What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-08-02 · 172 added, 137 removed, 427 unchanged (42% of the section changed)

3 unchanged sentences

(In thousands)

September 30,

Current assets:

32 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Product sales, net

19 unchanged sentences

(In thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss)

23 unchanged sentences

( 1,364,823 )

Net unrealized gain on short-term investments

Stock-based compensation expense

Balance as of September 30, 2022

( 1,383,860 )

Comprehensive

12 unchanged sentences

( 1,280,293 )

Net unrealized gain on short-term investments

Issuance of common stock upon exercise of options

Stock-based compensation expense

Balance as of September 30, 2021

( 1,301,245 )

See Accompanying Notes to Condensed Financial Statements

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities

26 unchanged sentences

Cost share advance from collaboration partner

Cost share payment to a collaboration partner

Cost share payments to a collaboration partner

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

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The product is also commercially available in Europe, United Kingdom (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 mutated isocitrate dehydrogensase-1 (mIDH1) being investigated for the treatment of relapsed/refractory acute myeloid leukemia (R/R AML) and other malignancies.

Our portfolio also includes olutasidenib, an oral, small molecule inhibitor of mutated isocitrate dehydrogenase-1 (mIDH1) being investigated for the treatment of acute myeloid leukemia (AML) and other malignancies.

We in-licensed olutasidenib from Forma Therapeutics, Inc.

(Forma) with exclusive, worldwide rights to develop, manufacture, and commercialize the investigational agent.

See “Note 12 – Subsequent Events” for further discussion.

We conducted a Phase 3 clinical trial evaluating fostamatinib for the treatment of warm autoimmune hemolytic anemia (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 National Institute of Health (NIH)/National Heart, Lung, and Blood Institute (NHLBI) sponsored Phase 3 trial (ACTIV-4 Host Tissue Trial) for the treatment of COVID-19 in hospitalized patients.

(Forma) with exclusive, worldwide rights to develop, manufacture, and commercialize the investigational drug.

We conducted a Phase 3 clinical trial evaluating fostamatinib for the treatment of warm autoimmune hemolytic anemia (wAIHA), and recently announced that we do not expect to file a supplemental New Drug Application (sNDA) for this indication at this time considering the top-line data results and the guidance received from the FDA.

We recently announced the completion of the FOCUS Phase 3 clinical trial of fostamatinib for the treatment of hospitalized high-risk patients with COVID-19.

Fostamatinib is also currently being studied in a National Institute of Health (NIH)/National Heart, Lung, and Blood Institute (NHLBI) sponsored Accelerating COVID-19 Therapeutic Inventions and Vaccines (ACTIV-4) Phase 3 trial (ACTIV-4 Host Tissue Trial) for the treatment of COVID-19 in hospitalized patients.

Our other clinical programs include our interleukin receptor-associated kinase (IRAK) inhibitor program and a receptor-interacting serine/threonine-protein kinase (RIPK1) inhibitor program in clinical development with partner Eli Lilly and Company (Lilly).

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The preparation of financial statements in conformity with US GAAP requires management 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.

estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

Actual results could differ from these estimates.

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

There have been no material changes to these accounting policies.

As of June 30, 2022, we had approximately $ 89.2 million in cash, cash equivalents and short-term investments.

There have been no material changes to these accounting policies, except for our accounting associated with our in-license agreement with Forma as discussed in detail in “Note 4 – Sponsored Research and License Agreements”.

As of September 30, 2022, we had approximately $ 81.6 million in cash, cash equivalents and short-term investments.

Since inception, we have financed our operations primarily through sales of equity securities, debt financing, contract payments under our collaboration agreements and from product sales.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

EPS Numerator:

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Outstanding stock options

Restricted stock units

Purchase Plan

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Product sales:

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Credit or payments made during the period

Balance as of June 30, 2022

Balance as of September 30, 2022

Discounts and

2 unchanged sentences

Credit or payments made during the period

Balance as of June 30, 2021

Of the $ 14.3 million discounts and allowances from gross product sales for the six months ended June 30, 2022, $ 13.0 million was accounted for as additions to other accrued liabilities and $ 1.3 million as reductions in accounts receivable (as it relates to allowance for prompt pay discount) and prepaid and other current assets (as it relates to certain chargebacks and other fess that were prepaid) in the condensed balance sheet.

Of the $ 8.7 million discounts and allowances from gross product sales for the six months ended June 30, 2021, $ 7.8 million was accounted for as additions to other accrued liabilities and $ 0.9 million as reductions in accounts receivable (as it relates to allowance for prompt pay discount) and prepaid and other current assets (as it relates to certain chargebacks and other fess that were prepaid) in the condensed balance sheet.

Balance as of September 30, 2021

Of the $ 22.1 million discounts and allowances from gross product sales for the nine months ended September 30, 2022, $ 19.7 million was accounted for as additions to other accrued liabilities and $ 2.4 million as reductions in accounts receivable (as it relates to allowance for prompt pay discount) and prepaid and other current assets (as it relates to certain chargebacks and other fees that were prepaid) in the condensed balance sheet.

