What changed in this filing

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Item 1. Financial Statements

2023-05-02 compared with 2022-11-03 · 208 added, 291 removed, 308 unchanged (62% of the section changed)

3 unchanged sentences

(In thousands)

September 30,

March 31, 2023

December 31, 2022 (1)

Current assets:

5 unchanged sentences

Property and equipment, net

Operating lease right-of-use asset

Liabilities and stockholders’ equity

Intangible asset, net

Operating lease right-of-use assets

Liabilities and stockholders’ deficit

Current liabilities:

2 unchanged sentences

Accrued research and development

Revenue reserves and refund liability

Other accrued liabilities

6 unchanged sentences

Other long-term liabilities

Stockholders’ equity (deficit):

Total liabilities

Stockholders’ deficit:

Preferred stock

4 unchanged sentences

( 1,382,459 )

Total stockholders’ equity (deficit)

Total stockholders’ deficit

Total liabilities and stockholders’ deficit

(1) The balance sheet as of December 31, 2022 has been derived from the audited financial statements included in Rigel’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (SEC) on March 7, 2023 .

3 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Product sales, net

Contract revenues from collaborations

Government contract

Total revenues

4 unchanged sentences

Total costs and expenses

Income (loss) from operations

Loss from operations

Interest income

Interest expense

Income (loss) before income taxes

Provision for (benefit from) income taxes

Net income (loss)

Net income (loss) per share

Weighted average shares used in computing net income (loss) per share

Net loss per share, basic and diluted

Weighted average shares used in computing net loss per share, basic and diluted

See Accompanying Notes to Condensed Financial Statements

RIGEL PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss)

Other comprehensive income (loss):

Three Months Ended March 31,

Other comprehensive gain (loss):

Net unrealized gain (loss) on short-term investments

Comprehensive income (loss)

Comprehensive loss

See Accompanying Notes to Condensed Financial Statements

RIGEL PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

CONDENSED STATEMENTS OF STOCK HOLDERS’ (DEFICIT) EQUITY

(In thousands, except share amounts)

Accumulated Other

Comprehensive

Stockholders’

Equity (Deficit)

Balance as of January 1, 2023

( 1,382,459 )

Net unrealized loss on short-term investments

Net change in unrealized gain on short-term investments

Issuance of common stock upon exercise of options

Issuance of common stock upon vesting of restricted stock units

Issuance of common stock upon vesting of restricted stock units (RSUs)

Stock-based compensation expense

1 unchanged sentence

( 1,395,995 )

Net unrealized loss on short-term investments

Issuance of common stock upon exercise of options and participation in Purchase Plan

Issuance of common stock upon vesting of restricted stock units

Stock-based compensation expense

Balance as of June 30, 2022

( 1,364,823 )

Net unrealized gain on short-term investments

Stock-based compensation expense

Balance as of September 30, 2022

( 1,383,860 )

Accumulated Other

Comprehensive

2 unchanged sentences

( 1,323,886 )

Net unrealized gain on short-term investments

Net unrealized loss on short-term investments

Issuance of common stock upon exercise of options

Issuance of common stock upon vesting of RSUs

Stock-based compensation expense

1 unchanged sentence

( 1,351,331 )

Net unrealized gain on short-term investments

Issuance of common stock upon exercise of options and participation in Purchase Plan

Stock-based compensation expense

Balance as of June 30, 2021

( 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)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation expense

Gain on disposal of assets

Loss on sale and disposal of fixed assets

Depreciation and amortization

8 unchanged sentences

Accrued research and development

Revenue reserves and refund liability

Other accrued liabilities

2 unchanged sentences

Other current and long-term liabilities

Net cash provided by (used in) operating activities

Net cash used in operating activities

Investing activities

1 unchanged sentence

Maturities of short-term investments

Proceeds from disposal of assets

Capital expenditures

Net cash provided by (used in) investing activities

Purchases of intangible asset

Proceeds from sale of property and equipment

Purchases of property and equipment

Net cash provided by investing activities

Financing activities

Cost share advance from 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

Net proceeds from issuances of common stock upon exercise of options

Net proceeds from term loan financing

11 unchanged sentences

Description of Business

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.

