Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis should be read in conjunction with our financial statements and the accompanying notes included in this report and the audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 1, 2022. 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. 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. Examples of these statements include, but are not limited to, statements regarding the following: our expectations regarding the impact of the global COVID-19 pandemic; our business and scientific strategies; risks and uncertainties associated with the commercialization and marketing of TAVALISSE in the 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; our corporate collaborations and revenues that may be received from our collaborations and the timing of those potential payments; our expectations with respect to regulatory submissions and approvals; our drug discovery technologies; our research and development expenses; protection of our intellectual property and our intention to vigorously enforce our intellectual property rights; sufficiency of our cash and capital resources and the need for additional capital; and our operations and legal risks. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including as a result of the risks and uncertainties discussed under the heading “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by applicable law. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Overview
We are a biotechnology company dedicated to discovering, developing and providing novel small molecule drugs that significantly improve the lives of patients with hematologic disorders, cancer and rare immune diseases. Our pioneering research focuses on signaling pathways that are critical to disease mechanisms. Our first product approved by the 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.
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.
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.
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Business Update
TAVALISSE IN ITP
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. 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. 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. 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. 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.
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. Inclusion in one of the leading peer-reviewed journals in the field of hematology underscores the significance of the 78% (25/32) response rate defined as at least one platelet count of at least 50,000/µL when TAVALISSE was used as a second-line therapy in our Phase 3 clinical program. Adverse events were manageable and consistent with those previously reported with fostamatinib. Our sales force is sharing this data with physicians.
Fostamatinib in wAIHA
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 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 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. 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.
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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. 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. 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 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 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 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. Following candidate selection, Lilly will be responsible for performing and funding all future development and commercialization of the CNS disease development candidates.
Under the terms of the license agreement, we were entitled to receive a non-refundable and non-creditable upfront cash payment amounting to $125.0 million, which we received in April 2021. 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 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).
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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
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 . 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. Since the COVID-19 pandemic was declared, we have observed reduced patient-doctor interactions and our representatives are having fewer visits with health care providers, which negatively affected our ability to grow our product sales and may continue to negatively affect our product sales in the future. Resources have been deployed to enable our field team to have virtual engagements to support existing prescribers as well as partner with new prescribers to identify appropriate patients for TAVALISSE. 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
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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.
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 .
See also the section titled “Risk Factors” in Item 1A of this Form 10-Q for additional information on risks and uncertainties related to the ongoing COVID-19 pandemic.
Our Product Portfolio
The following table summarizes our portfolio:
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Commercial Product
TAVALISSE in ITP
Disease background. 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. ITP patients can suffer extraordinary bruising, bleeding and fatigue as a result of low platelet counts. Current therapies for ITP include steroids, blood platelet production boosters that imitate thrombopoietin (TPOs) and splenectomy.
Orally-available fostamatinib program. Taken in tablet form, fostamatinib blocks the activation of SYK inside immune cells. ITP is typically characterized by the body producing antibodies that attach to healthy platelets in the blood stream. Immune cells recognize these antibodies and affix to them, which activates the SYK enzyme inside the immune cell, and triggers the destruction of the antibody and the attached platelet. When SYK is inhibited by fostamatinib, it interrupts this immune cell function and allows the platelets to escape destruction. The results of our Phase 2 clinical trial, in which fostamatinib was orally administered to 16 adults with chronic ITP, published in Blood , showed that fostamatinib significantly increased the platelet counts of certain ITP patients, including those who had failed other currently available agents.
Our Fostamatinib for Immune Thrombocytopenia (FIT) Phase 3 clinical program had a total of 150 ITP patients which were randomized into two identical multi-center, double-blind, placebo-controlled clinical trials. The patients were diagnosed with persistent or chronic ITP, and had blood platelet counts consistently below 30,000 per microliter of blood. Two-thirds of the subjects received fostamatinib orally at 100 mg twice daily bid and the other third received placebo on the same schedule. Subjects were expected to remain on treatment for up to 24 weeks. At week four of treatment, subjects who failed to meet certain platelet counts and met certain tolerability thresholds could have their dosage of fostamatinib (or corresponding placebo) increased to 150 mg bid. The primary efficacy endpoint of this program was a stable platelet response by week 24 with platelet counts at or above 50,000 per microliter of blood for at least four of the final six qualifying blood draws. In August 2015, the FDA granted our request for Orphan Drug designation for fostamatinib for the treatment of ITP.