Of the $ 13.3 million discounts and allowances from gross product sales for the nine months ended September 30, 2021, $ 12.1 million was accounted for as additions to other accrued liabilities and $ 1.2 million as reductions in accounts receivable (as it relates to allowance for prompt pay discount) and prepaid and other current assets (as it relates to certain chargebacks and other fess that were prepaid) in the condensed balance sheet.

For detailed discussions of our revenues from collaboration and government contract, see “Note 4 – Sponsored Research and License Agreements and Government Contract” below.

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,

Three Months Ended September 30,

Nine Months Ended September 30,

McKesson Specialty Care Distribution Corporation

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We conduct research and development programs independently and in connection with our corporate collaborators.

As of June 30, 2022, we are a party to collaboration agreements with Lilly to develop and commercialize R552, a RIPK1 inhibitor, for the treatment of non-central nervous system (non-CNS) diseases and collaboration aimed at developing additional RIPK1 inhibitors for the treatment of central nervous system (CNS) diseases;

As of September 30, 2022, we are a party to collaboration agreements with Lilly to develop and commercialize R552, a RIPK1 inhibitor, for the treatment of non-central nervous system (non-CNS) diseases and collaboration aimed at developing additional RIPK1 inhibitors for the treatment of central nervous system (CNS) diseases;

with Grifols S.A.

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Further, we are also a party to collaboration agreements, but do not have ongoing performance obligations with BerGenBio for the development and commercialization of AXL inhibitors in oncology, and with Daiichi to pursue research related to MDM2 inhibitors, a novel class of drug targets called ligases.

We have an agreement with AstraZeneca AB (AZ) for the development and commercialization of R256, an inhaled JAK inhibitor.

We had an agreement with AstraZeneca AB (AZ) for the development and commercialization of R256, an inhaled JAK inhibitor.

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

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

As of June 30, 2022, total future contingent payments to us under all of above 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).

As of September 30, 2022, total future contingent payments to us under all of above existing agreements, excluding terminated agreements, could exceed $ 1.3 billion if all potential product candidates achieved all of the payment triggering events under all of our current agreements.

Of this amount, $ 279.5 million relates to the achievement of development events, $ 283.1 million relates to the achievement of regulatory events and $ 796.0 million relates to the achievement of certain commercial events.

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Interest expense is being accreted on such liability over the expected commitment period and adjusted for timing of expected cost share payments.

Interest expense accreted during the three months ended June 30, 2022 and 2021 was no ne and $ 1.0 million, respectively, and for the six months ended June 30, 2022 and 2021 was $ 0.7 million and $ 1.1 million, respectively.

Through June 30, 2022, Lilly billed us $ 8.3 million for our share of development costs under this agreement, and the amount was fully paid as of June 30, 2022.

As of June 30, 2022 and December 31, 2021, the outstanding financing liability to Lilly was $ 53.0 million and $ 60.7 million, respectively, and included within other long-term liabilities, current portion, and other long-term liabilities in the condensed balance sheet.

Interest expense accreted during the three months ended September 30, 2022 and 2021 was no ne and $ 0.8 million, respectively, and for the nine months ended September 30, 2022 and 2021 was $ 0.7 million and $ 1.9 million, respectively.

Through September 30, 2022, Lilly billed us $ 12.4 million for our share of development costs under this agreement, and the amount was fully paid as of September 30, 2022.

As of September 30, 2022 and December 31, 2021, the outstanding financing liability to Lilly was $ 48.9 million and $ 60.7 million, respectively, and included within other long-term liabilities, current portion, and other long-term liabilities in the condensed balance sheet.

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

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The allocated transaction price to the CNS penetrant IP of $ 6.7 million was recognized as revenue from the effective date of the Lilly Agreement through the eventual acceptance by Lilly using the input method.

In June 2022, Lilly provided notice of continuance pursuant to the terms of the Lilly Agreement, whereby Lilly elected its option to lead the identification and selection of CNS penetrant lead candidate within a certain period.

As such, we recognized the remaining outstanding deferred revenue related to delivery of the CNS penetrant IP in the second quarter of 2022.

For the three months ended June 30, 2022 and 2021, we recognized revenue related to activities associated to the delivery of CNS penetrant IP of $ 0.3 million and $ 3.3 million, respectively, and $ 0.5 million and $ 3.5 million for the six months ended June 30, 2022 and 2021, respectively.

For the three months ended September 30, 2022 and 2021, revenue recognized related to activities associated with the delivery of CNS penetrant IP was no ne and $ 2.4 million, respectively, and $ 0.5 million and $ 6.0 million for the nine months ended September 30, 2022 and 2021, respectively.

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

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Under the agreement, we received an upfront payment of $ 30.0 million, with the potential for $ 297.5 million in total regulatory and commercial milestones.