We are a biotechnology company dedicated to discovering, developing and providing novel therapies that significantly improve the lives of patients with hematologic disorders and cancer.

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

Our first product approved by the US Food and Drug Administration (FDA) is TAVALISSE ® (fostamatinib disodium hexahydrate) tablets, the only approved oral spleen tyrosine kinase (SYK) inhibitor, for the treatment of adult patients with chronic immune thrombocytopenia (ITP) who have had an insufficient response to a previous treatment.

The product is also commercially available in Europe, 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 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 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.

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

Our second FDA approved product is REZLIDHIA ® (olutasidenib) capsules for the treatment of adult patients with relapsed or refractory (R/R) acute myeloid leukemia (AML) with a susceptible isocitrate dehydrogenase-1 (IDH1) mutation as detected by an FDA-approved test.

We began our commercialization of REZLIDHIA in December 2022.

W e in-licensed olutasidenib from Forma Therapeutics, Inc.

(Forma), with exclusive, worldwide rights for its development, manufacturing and commercialization.

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

We 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 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 Phase 2/3 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).

9 unchanged sentences

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.

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

We base our 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.

1 unchanged sentence

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, 2022.

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.

There have been no material changes to these accounting policies.

As of March 31, 2023, we had approximately $ 58.7 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.

1 unchanged sentence

Recently Issued Accounting Standards

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.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period.

Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period and the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued.

Potentially dilutive securities include stock options, restricted stock units and shares issuable under our Employee Stock Purchase Plan (Purchase Plan).

The dilutive effect of these potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method.

Recently issued accounting guidance is either not applicable or did not have, or is not expected to have, a material impact to us.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period and the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued.

Potentially dilutive securities include stock options, RSUs and shares issuable under our Employee Stock Purchase Plan (Purchase Plan).

The dilutive effect of these potentially dilutive securities is reflected in diluted earnings per share using the treasury stock method.

Under the treasury stock method, an increase in the fair market value of our common stock can result in a greater dilutive effect from potentially dilutive securities.

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

Three Months Ended September 30,

Nine Months Ended September 30,

EPS Numerator:

Net income (loss)

EPS Denominator—Basic and Diluted:

Weighted-average common shares outstanding

EPS Denominator—Diluted:

Weighted-average common shares outstanding

Dilutive effect of stock options, restricted stock units and shares under Purchase Plan

Weighted-average shares outstanding and common stock equivalents

Net income (loss) per share

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 September 30,

Nine Months Ended September 30,

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

Three Months Ended March 31,

Outstanding stock options

Restricted stock units

Purchase Plan

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Product sales:

4 unchanged sentences

License revenues

Development milestones

Research and development services and others

Royalty, delivery of drug supplies and others

Total revenues from collaborations

1 unchanged sentence

Total revenues

Our net product sales include sales of TAVALISSE in the US, net of chargebacks, discounts and fees, government and other rebates and returns.

The following tables summarize the activities in chargebacks, discounts and fees, government and other rebates and returns that were accounted for within other accrued liabilities, for each of the periods presented (in thousands):

Revenue from product sales are related to sales of our commercial products, TAVALISSE and REZLIDHIA, to our specialty distributors.

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

Our net product sales include gross product sales, net of chargebacks, discounts and fees, government and other rebates and returns.

The following tables summarize the activities in chargebacks, discounts and fees, government and other rebates and returns that were accounted for within revenue reserves and refund liability, for each of the periods presented (in thousands):

Discounts and

2 unchanged sentences

Credit or payments made during the period

Balance as of September 30, 2022

Balance as of March 31, 2023

Discounts and

2 unchanged sentences

Credit or payments made during the period

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 September 30,

Nine Months Ended September 30,

Balance as of March 31, 2022

Of the $ 9.5 million discounts and allowances from gross product sales for the three months ended March 31, 2023, $ 9.2 million was accounted for as additions to revenue reserves and refund liability and $ 0.3 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 fees that were prepaid) in the condensed balance sheet.

Of the $ 6.4 million discounts and allowances from gross product sales for the three months ended March 31, 2022, $ 6.1 million was accounted for as additions to revenue reserves and refund liability and $ 0.3 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.