In August 2016, we announced the results of the first FIT study, reporting that fostamatinib met the study’s primary efficacy endpoint. The study showed that 18% of patients receiving fostamatinib achieved a stable platelet response compared to none receiving a placebo control (p=0.0261). In October 2016, we announced the results of the second FIT study, reporting that the response rate (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 US in May 2018. 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. (Kissei) was granted orphan drug designation from the Japanese Ministry of Health, Labor and Welfare for R788 (fostamatinib) in chronic idiopathic thrombocytopenic purpura.
Commercial activities, including sales and marketing
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.
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We have a fully integrated commercial team consisting of sales, marketing, market access, and commercial operations functions. 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 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 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.
Competitive landscape for TAVALISSE
Our industry is intensely competitive and subject to rapid and significant technological change. TAVALISSE is competing with other existing therapies. In addition, a number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. For example, there are existing therapies and drug candidates in development for the treatment of ITP that may be alternative therapies to TAVALISSE.
Currently, corticosteroids remain the most common first line therapy for ITP, occasionally in conjunction with intravenous immunoglobulin (IVIg) or anti-Rh(D) to help further augment platelet count recovery, particularly in emergency situations. However, it has been estimated that frontline agents lead to durable remissions in only a small percentage of newly-diagnosed adults with ITP. Moreover, concerns with steroid-related side effects often restrict therapy to approximately four weeks. As such, many patients progress to persistent or chronic ITP, requiring other forms of therapeutic intervention. In long-term treatment of chronic ITP, patients are often cycled through several therapies over time in order to maintain a sufficient response to the disease.
Other approaches to treat ITP are varied in their mechanism of action, and there is no consensus about the sequence of their use. Options include splenectomy, thrombopoietin receptor agonists (TPO-RAs) and various immunosuppressants (such as rituximab). The response rate criteria of the above-mentioned options vary, precluding a comparison of response rates for individual therapies.
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 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 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.
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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, 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 AIHA in Europe and Turkey. Pursuant to the terms of the license agreement, Grifols has exclusive rights to commercialize, and non-exclusive rights to develop, fostamatinib in Europe and Turkey. Grifols also received an exclusive option to expand the territory under its exclusive and non-exclusive licenses to include the Middle East, North Africa and Russia (including Commonwealth of Independent States). In November 2020, Grifols exercised its option to include these territories under the agreement.
We are responsible for performing and funding certain development activities for fostamatinib for ITP and AIHA and Grifols is responsible for all other development activities for fostamatinib in such territories. We remain responsible for the 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. 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. We will also receive tiered royalty payments ranging from the mid-teens to 30% of net sales of fostamatinib in Europe and Turkey.
Fostamatinib in Japan/Asia
In October 2018, we entered into an exclusive license and supply agreement with Kissei to develop and commercialize fostamatinib in all current and potential indications in Japan, China, Taiwan and the Republic of Korea. Kissei is a Japan-based pharmaceutical company addressing patients’ unmet medical needs through its research, development and commercialization efforts, as well as through collaborations with partners.
Under the terms of the agreement, we received an upfront cash payment of $33.0 million, with the potential for an additional $147.0 million in development and commercial milestone payments, and will receive product transfer price payments in the mid to upper twenty percent range based on tiered net sales for the exclusive supply of fostamatinib. Kissei receives exclusive rights to fostamatinib in ITP and all future indications in Japan, China, Taiwan, and the Republic of Korea.