We will also receive stepped double-digit royalty payments based on tiered net sales which may reach 30 % of net sales.

We are also entitled to receive stepped double-digit royalty payments based on tiered net sales which may reach 30 % of net sales.

In return, Grifols received exclusive rights to commercialize fostamatinib for human diseases, including chronic ITP, AIHA, and IgAN, in Europe and Turkey.

Grifols also received an exclusive option to expand the territory under its exclusive and non-exclusive licenses to include the Middle East, North Africa and Russia (including Commonwealth of Independent States).

Grifols also has the exclusive option to expand the territory under its exclusive and non-exclusive licenses to include the Middle East, North Africa and Russia (including Commonwealth of Independent States).

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

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

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

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

We entered into a Commercial Supply Agreement with Grifols in October 2020 to supply and sell our drug product priced at a certain markup specified in the agreement, in quantities Grifols shall order from us pursuant to and in accordance with the agreement.

In January 2020, the European Commission granted a centralized Marketing Authorization (MA) for fostamatinib valid throughout the European Union and in the UK after the departure of the UK from the European Union for the treatment of chronic immune thrombocytopenia in adult patients who are refractory to other treatments.

With this approval, we received in February 2020 a $ 20.0 million non-refundable payment, comprised of a $ 17.5 million payment due upon Marketing Authorization Application (MAA) approval by the EMA of fostamatinib for the first indication and a $ 2.5 million creditable advance royalty payment, based on the terms of our collaboration agreement with Grifols.

With this approval, in February 2020, we received $ 20.0 million non-refundable payment, comprised of a $ 17.5 million payment due upon Marketing Authorization Application (MAA) approval by the EMA of fostamatinib for the first indication and a $ 2.5 million creditable advance royalty payment, based on the terms of our collaboration agreement with Grifols.

The above milestone payment was allocated to the distinct performance obligations in the collaboration agreement with Grifols.

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As a result of the adjusted transaction price, adjustments are recorded on a cumulative catch-up basis, and recorded as part of contract revenues from collaborations in the first quarter of 2020.

As of June 30, 2022 and December 31, 2021, the remaining deferred revenue was $ 0.2 million and $ 0.7 million, respectively, related to the performance of research and development services.

For revenue associated with the research and development services, during the three months ended June 30, 2022 and 2021, we recognized $ 0.2 million and $ 0.4 million, respectively, and during the six months ended June 30, 2022 and 2021, we recognized revenue of $ 0.5 million and $ 0.4 million, respectively.

In addition, during the three and six months ended June 30, 2022, we recognized $ 1.2 million of revenue for the delivery of fostamatinib supply to Grifols.

During the three and six months ended June 30, 2021, no revenue and $ 1.0 million revenue, respectively, was recognized for the delivery of fostamatinib supply to Grifols.

We recognized revenue associated with the remaining outstanding deferred revenue from research and development services of $ 0.2 million each for the three months ended September 30, 2022 and 2021, and $ 0.7 million and $ 0.6 million, for the nine months ended September 30, 2022 and 2021, respectively.

In addition, we recognized revenue for the delivery of fostamatinib to Grifols of $ 0.4 million and none for the three months ended September 30, 2022 and 2021, respectively, and $ 1.6 million and $ 1.0 million, for the nine months ended September 30, 2022 and 2021, respectively.

During the three and nine months ended September 30, 2022, we recognized $ 0.1 million of initial royalty revenue from Grifols, and such amount was included within contract revenues from collaboration.

No such revenue was recognized during the same periods in 2021.

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

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In addition, we will provide commercial product supply if the product is approved in the licensed territory.

We concluded that each of these performance obligations is distinct.

We concluded that each of these

performance obligations is distinct.

We based our assessment on the following:

(i) our assessment that Kissei can benefit from the license on its own by developing and commercializing the underlying product using its own resources and (ii)

the fact that the manufacturing services are not highly specialized in nature and can be performed by other vendors.

(i) our assessment that Kissei can benefit from the license on its own by developing and commercializing the underlying product using its own resources and (ii) the fact that the manufacturing services are not highly specialized in nature and can be performed by other vendors.

Moreover, we determined that the upfront fee of $ 33.0 million represented the transaction price and was allocated to the performance obligations based on our best estimate of the relative standalone selling price as follows:

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We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

As of June 30, 2022 and December 31, 2021, the remaining deferred revenue was related to the material right associated with discounted fostamatinib supply which amounted to $ 1.4 million.

No material revenue was recognized during the three and six months ended June 30, 2022 and 2021 associated with such outstanding deferred revenue.

During the three and six months ended June 30, 2022, we recognized $ 2.5 million and $ 2.6 million, respectively, of revenue related to the delivery of fostamatinib supply to Kissei mainly for commercial use.

No such revenue was recognized during the three and six months ended June 30, 2021.

As of September 30, 2022 and December 31, 2021, the remaining deferred revenue was related to the material right associated with discounted fostamatinib supply which amounted to $ 1.4 million.