The following table summarizes the percentages of revenues from each of our customers who individually accounted for 10% or more of the total net product sales and revenues from collaborations:

Three Months Ended March 31,

McKesson Specialty Care Distribution Corporation

4 unchanged sentences

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

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;

As of March 31, 2023, 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.

(Grifols) to commercialize fostamatinib for human diseases in all indications, including chronic ITP and autoimmune hemolytic anemia (AIHA), in Europe and Turkey;

(Grifols) to commercialize fostamatinib for human diseases in all indications, including chronic ITP and autoimmune hemolytic anemia (AIHA), in Grifols territory which includes Europe, the UK, Turkey, the Middle East, North Africa and Russia (including Commonwealth of Independent States);

with Kissei Pharmaceutical Co., Ltd.

(Kissei) to develop and commercialize fostamatinib in Japan, China, Taiwan and the Republic of Korea;

(Kissei) to develop and commercialize fostamatinib in Kissei territory which includes Japan, China, Taiwan and the Republic of Korea;

with Medison Pharma Trading AG (Medison Canada) and Medison Pharma Ltd.

(Medison Israel and, together with Medison Canada, Medison) to commercialize fostamatinib in all indications, including chronic ITP and AIHA, in Canada and Israel, respectively;

and with Knight Therapeutics International SA (Knight) to commercialize fostamatinib in all indications, including chronic ITP and AIHA, in Latin America, consisting of Mexico, Central and South America, and the Caribbean (Knight territory).

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 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.

(Medison Israel and, together with Medison Canada, Medison) to commercialize fostamatinib in all indications, including chronic ITP and AIHA, in Medison territory which includes Canada and Israel;

and with Knight Therapeutics International SA (Knight) to commercialize fostamatinib in all indications, including chronic ITP and AIHA, in Knight territory which includes Latin America, consisting of Mexico, Central and South America, and the Caribbean (Knight territory).

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 receptor tyrosine kinase ( AXL) inhibitors in oncology, and with Daiichi to pursue research related to murine double minute 2 ( MDM2) inhibitors, a novel class of drug targets called ligases.

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 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.

As of March 31, 2023, 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, $ 263.1 million relates to the achievement of regulatory events and $ 796.0 million relates to the achievement of certain commercial events.

2 unchanged sentences

Global Exclusive License Agreement with Lilly

On February 18, 2021, we entered into a global exclusive license agreement and strategic collaboration with Lilly (Lilly Agreement), which became effective on March 27, 2021, to develop and commercialize R552, a RIPK1 inhibitor, for the treatment of non-CNS diseases.

We have a global exclusive license agreement and strategic collaboration with Lilly (Lilly Agreement) entered in February 2021, which became effective on March 27, 2021, upon clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, to develop and commercialize R552 for the treatment of non-CNS diseases.

In addition, the collaboration is aimed at developing additional RIPK1 inhibitors for the treatment of CNS diseases.

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

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

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

6 unchanged sentences

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.

Under the terms of the Lilly 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 to 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.

10 unchanged sentences

This financing component was recorded as a liability at its net present value of approximately $ 57.9 million using a 6.4 % discount rate.

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 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.

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

No interest was accreted during the three months ended March 31, 2023 and $ 0.7 million of interest was accreted during the three months ended March 31, 2022.

Through March 31, 2023, Lilly billed us $ 15.9 million for our share of development costs under this agreement, and the amount was fully paid as of March 31, 2023.

As of March 31, 2023 and December 31, 2022, the outstanding financing liability to Lilly was $ 45.4 million and $ 46.2 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.

3 unchanged sentences

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.

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.

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 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.

For the three months ended March 31, 2022, we recognized $ 0.2 million of revenue associated with the delivery of CNS penetrant IP.

No such revenue was recognized in the three months ended March 31, 2023.

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.

3 unchanged sentences

Grifols License Agreement

In January 2019, we entered into an exclusive license agreement with Grifols to commercialize fostamatinib in all indications, including chronic ITP and AIHA, in Europe and Turkey.

We have an exclusive commercialization license agreement with Grifols entered in January 2019 with exclusive rights to commercialize fostamatinib for human diseases, including chronic ITP and AIHA, and non-exclusive rights to develop fostamatinib in Grifols territory.