In September 2019, Kissei initiated a Phase 3 trial in Japan of fostamatinib in adult patients with chronic ITP. The efficacy and safety of orally administered fostamatinib will be assessed by comparing it with placebo in a randomized, double-blind study. Japan has the third highest prevalence of chronic ITP in the world behind the 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. 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. 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. 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.
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Fostamatinib in Canada/Israel
In October 2019, we entered into exclusive commercial and license agreements with Medison to commercialize fostamatinib in all potential indications in Canada and Israel. Under the terms of the agreements, we received an upfront payment of $5.0 million with the potential for approximately $35.0 million in regulatory and commercial milestones. In addition, we will receive royalty payments beginning at 30% of net sales. Under our agreement with Medison for the Canada territory, we have the option to buy back all rights to the product upon regulatory approval in Canada for the indication of AIHA. The buyback provision, if exercised, would require both parties to mutually agree on commercially reasonable terms for us to purchase back the rights, taking into account Medison’s investment and the value of the rights, among others. Pursuant to this exclusive commercialization license agreement, in August 2020, we entered into a commercial supply agreement with Medison.
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 $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
Fostamatinib in wAIHA
Disease background . 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. Research has shown that inhibiting SYK with fostamatinib may reduce the destruction of red blood cells. 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 . We completed our Phase 2 clinical trial, also known as the SOAR study, in patients with wAIHA. This trial was an open-label, multi-center, two-stage study that evaluated the efficacy and safety of fostamatinib in patients with wAIHA who had previously received treatment for the disorder but have relapsed. The primary efficacy endpoint of this study was to achieve increased hemoglobin levels by week 12 of greater than 10 g/dL, and greater than or equal to 2 g/dL higher than baseline. In November 2019, we announced updated data that in a Phase 2 open-label study of fostamatinib in patients with wAIHA, data showed that 44% (11/25) of evaluable patients met the primary efficacy endpoint of a Hgb level >10 g/dL with an increase of ≥2 g/dL from baseline by week 24. Including one late responder at week 30, the overall response rate was 48% (12/25). Adverse events were manageable and consistent with those previously reported with fostamatinib. In 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.
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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 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. 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 November 2021, we completed the enrollment of this study. 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
Disease background. COVID-19 is the infectious disease caused by Severe Acute Respiratory Syndrome Coronavirus-2 (SARS-CoV-2). SARS-CoV-2 primarily infects the upper and lower respiratory tract and can lead to acute respiratory distress syndrome (ARDS). Additionally, some patients develop other organ dysfunction including myocardial injury, acute kidney injury, shock resulting in endothelial dysfunction and subsequently micro and macrovascular thrombosis. Much of the underlying pathology of SARS-CoV-2 is thought to be secondary to a hyperinflammatory immune response associated with increased risk of thrombosis. SYK is involved in the intracellular signaling pathways of many different immune cells. Therefore, SYK inhibition may improve outcomes in patients with COVID-19 via inhibition of key Fc gamma receptor (FcγR) and c-type lectin receptor (CLR) mediated drivers of pathology such as inflammatory cytokine release by monocytes and macrophages, production of NETs by neutrophils, and platelet aggregation. Furthermore, SYK inhibition in neutrophils and platelets may lead to decreased thromboinflammation, alleviating organ dysfunction in critically ill patients with COVID-19.
Rigel-led Phase 3 Trial. 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. 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 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
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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. 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.
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. 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 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. 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; p=0.29). 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. 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 was insufficient for EUA.
ACTIV-4 Host Tissue Phase 3 Trial. 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. 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 (WHO) scale scores.
Imperial College of London Phase 2 Trial. 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 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.
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Other Publications. Researchers at MIT and Harvard led a screen to identify FDA-approved compounds that reduce MUC1 protein abundance. MUC1 is a biomarker used to predict the development of ALI and ARDS and correlates with poor clinical outcomes. In June 2020, the results were presented, and of the 3,713 compounds that were screened, fostamatinib was the only compound identified which both decreased expression of MUC1 and is FDA approved. Fostamatinib demonstrated preferential depletion of MUC1 from epithelial cells without affecting cell viability. The research was focused on drug repurposing for the much lower risk of toxicity and the ability of FDA-approved treatments to be delivered on a shortened timescale, which is critical for patients afflicted with lung disease resulting from COVID-19.