No material revenue was recognized during the three and nine months ended September 30, 2022 and 2021 associated with such outstanding deferred revenue.

During the three and nine months ended September 30, 2022, we recognized an immaterial amount of revenue and $ 2.6 million of revenue, respectively, related to the delivery of fostamatinib supply to Kissei mainly for commercial use.

No such revenue was recognized during the same periods in 2021.

In April 2022, Kissei announced that a new drug application was submitted to Japan’s Pharmaceuticals and Medical Devices Agency for fostamatinib in chronic ITP.

With this milestone event, we received $ 5.0 million non-refundable and non-creditable payment from Kissei pursuant to the terms of our collaboration agreement.

Such amount was recognized as revenue during the three and six months ended June 30, 2022.

Such amount was recognized as revenue in the second quarter of 2022 .

Medison Commercial and License Agreements

In October 2019, we entered into two exclusive commercial and license agreements with Medison for the commercialization of fostamatinib for chronic ITP in Israel and in Canada, pursuant to which we received a $ 5.0 million upfront payment with respect to the agreement in Canada.

We accounted for the agreement made with an upfront payment under ASC 606 and identified the following combined performance obligations at inception of the agreement:

We accounted for this agreement under ASC 606 and identified the following combined performance obligations at inception of the agreement:

(a) granting of the license and (b) obtaining regulatory approval in Canada of fostamatinib in ITP.

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Interest expense is being accreted on such liability over the expected buyback period.

No interest was accrued during the three and six months ended June 30, 2022.

During the three and six months ended June 30, 2021, we accrued interest amounting to $ 0.3 million related to this financing arrangement.

During the three months ended June 30, 2022, we billed Medison $ 0.1 million related to the supply of fostamatinib for clinical use which was deferred and included the balance within the outstanding financing liability considering the buyback provision.

As of June 30, 2022 and December 31, 2021, the outstanding financing liability to Medison of $ 5.7 million and $ 5.6 million, respectively, was included within other long-term liabilities in the condensed balance sheet.

No interest was accreted during the three and nine months ended September 30, 2022.

During the three and nine months ended September 30, 2021, we accrued interest amounting to $ 0.1 million and $ 0.4 million, respectively, related to this financing arrangement.

As of September 30, 2022 and December 31, 2021, the outstanding financing liability to Medison of $ 5.7 million and $ 5.6 million, respectively, was included within other long-term liabilities in the condensed balance sheet.

Knight Commercial License and Supply Agreement

In May 2022, we entered into commercial license and supply agreements with Knight for the commercialization of fostamatinib for approved indications in 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 accounted for this

agreement under ASC 606 and identified that the upfront payment was a consideration for granting Knight the license to commercialize fostamatinib for approved indication in the Knight territory, and no further material deliverables associated to such upfront payment.

As such, we recognized the upfront payment as revenue during the three months ended June 30, 2022.

tiered, escalated net-sales based royalty payments for products sold in the Knight territory.

We accounted for this agreement under ASC 606 and identified that the upfront payment was a consideration for granting Knight the license to commercialize fostamatinib for approved indication in the Knight territory, and no further material deliverables associated to such upfront payment.

As such, we recognized the upfront payment as revenue during the second quarter of 2022.

Variable consideration related to future regulatory milestones was fully constrained because we cannot conclude that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur, given the inherent uncertainty of success with these future milestones.

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We record government contract revenue in the statement of operations in the period when it is probable that we will receive the award, which is when we comply with the conditions associated with the award and obtain approval from the US Department of Defense that such conditions have been met.

For the three and six months ended June 30, 2022, no revenue was recognized related to this grant.

For the three and six months ended June 30, 2021, we recognized $ 5.5 million and $ 8.5 million of revenue, respectively, related to this grant.

Through June 30, 2022, we recognized $ 10.5 million revenue and we expect to receive the remaining award of $ 6.0 million throughout the period 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.

For the three and nine months ended September 30, 2022, we recognized $ 2.5 million of revenue related to this grant.

For the three and nine months ended September 30, 2021, we recognized $ 1.0 million and $ 9.5 million of revenue, respectively, related to this grant.

Through September 30, 2022, we recognized $ 13.0 million revenue and we expect to receive the remaining award of $ 3.5 million throughout the period 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.

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 AML and other malignancies.

Pursuant to the terms of the license and transition services agreement, we paid Forma an upfront fee of $ 2.0 million, with the potential to pay up to $ 67.5 million of additional payments upon achievement of specified development and regulatory milestones and up to $ 165.5 million of 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 a 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 portion of our sublicensing revenue, subject to certain standard reductions and offsets.

Forma has submitted an NDA for olutasidenib for the treatment of m1DH1 relapsed/refractory (R/R) AML to the FDA and the Prescription Drug User Fee Act (PDUFA) action date for the application is February 15, 2023.

The transaction was accounted for as an acquisition of asset under ASC 730, Research and Development .

