease in interest expense in the three and six months ended June 30, 2022, compared with the same periods in 2021, were mainly due to the timing of accretion of interest on the outstanding financing liability.

During the three and six months ended June 30, 2022, no interest and $0.7 million interest, respectively, was recognized on the outstanding financing liability, compared to $1.4 million for each of the three and six months ended June 30, 2021.

The decrease in interest expense as discussed above were partially offset by higher interest on our term loan with MidCap due to the increase in the outstanding term loan 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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.

(in thousands)

Provision for (benefit from) income taxes

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

We estimated a state tax liability over our pre-tax income (loss) for 2021, which was 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 enactment of the 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

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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.

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.

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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.

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 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.

As of June 30, 2022, we had approximately $89.2 million in cash, cash equivalents and short-term investments, as compared to approximately $125.0 million as of December 31, 2021.

We continue to maintain 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:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

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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 .

Net cash used in operating activities for the six months ended June 30, 2022 was primarily related to payments for our research and development programs and other operating expenses, partially offset by the proceeds from sales of TAVALISSE, and the timing of cash receipt from our collaboration partners and cash grant from the US Department of Defense.

Net cash provided by operating activities for the six months ended June 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, and timing of cash receipt from our collaboration partners and cash grant from the US Department of Defense.

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

Net cash provided by investing activities for the six months ended June 30, 2022 comprises net maturities of short-term investments of $43.6 million and proceeds from disposal of assets of $0.3 million, partially offset by capital expenditures of $0.2 million.

Net cash used in investing activities for the six months ended June 30, 2021 comprises net purchases of short-term investments of $41.6 million and capital expenditures of $0.5 million.

Net cash provided by financing activities for the six months ended June 30, 2022 was primarily due to the net cash proceeds from term loan financing (Tranche 3) of $9.9 million and proceeds from exercises of stock options and participation in the Purchase Plan of $1.5 million, partially offset by our payment of cost share to Lilly of $8.3 million.

N et cash provided by financing activities for the six months ended June 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 the Purchase Plan of $3.4 million.

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

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our

available capital resources sooner than we currently expect.

Because of the numerous risks and uncertainties associated with commercializing a product, the development of our product candidates and other research and development activities, we are unable to estimate with certainty our future product revenues, our revenues from our current and future collaborative partners, the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials and other research and development activities.

Capital Resources

Since inception, we have financed our operations primarily through sales of equity securities, contract payments under our collaboration agreements and from sales of TAVALISSE beginning in May 2018.

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

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

Since inception, we have financed our operations primarily through sales of equity securities, from sales of TAVALISSE beginning in May 2018, and contract payments under our collaboration agreements.

Under our existing collaboration agreements that we entered in the ordinary course of business, we received or may be entitled to receive upfront cash payments, payments contingent upon specified events achieved by such partners and royalties on any net sales of products sold by such partners under the agreements.

As of June 30, 2022, total future contingent payments to us under our existing agreements, excluding terminated or terminating agreements, could exceed $1.3 billion if all potential product candidates achieved all of the payment triggering events under all of our current agreements (based on a single product candidate under each agreement).This estimated future contingent amount does not include any estimated royalties that could be due to us if the partners successfully commercialize any of the licensed products.

Future events that may trigger payments to us under the agreements are based solely on our partners’ future efforts and achievements of specified development, regulatory and/or commercial events.

See further discussion 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.

Through June 30, 2022, we recognized $10.5 million in revenue from this award and 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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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 was declared effective on May 3, 2022.

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.

We have a Credit Agreement with MidCap entered in September 2019, and subsequently amended in March 2021, February 2022 and July 27, 2022.

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

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.

As of June 30, 2022, we have a principal term loan outstanding with MidCap amounting to $30.0 million.

On July 27 2022, we entered into the Third Amendment to our Credit Agreement with MidCap and on such date, an additional $10.0 million term loan was funded.

To date, the facility gives us the ability to access an additional $20.0 million at our option, subject

to the achievement of certain customary conditions.

See further discussions of our Credit Agreement with MidCap in “Note 9 – Debt” and “Note 12 – Subsequent Events” 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 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.

As of June 30, 2022, we expect to receive approximately $2.8 million in future sublease income (excluding our subtenant’s share of facility’s operating expenses) through January 2023.

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

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● expenses associated with any unforeseen litigation, including any arbitration and securities class action lawsuits.

Insufficient funds may require us to delay, scale back or eliminate some or all of our commercial efforts and/or research or development programs, to lose rights under existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose or may adversely affect our ability to operate as a going concern.

candidates at an earlier stage of development or on less favorable terms than we would otherwise choose or may adversely affect our ability to operate as a going concern.

Material Cash Requirements

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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.

Through June 30, 2022, Lilly billed us $8.3 million of the funding development costs and the amounts were fully paid as of June 30, 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 March 31, 2022, we have a contractual commitment related to our facilities lease which will expire in January 2023 amounting to $8.8 million.

As of June 30, 2022, we have a contractual commitment related to our facilities lease which will expire in January 2023 amounting to $6.1 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.

Prior to the Third Amendment to 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.

Further, in June 2022, we satisfied the second interest-only extension conditions which effectively extended the interest-only period to 48 months or through October 1, 2023.

As of June 30, 2022, the outstanding principal amount of the loan was $30.0 million, and no principal payments are due within 12 months under the current 48-month interest-only period.

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 $4.6 million, with $2.1 million payable within 12 months.

As discussed in detail in “Note 12 – Subsequent Events” of our “Notes to Condensed Financial Statements” contained Part I, Item 1 of this Quarterly Report on Form 10-Q, in July 2022, we entered into the Third Amendment to our Credit Agreement with MidCap, which among other things, extend the maturity date for the term loans to September 1, 2026, extend the interest-only period for the term loans to October 1, 2024, reset the prepayment fee applicable to the term loans, and change the interest rate benchmark from LIBOR to SOFR (as defined in the amended Credit Agreement).

To date, the outstanding principal balance of the loan was $40.0 million.

Additionally, as discussed in detail in “Note 12 – Subsequent Events” of our “Notes to Condensed Financial Statements” contained Part I, Item 1 of this Quarterly Report on Form 10-Q, in July 2022, we entered into a license and transition services agreement with Forma.

Pursuant to such agreement, we will pay Forma an upfront fee of $2.0 million, with potential for an additional development and regulatory milestone payments of up to $67.5 million, commercial milestone payments of up to $165.5 million, and tiered royalty payments.

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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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