In addition, the in vitro studies led by the Amsterdam University Medical Center at the University of Amsterdam, showed that R406, the active metabolite of fostamatinib, blocked macrophage hyperinflammatory responses to a combination of immune complexes formed by anti-Spike IgG in serum from severe COVID-19 patients. Anti-Spike IgG levels are known to correlate with the severity of COVID-19. These results, presented in July 2020, suggest that by inhibiting anti-Spike IgG-mediated hyperinflammation, R406 could potentially play a role in the prevention of cytokine storms as well as pulmonary edema and thrombosis associated with severe COVID-19.
In December 2020, the Journal of Infectious Diseases published research from NIH which demonstrated that R406, the active metabolite of fostamatinib, was able to inhibit NETosis ex vivo in donor plasma from patients with COVID-19. NETosis is a unique type of cell death resulting in the release of NETs. 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.
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, 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). R835 prevents cytokine release in response to TLR and IL-1R activation in vitro. R835 is active in multiple rodent models of inflammatory disease including psoriasis, arthritis, lupus, multiple sclerosis and gout. Preclinical studies show that R835 inhibits both the IRAK1 and IRAK4 signaling pathways, which play a key role in inflammation and immune responses to tissue damage. Dual inhibition of IRAK1 and IRAK4 allows for more complete suppression of pro-inflammatory cytokine release.
In October 2019, we announced results from a Phase 1 clinical trial of R835 in healthy subjects to assess safety, tolerability, 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, completing the evaluation of a new pro-drug formulation of R835, R289, in single-ascending and multiple ascending dose studies with positive safety 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. We are also exploring indications in rare immune diseases.
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Partnered Clinical Programs
BGB324 – BerGenBio
We have an exclusive, worldwide research, development and commercialization agreement with BerGenBio for our investigational AXL receptor tyrosine kinase (AXL) inhibitor, BGB324/R428 (now referred to as bemcentinib).
The product is being investigated in two Phase 2 clinical trials for the treatment of hospitalized patients with COVID-19. Clinical trials are also ongoing across oncology indications with high unmet medical need including acute myeloid leukemia (AML), myelodysplastic syndrome (MDS), and non-small cell lung cancer (NSCLC).
DS-3032 - Daiichi
DS-3032 is an investigational oral selective inhibitor of the murine double minute 2 (MDM2) protein investigated by Daiichi in three Phase 1 clinical trials for solid and hematological malignancies including AML, acute lymphocytic leukemia, chronic myeloid leukemia in blast phase, lymphoma and MDS. Preliminary safety and efficacy data from a Phase 1 study of DS-3032 suggests that DS-3032 may be a promising treatment for hematological malignancies including relapsed/refractory AML and high-risk MDS.
In September 2020, worldwide rights to DS-3032 were out-licensed from Daiichi to Rain Therapeutics Inc. (Rain). 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 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. 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
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 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
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.
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Results of Operations
Three months ended June 30, 2022 and 2021
Revenues
Three Months Ended June 30,
Aggregate
Six Months Ended June 30,
Aggregate
2022
2021
Change
2022
2021
Change
(in thousands)
(in thousands)
Product sales, net
$
18,550
$
17,053
$
1,497
$
34,747
$
29,429
$
5,318
Contract revenues from collaborations
11,269
3,713
7,556
11,807
69,355
(57,548)
Government contract
—
5,500
(5,500)
—
8,500
(8,500)
Total revenues
$
29,819
$
26,266
$
3,553
$
46,554
$
107,284
$
(60,730)
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 June 30,
Six Months Ended June 30,
2022
2021
2022
2021
McKesson Specialty Care Distribution Corporation
34%
33%
36%
13%
Kissei
25%
*
16%
*
Cardinal Healthcare
16%
13%
20%
*
ASD Healthcare and Oncology Supply
12%
36%
19%
13%
Lilly
*
16%
*
65%
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 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 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. 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.