In accordance with the guidance, in a transaction accounted for as an asset acquisition, any acquired in-process research and development (IPR&D) that does not have alternative future use is charged to expense at the acquisition date.

At the acquisition date, the acquired license asset was accounted for as IPR&D, and we do not anticipate any economic benefit to be derived from such acquired licensed asset other than the primary indications.

As such, we accounted for the upfront fee of $ 2.0 million paid to Forma as IPR&D and recorded such cost within research and development expenses in the condensed statements of operations for the three and nine months ended September 30, 2022.

Under the accounting guidance, contingent cash payments will be accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated.

We will account for m ilestone payment obligations incurred at development stage and prior to a regulatory approval of an indication associated with the acquired licensed asset as research and development expenses when the event requiring payment of the milestone occurs.

Milestone payment obligations incurred upon and after a regulatory approval of an indication associated with the acquired licensed asset, and at the commercial stage, will be recorded as intangible asset when the event requiring payment of the milestones occurs.

The amount recorded as intangible asset will be amortized over the estimated useful life of the acquired licensed asset.

Royalty payments related to the acquired licensed asset will be recorded as cost of sales when incurred.

As of September 30, 2022, no milestone payment was met.

In October 2022, the near-term regulatory milestone was met which entitles Forma to receive a $ 2.5 million milestone payment.

Since such milestone payment obligation was incurred prior to a regulatory approval of an indication associated with the acquired licensed asset, we will record such amount as research and development expense in the fourth quarter of 2022.

Stock-Based Compensation

Stock-based compensation for the periods presented was as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Selling, general and administrative

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The amount was included within selling, general and administrative expense in the condensed statement of operations.

During the six months ended June 30, 2022, we granted stock options to purchase 5,299,247 shares of common stock with weighted-average grant-date fair value of $ 1.63 per share, and 433,318 stock options were exercised.

As of June 30, 2022, there were 33,081,045 stock options outstanding, of which, 2,535,000 are outstanding performance-based stock options wherein the achievement of the corresponding corporate-based milestones were not considered probable as of June 30, 2022.

Accordingly, none of the $ 5.0 million grant date fair value for these awards has been recognized as stock-based compensation expense through June 30, 2022.

During the nine months ended September 30, 2022, we granted stock options to purchase 5,523,247 shares of common stock with weighted-average grant-date fair value of $ 1.60 per share, and 433,318 stock options were exercised.

As of September 30, 2022, there were 32,686,792 stock options outstanding, of which, 2,535,000 are outstanding performance-based stock options wherein the achievement of the corresponding corporate-based milestones were not considered probable as of September 30, 2022.

Accordingly, none of the $ 5.0 million grant date fair value for these awards has been recognized as stock-based compensation expense through September 30, 2022.

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

The following table summarizes the weighted-average assumptions relating to options granted pursuant to our Equity Incentive Plans (2018 Equity Incentive Plan and Inducement Plan) for the periods presented:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Risk-free interest rate

2 unchanged sentences

Expected volatility

During the six months ended June 30, 2022, we granted 1,181,362 restricted stock units (RSUs) with a grant-date weighted-average fair value of $ 2.36 per share, and 203,750 RSUs were released.

During the nine months ended September 30, 2022, we granted 1,181,362 restricted stock units (RSUs) with a grant-date weighted-average fair value of $ 2.36 per share, and 203,750 RSUs were released.

The RSUs granted generally vest over 4 years .

As of June 30, 2022, there were 1,190,532 RSUs outstanding.

As of June 30, 2022, there was approximately $ 18.3 million of unrecognized stock-based compensation which is expected to be recognized over a remaining weighted-average period of 2.94 years related to time-based stock options, RSUs and performance-based stock options where achievement of the corresponding corporate-based milestones was considered probable as of June 30, 2022.

As of September 30, 2022, there were 1,174,232 RSUs outstanding.

As of September 30, 2022, there was approximately $ 15.8 million of unrecognized stock-based compensation which is expected to be recognized over a remaining weighted-average period of 2.75 years related to time-based stock options, RSUs and performance-based stock options where achievement of the corresponding corporate-based milestones was considered probable as of September 30, 2022.

In January 2022 and April 2022, our Board of Directors approved the increase of 610,000 shares and 626,000 shares, respectively, of common stock reserved for issuance under the Inducement Plan.

In May 2022 at the annual stockholders meeting, our stockholders approved to amend our 2018 Equity Incentive Plan (2018 Plan), among other items, add an additional 5,000,000 shares to the number of shares of common stock authorized for issuance under the 2018 Plan.

As of June 30, 2022, there were 11,940,095 shares of common stock available for future grant under our Equity Incentive Plans.

In May 2022 at the annual stockholders meeting, our stockholders approved to amend our 2018 Equity Incentive Plan (2018 Plan), among other items, added an additional 5,000,000 shares to the number of shares of common stock authorized for issuance under the 2018 Plan.

As of September 30, 2022, there were 12,353,820 shares of common stock available for future grant under our Equity Incentive Plans.