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 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 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.

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, 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.

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

With this approval, in February 2020, we received $ 20.0 million non-refundable payment, composed 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.

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

(a) granting of the license, (b) performance of research and regulatory services related to our ongoing long-term open-label extension study on patients with ITP, and (c) performance of research services related to our Phase 3 study in AIHA.

In October 2020, we entered into a commercial supply agreement for the licensed territories.

We concluded each of these performance obligations is distinct.

We based our assessment on the following:

(i) our assessment that Grifols 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.

Upon execution of our agreement with Grifols, we determined that the upfront fee of $ 5.0 million, which is the non-refundable portion of the $ 30.0 million upfront fee, represented the transaction price.

In the first quarter of 2020, we revised the transaction price to include the $ 25.0 million of the upfront payment that is no longer refundable under our agreement and the $ 20.0 million payment received that is no longer constrained.

We allocated the updated transaction price to the distinct performance obligations in our collaboration agreement based on our best estimate of the relative standalone selling price as follows:

(a) for the license, we estimated the standalone selling price using the adjusted market assessment approach to estimate its standalone selling price in the licensed territories;

(b) for the research and regulatory services, we estimated the standalone selling price using the cost plus expected margin approach.

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.

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.

(a) granting of the license, (b) performance of research and regulatory services related to our long-term open-label extension study on patients with ITP, and (c) performance of research services related to our Phase 3 study in AIHA.

We allocated the transaction price to the distinct performance obligations in our collaboration agreement based on our best estimate of the relative standalone selling price, and recognized the corresponding revenue in the periods we satisfied the performance obligations.

During the three months ended March 31, 2023 and 2022, no revenue and $ 0.3 million of revenue, respectively, was recognized associated with the remaining performance obligation to perform research services.

The remaining variable consideration 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.

We are recognizing revenues related to the research and regulatory services throughout the term of the respective clinical programs using the input method.

2 unchanged sentences

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

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 order from us pursuant to and in accordance with the agreement.

Prior to the Commercial Supply Agreement, we had a Drug Product Purchase Agreement with Grifols entered in December 2019.

For the three months ended March 31, 2023, we recognized revenue of $ 1.6 million related to delivery of drug supply to Grifols for its commercialization.

No such revenue was recognized during the three months ended March 31, 2022.

We began recognizing royalty revenue from Grifols beginning in the third quarter of 2022.

For the three months ended March 31, 2023, we recognized $ 0.7 million of royalty revenue from Grifols, and such amount was included within contract revenues from collaboration.

No such revenue was recognized for the three months ended March 31, 2022.

Kissei License Agreement

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.

We have an exclusive license and supply agreement with Kissei entered in October 2018, to develop and commercialize fostamatinib in all current and potential indications in Kissei’s territory.

Kissei is responsible for performing and funding all development activities for fostamatinib in the above-mentioned territories.

We received an upfront cash payment of $ 33.0 million, with the potential for up to an additional $ 147.0 million in development, regulatory and commercial milestone payments, and will receive mid- to upper twenty percent, tiered, escalated net sales-based payments for the supply of fostamatinib.

Under the agreement, we granted Kissei the license rights to fostamatinib in the territories above and are obligated to supply Kissei with drug product for use in clinical trials and pre-commercialization activities.

Under the agreement, we granted Kissei the license rights to fostamatinib in Kissei’s territory and are obligated to supply Kissei with drug product for use in clinical trials and pre-commercialization activities.

We are also responsible for the manufacture and supply of fostamatinib for all future development and commercialization activities under the agreement.

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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 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.

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:

(a) for the license, we estimated the standalone selling price using the adjusted market assessment approach to estimate its standalone selling price in the licensed territories;

(b) for the supply of fostamatinib and the material right associated with discounted fostamatinib, we estimated the standalone selling price using the cost plus expected margin approach.

Variable consideration of $ 147.0 million related to future development and 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.

We will recognize revenues related to the supply of fostamatinib and material right upon delivery of fostamatinib to Kissei.

For sales-based milestones and royalties, we determined that the license is the predominant item to which the royalties or sales-based milestones relate to.