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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 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 June 30,
Aggregate
Six Months Ended June 30,
Aggregate
2022
2021
Change
2022
2021
Change
(in thousands)
(in thousands)
Cost of product sales
$
1,036
$
129
$
907
$
1,157
$
445
$
712
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. 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 condensed balance sheet and cost of product sales will increase reflecting the full cost of manufacturing.
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 June 30,
Aggregate
Six Months Ended June 30,
Aggregate
2022
2021
Change
2022
2021
Change
(in thousands)
(in thousands)
Research and development expense
$
14,767
$
16,807
$
(2,040)
$
30,241
$
33,633
$
(3,392)
Stock-based compensation expense included in research and development expense
$
458
$
534
$
(76)
$
926
$
1,120
$
(194)
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.
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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 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. 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. 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, 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 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. We review our research and development expenses by focusing on three categories: research, development, and other. 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 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.
In addition to reviewing the three categories of research and development expenses described in the preceding paragraph, we principally consider qualitative factors in making decisions regarding our research and development programs, which include enrollment in clinical trials and the results thereof, the clinical and commercial potential for our drug candidates and competitive dynamics. We also make our research and development decisions in the context of our overall business strategy, which includes the evaluation of potential collaborations for the development of our drug candidates.
We do not have reliable estimates regarding the timing of our clinical trials. Preclinical testing and clinical development are long, expensive and uncertain processes. In general, biopharmaceutical development involves a series of steps, beginning with identification of a potential target and including, among others, proof of concept in animals and Phase 1, 2 and 3 clinical trials in humans. Significant delays in clinical testing could materially impact our product development costs and timing of completion of the clinical trials. We do not know whether planned clinical trials will begin on time, will need to be halted or revamped or will be completed on schedule, or at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a trial, delays from scale up, delays in reaching agreement on acceptable clinical trial agreement terms with prospective clinical sites, delays in obtaining institutional review board approval to conduct a clinical trial at a prospective clinical site or delays in recruiting subjects to participate in a clinical trial.
We currently do not have reliable estimates of total costs for a particular drug candidate to reach the market. Our potential products are subject to a lengthy and uncertain regulatory process that may involve unanticipated additional clinical trials and may not result in receipt of the necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us from commercializing the product candidates affected. In addition, clinical trials of our potential products may fail to demonstrate safety and efficacy, which could prevent or significantly
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delay regulatory approval.
The following table presents our total research and development expense by category (in thousands).
Three Months Ended June 30,
Six Months Ended June 30,
From January 1, 2007*
2022
2021
2022
2021
to June 30, 2022
Categories:
Research
$
881
$
2,292
$
1,915
4,774
$
266,147
Development
12,413
12,481
25,128
24,736
522,447
Other
1,473
2,034
3,198
4,123
265,634
$
14,767
$
16,807
$
30,241
$
33,633
$
1,054,228
* We started tracking research and development expense by category on January 1, 2007.
“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 June 30,
Aggregate
Six Months Ended June 30,
Aggregate
2022
2021
Change
2022
2021
Change
(in thousands)
(in thousands)
Selling, general and administrative expense
$
26,981
$
22,378
$
4,603
$
54,382
$
44,499
$
9,883
Stock-based compensation expense included in selling, general and administrative expense
$
1,933
$
1,772
$
161
$
4,672
$
3,825
$
847
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.
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
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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 June 30,
Aggregate
June 30,
Aggregate
2022
2021
Change
2022
2021
Change
(in thousands)
(in thousands)
Interest income
$
42
$
16
$
26
$
63
$
17
$
46
Interest expense
$
(569)
$
(1,759)
$
1,190
$
(1,774)
$
(2,244)
$
470
Interest income is primarily related to our interest-bearing cash and investment balances.
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.