Employee Stock Purchase Plan

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

Our twenty-four -month offering period under our Purchase Plan ended on June 30, 2022 and a new twenty-four-month offering period begins on July 1, 2022.

As of June 30, 2022, no unrecognized stock-based compensation cost related to our Purchase Plan.

During the six months ended June 30, 2022, there were 597,042 shares purchased under the Purchase Plan.

As of June 30, 2022, there were 3,987,442 shares reserved for future issuance under the Purchase Plan.

Our previous twenty-four -month offering period under our Purchase Plan ended on June 30, 2022, and a new twenty-four-month offering period started on July 1, 2022.

The fair value of awards under our Purchase Plan is estimated on the date of our new offering period using the Black-Scholes option pricing model, which is being amortized over the requisite service periods.

As of September 30, 2022, unrecognized stock-based compensation cost related to our Purchase Plan amounted to $ 1.4 million, which is expected to be recognized over the remaining weighted average period of 0.99 years.

During the nine months ended September 30, 2022, there were 597,042 shares purchased under the Purchase Plan.

As of September 30, 2022, there were 3,987,442 shares reserved for future issuance under the Purchase Plan.

Inventories for the periods presented consist of the following (in thousands):

September 30,

Raw materials

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Finished goods

As of June 30, 2022, we have $ 0.7 million in advance payments to the manufacturer of our raw materials, which was included within prepaid and other current assets in the condensed balance sheet.

As of September 30, 2022, we have $ 0.7 million in advance payments to the manufacturer of our raw materials, which was included within prepaid and other current assets in the condensed balance sheet.

Cash, Cash Equivalents and Short-Term Investments

Cash, cash equivalents and short-term investments for the periods presented consist of the following (in thousands):

September 30,

Money market funds

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

June 30, 2022

September 30, 2022

US treasury bills

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Corporate bonds and commercial paper

As of June 30, 2022 and December 31, 2021, our cash equivalents and short-term investments had a weighted-average time to maturity of approximately 114 days and 196 days , respectively.

As of September 30, 2022 and December 31, 2021, our cash equivalents and short-term investments had a weighted-average time to maturity of approximately 105 days and 196 days , respectively.

Our short-term investments are classified as available-for-sale securities.

Accordingly, we have classified certain securities as short-term investments on our condensed balance sheets as they are available for use in the current operations.

As of June 30, 2022, we had no

investments that had been in a continuous unrealized loss position for more than 12 months.

As of June 30, 2022, a total of 34 individual securities had been in an unrealized loss position for 12 months or less, and the losses were determined to be temporary.

As of September 30, 2022, we had no investments that had been in a continuous unrealized loss position for more than 12 months.

As of September 30, 2022, a total of 36 individual securities had been in an unrealized loss position for 12 months or less, and the losses were determined to be temporary.

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

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

Based on our review of these securities, including our assessment of the duration and severity of unrealized losses, there were no other-than-temporary impairments for these securities as of June 30, 2022.

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

June 30, 2022

September 30, 2022

Unrealized Losses

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The table below summarizes the fair value of our cash equivalents and short-term investments measured at fair value on a recurring basis, and are categorized based upon the lowest level of significant input to the valuations (in thousands):

Assets at Fair Value as of June 30, 2022

Assets at Fair Value as of September 30, 2022

Money market funds

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Corporate bonds and commercial paper

We have a Credit and Security Agreement (Credit Agreement) with MidCap Financial Trust (MidCap) entered on September 27, 2019 (Closing Date) and amended on March 29, 2021 (First Amendment) and February 11, 2022 (Second Amendment).

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

At the Closing Date, $ 10.0 million was funded (Tranche 1).

In May 2020, an additional $ 10.0 million was funded (Tranche 2).

In March 2021, we entered into the First Amendment to the Credit Agreement to extend the period through which Tranche 3 was available to us through March 31, 2022 at our option, subject to the satisfaction of certain conditions set forth in the Credit Agreement.

In February 2022, we entered into the Second Amendment to our Credit Agreement which, among other things, amended the applicable funding conditions, applicable commitments and certain other terms relating to available credit facilities (Tranches 3 and 4), added additional term loan credit facility (Tranche 5), and revised certain terms related to the financial covenants.

Following the Second Amendment, the Credit Agreement gives us the ability to access the following available credit facilities:

(i) on the closing date of the Second Amendment, $ 10.0 million term loan facility (Tranche 3), (ii) at our option, an additional $ 10.0 million aggregate principal amount of term loan facility available on the Second Amendment effective date through March 31, 2023 (Tranche 4), which is subject to satisfaction of certain conditions if Tranche 4 is drawn on or after August 31, 2022, and (iii) at our option and upon the satisfaction of certain conditions contained in the Credit Agreement, as amended, an additional $ 20.0 million

aggregate principal amount of term loan available through March 31, 2023 (Tranche 5).