Provision for Income Taxes
Three Months Ended June 30,
Aggregate
Six Months Ended June 30,
Aggregate
2022
2021
Change
2022
2021
Change
(in thousands)
(in thousands)
Provision for (benefit from) income taxes
$
—
$
(970)
$
970
$
—
801
$
(801)
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
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. 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.
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
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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
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
Liquidity
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. We view our investments portfolio as available-for-sale and are available for use in current operations. Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk. We continue to monitor the impact of the changes in the conditions of the credit and financial markets to our investment portfolio and assess if future changes in our investment strategy are necessary.
Following summarizes our cash flow activity for the periods presented:
Six Months Ended June 30,
2022
2021
(in thousands)
Net cash provided by (used in):
Operating activities
$
(38,548)
$
35,261
Investing activities
43,724
(42,127)
Financing activities
3,135
61,316
Net increase (decrease) in cash and cash equivalents
$
8,311
$
54,450
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
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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, 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. 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. In April 2021, the registration statement registering the sale of shares under the Open Market Sale Agreement expired. From the time of implementation of the Open Market Sale Agreement through expiration of the registration statement, no sales of shares occurred. 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 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 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 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
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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 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. Unless and until we are able to generate a sufficient amount of product, royalty or milestone revenue, we expect to opportunistically finance future cash needs through public and/or private offerings of equity securities, debt financings and/or collaboration and licensing arrangements, and to a much lesser extent through the proceeds from exercise of stock options and interest income earned on the investment of our excess cash balances and short-term investments. However, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. Our ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the US and worldwide resulting from the pandemic. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make important, opportunistic investments. In addition, any additional capital we raise by issuing equity securities, our stockholders could at that time experience substantial dilution. Our current credit facility with MidCap and any debt financing that we are able to obtain in the future may involve operating covenants that may restrict our business. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some of our rights to our technologies or product candidates or grant licenses on terms that are not favorable to us.
Our future funding requirements will depend upon many factors, including, but not limited to:
● the ongoing costs to commercialize TAVALISSE for the treatment of ITP in the 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 US;
● the costs and timing of regulatory filings and approvals by us and our collaborators;
● the progress of research and development programs carried out by us and our collaborative partners;
● any changes in the breadth of our research and development programs;
● the ability to achieve the events identified in our collaborative agreements that may trigger payments to us from our collaboration partners;
● our ability to acquire or license other technologies or compounds that we may seek to pursue;
● our ability to manage our growth;
● competing technological and market developments;
● the costs and timing of obtaining, enforcing and defending our patent and other intellectual property rights; and
● expenses associated with any unforeseen litigation, including any arbitration and securities class action lawsuits.
Insufficient funds may require us to delay, scale back or eliminate some or all of our commercial efforts and/or research or development programs, to lose rights under existing licenses or to relinquish greater or all rights to product
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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
We conduct our commercial activities and research and development programs internally and through third parties that include, among others, arrangements with vendors, consultants, contract research organizations (CRO) and universities. We have contractual arrangements with these parties, however our contracts with them are cancelable generally on reasonable notice within one year and our obligations under these contracts are primarily based on services performed. We do not have any purchase commitments under any collaboration arrangements.
We have agreements with certain clinical research organizations to conduct our clinical trials and with third parties relative to our commercialization of TAVALISSE. The timing of payments for any amounts owed under the respective agreements will depend on various factors including, but not limited to, patient enrollment and other progress of the clinical trial and various activities related to commercial launch. We expect we will continue to enter into contracts in the normal course of business with various third parties who support our clinical trials, support our preclinical research studies, and provide other services related to our operating purposes as well as our commercial launch of TAVALISSE. We can terminate these agreements at any time, and if terminated, we would not be liable for the full amount of the respective agreements. Instead, we will be liable for services provided through the termination date plus certain cancellation charges, if any, as defined in each of the respective agreements. In addition, these agreements may, from time to time, be subjected to amendments as a result of any change orders executed by the parties.
As 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 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 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. 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. 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.
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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. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual matter.
We do not have other material contractual commitments with respect to matters discussed above.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.