At the Second Amendment effective date, $ 10.0 million was funded (Tranche 3).

As of June 30, 2022, the outstanding principal balance of the loan was $ 30.0 million and the facility gives us the ability to access an additional $ 30.0 million at our option, subject to the achievement of certain customary conditions.

On July 27, 2022, we entered into thethird amendment to our Credit Agreement with MidCap (Third Amendment).

See “Note 12 – Subsequent Events” for further discussions.

The outstanding principal balance of the loan bears interest at an annual rate of one-month London Interbank Offered Rate (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 is payable monthly in arrears.

Prior to the Third Amendment, the Credit Agreement provides that we initially make interest-only payments for 24 months from October 1, 2019, followed by 36 months of amortization payments.

The interest-only period can be extended 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 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 under the Credit Agreement which effectively further extended the interest-only period to 48 months or through October 1, 2023.

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

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

At the Closing Date, $ 10.0 million was funded (Tranche 1), in May 2020, an additional $ 10.0 million was funded (Tranche 2), at the Second Amendment, an additional $ 10.0 million was funded (Tranche 3), and at the Third Amendment, an additional $ 10.0 million was funded (Tranche 4).

As of September 30, 2022, the outstanding principal balance of the loan was $ 40.0 million, and the facility gives us the ability to access an additional $ 20.0 million aggregate principal amount of term loan at our option through March 31, 2023 (Tranche 5).

The First Amendment to the Credit Agreement entered in March 2021 extended the period through which Tranche 3 was available to us.

The Second Amendment to the Credit Agreement entered in February 2022, among other things, amended the applicable funding conditions, applicable commitments and certain other terms relating to available credit facilities (Tranches 3 and 4), added additional term loan credit facility (Tranche 5), and revised certain terms related to the financial covenants.

Prior to the Third Amendment, the outstanding principal balance of the loan bore interest at an annual rate of one-month London Interbank Offered Rate (LIBOR), or a comparable applicable index rate determined pursuant to the Credit Agreement if the LIBOR is no longer available, plus applicable margin of 5.65 % , subject to a LIBOR floor of 1.50 % and is payable monthly in arrears.

Further, the Credit Agreement provided for an interest-only payment period of 24 months from October 1, 2019, followed by 36 months of amortization payments.

The interest-only period can also be extended 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 and June 2022, we satisfied the first and second interest-only extension conditions, respectively, which effectively extended the interest-only period through

October 1, 2023.

All unpaid principal and accrued interest were due and payable no later than September 1, 2024, and a final payment fee of 2.5 % of principal was due on the final payment of the term loan.

Following the Third Amendment, the maturity date for the term loans was extended to September 1, 2026, and the interest-only period was extended to October 1, 2024.

Further, the interest rate benchmark was changed from LIBOR to Secured Overnight Financing Rate (SOFR).

The interest rate applicable to the term loans under the amended Credit Agreement is the sum of one-month SOFR, plus an adjustment of 0.11448% , subject to 1.50 % applicable floor, plus applicable margin of 5.65 % .

A final payment fee of 2.5 % of principal is due at maturity date of the term loans.

U nder the amended Credit Agreement, the prepayment fee applicable to the term loans was reset at the Third Amendment date.

We may make voluntary prepayments, in whole or in part, subject to certain prepayment premiums and additional interest payments.

The Credit Agreement also contains certain provisions, such as event of default and change in control provisions, which, if triggered, would require us to make mandatory prepayments on the term loan, which are subject to certain prepayment premiums and additional interest payments.

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

As of June 30, 2022 and December 31, 2021, the outstanding balance of the loan, net of unamortized debt discount was classified as long-term liability in the accompanying condensed balance sheet.

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

As of June 30, 2022 and December 31, 2021, the unamortized issuance costs and debt discounts amounted to $ 0.2 million and $ 0.1 million, respectively.

Interest expense, including amortization of the debt discount and accretion of the final fees related to the Credit Agreement for the three months ended June 30, 2022 and 2021 was $ 0.6 million and $ 0.4 million, respectively, and for the six months ended June 30, 2022 and 2021 was $ 1.1 million and $ 0.8 million, respectively.

Accrued interest of $ 0.6 million was included within other accrued liabilities in the condensed balance sheet as of June 30, 2022.

The following table presents the future minimum principal payments of the outstanding loan as of June 30, 2022 (in thousands):

The obligations under the amended Credit Agreement are secured by a perfected security interest in all of our assets including our intellectual property.

The amendment to the Credit Agreement was accounted for as debt modification.

As such, fees paid to Midcap of $ 0.4 million were recorded as additional debt discount and added to the unamortized debt discount that are being amortized as interest expense through maturity using the effective interest rate method.

Debt issuance costs are recorded as a direct deduction from the outstanding principal balance of the term loan.

As of September 30, 2022 and December 31, 2021, the unamortized issuance costs and debt discounts amounted to $ 0.5 million and $ 0.1 million, respectively.

As of September 30, 2022 and December 31, 2021, the outstanding balance of the loan, net of unamortized debt discount was classified as long-term liability in the accompanying condensed balance sheet.

Interest expense, including amortization of the debt discount and accretion of the final fees related to the Credit Agreement for the three months ended September 30, 2022 and 2021 was $ 0.8 million and $ 0.4 million, respectively, and for the nine months ended September 30, 2022 and 2021 was $ 1.9 million and $ 1.2 million, respectively.

Accrued interest of $ 0.7 million was included within other accrued liabilities in the condensed balance sheet as of September 30, 2022.

The following table presents the future minimum principal payments of the outstanding loan as of September 30, 2022 (in thousands):

Remainder of 2022

Principal amount (Tranches 1, 2, 3 and 4)

The Credit Agreement contains certain covenants which, among others, require us to deliver financial reports at designated times of the year and maintain minimum trailing net revenues and cash, cash equivalents and short-term investments balance.

As of June 30, 2022, we were not in violation of any covenants.

The amended Credit Agreement contains certain covenants which, among others, require us to deliver financial reports at designated times of the year and maintain minimum unrestricted cash and trailing net revenues.

As of September 30, 2022, we were not in violation of any covenants.

We currently lease our research and office space under a noncancelable lease agreement with our landlord, Healthpeak Properties, Inc.

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In March 2022, we entered an amendment to the lease agreement to waive our option or right to further extend the term of the lease.

The weighted average remaining term of our lease as of June 30, 2022 was 0.58 years.

The weighted average remaining term of our lease as of September 30, 2022 was 0.33 years.

On October 28, 2022, we entered into a sublease agreement.

See further discussions in Note 12 - Subsequent Events.

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 received from our landlord leasehold improvement incentives amounting to $ 0.7 million related to leasehold improvements.

As of September 30, 2022, we received from our landlord leasehold improvement incentives amounting to $ 0.7 million related to leasehold improvements.

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

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The components of our operating lease expense were as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Fixed operating lease expense

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Supplemental information related to our operating lease were as follow (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cash payments included in the measurement of operating lease liabilities

Supplemental information related to our operating sublease was as follow (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Fixed sublease expense

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Sublease income

The following table presents the future lease payments of our operating lease liabilities as of June 30, 2022 (in thousands):

The following table presents the future lease payments of our operating lease liabilities as of September 30, 2022 (in thousands):

Operating Lease

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Total minimum payments required

For the three and six months ended June 30, 2022, we did no t 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.

For the three and six months ended June 30, 2021, we recorded a benefit from income tax of $ 1.0 million and a provision for income tax of $ 0.8 million.

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).

For the three and nine months ended September 30, 2022, we did no t 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.

For the three and nine months ended September 30, 2021, we recorded a benefit from income tax of $ 0.1 million and a provision for income tax of $ 0.7 million, respectively.

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

We estimated a state tax liability over our pre-tax income (loss) for 2021, which was primarily due to revenue recognized for the Lilly Agreement.

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Subsequent Events

License and Transition Services Agreement with Forma

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.

Third Amendment to Credit Facility with MidCap

On July 27, 2022, we entered into the Third Amendment to our Credit Agreement with MidCap, which, among other things, (i) extended the maturity date for the term loans to September 1, 2026, (ii) extended the interest-only period for the term loans to October 1, 2024, (iii) reset the prepayment fee applicable to the term loans, (iv) grant a lien to MidCap over our intellectual property, (v) revised the financial covenants and (vi) changed the interest rate benchmark from LIBOR to Secured Overnight Financing Rate (SOFR), as defined in the amended Credit Agreement.

On the same day, $ 10.0 million was funded (Tranche 4).

Restructuring

On October 10, 2022, we announced a reduction in our workforce primarily in our development and administration groups.

All affected employees will be eligible to receive, among other things, specified severance payments based on the applicable employee’s level and years of service with us.

We expect to complete the workforce reduction by January 31, 2023.

We recognize restructuring charges when the liability is probable, and the amount is estimable.

The related employee termination benefits are accrued at the date management has committed to a plan of termination and affected employees have been notified of their termination date and expected severance benefits.

As such, we expect to recognize the restructuring charges in the fourth quarter of 2022.

Sublease Agreement

On October 28, 2022, we entered into a sublease agreement with Atara Biotherapeutics, Inc.

(Atara) to sublease approximately 13,670 rentable square feet of office space located in South San Francisco, California.

Subject to the terms of the sublease agreement, the lease term shall commence no sooner than November 1, 2022 and shall expire on May 24, 2025.

The future lease payments associated with this sublease agreement are approximately $ 1.7 million.

We expect this new leased facility will be held as our new Headquarters following the expiration of our current leased facility in South San Francisco, California in January 2023.

In accordance with ASC 842, Leases, we expect to recognize the operating lease right-of-use asset and lease liability associated with this sublease agreement in the fourth quarter of 2022.

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

What changed 10-Q

Item 1. Financial Statements