Accordingly, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

We concluded that each of these performance obligations is distinct.

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 and recognized the corresponding revenue in the period we satisfied the performance obligations.

As of March 31, 2023 and December 31, 2022, the remaining deferred revenue was related to the material right associated with discounted fostamatinib supply which amounted to $ 1.4 million.

In April 2022, Kissei announced that an NDA was submitted to Japan’s Pharmaceuticals and Medical Devices Agency (PMDA) 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, and such amount was recognized as revenue in the second quarter of 2022 .

In December 2022, Kissei announced that Japan’s PMDA approved the NDA for fostamatinib in chronic ITP.

With this milestone event, we were entitled to receive $ 20.0 million non-refundable and non-creditable payment from Kissei pursuant to the terms of our collaboration agreement, which we recognized as revenue in the fourth quarter of 2022 .

The amount was subsequently collected in January 2023.

The remaining variable consideration related to future development and 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.

For sales-based milestones and tiered, escalated net sales-based payments for the supply of fostamatinib, we determined that the license is the predominant item to which the sales-based milestones relate to.

Accordingly, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the allocated costs for the tiered, escalated net sales-based payments has been satisfied (or partially satisfied).

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

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

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The buyback option precludes us from transferring control of the license to Medison under ASC 606.

We believe that the buyback provision, if exercised, will require us to repurchase the license at an amount equal to or more than the upfront $ 5.0 million.

We believed that the buyback provision, if exercised, will require us to repurchase the license at an amount equal to or more than the upfront $ 5.0 million.

As such, this arrangement was accounted for as a financing arrangement.

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

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.

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

We also billed Medison for the delivery of fostamatinib supplies for clinical use which we previously deferred and included within the outstanding financing liability considering the buy-back provision.

The decision to exercise the buyback option is dependent of many factors including management’s cost and benefit assessments and the success of obtaining regulatory approval for the treatment of AIHA in Canada.

In June 2022, we reported the top-line results from our Phase 3 trial of fostamatinib in wAIHA which showed that the trial did not demonstrate statistical significance in the primary efficacy endpoint in the overall study population.

We also announced in early October 2022 that we will not file an sNDA for wAIHA indication considering the top-line data results and the guidance received from the FDA.

With these developments, we assessed our options path forward, including our buyback option right with regards to the Medison license agreement.

Based on management’s assessment, the likelihood of exercising the buy-back option right was remote.

As such, during the fourth quarter of 2022, we relieved the outstanding financing liability to Medison amounting to $ 5.7 million and recognized such amount as collaboration revenue in accordance with ASC 606.

There was no outstanding financing liability to Medison as of March 31, 2023 and December 31, 2022.

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 have a commercial license and supply agreements with Knight entered in May 2022 for the commercialization of fostamatinib for approved indications in 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.

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We are also responsible for the exclusive manufacture and supply of fostamatinib for all future development and commercialization activities under agreement.

Other license agreements

In February 2021, we entered into a non-exclusive license agreement with an unrelated third party whereby we granted such unrelated third party rights to a certain patent.

In consideration for the license rights granted, we received a one-time fee of $ 4.0 million.

All the deliverables under the agreement had been delivered and the one-time fee was recognized as revenue during the first quarter of 2021.

Government Contract - US Department of Defense’s JPEO-CBRND

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The amount of award we will receive from the US Department of Defense is 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.

We determined that this government award should be accounted for under IAS 2, Accounting for Government Grants and Disclosure of Government Assistance, which is outside of the scope of Topic 606, as the US Department of Defense is not receiving reciprocal value for their contributions.

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 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.

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.

No revenue was recognized during the three months ended March 31, 2023 and 2022.

Through March 31, 2023, we received $ 15.0 million of the awards which we recognized as revenue in the respective periods, with remaining $ 1.5 million awards available, 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.

We have a license and transition services agreement with Forma entered in July 2022, for an exclusive license to develop, manufacture and commercialize olutasidenib, Forma’s proprietary inhibitor of mutated IDH1 (mIDH1), for any uses worldwide, including for the treatment of AML and other malignancies.

Forma became a wholly owned subsidiary of Novo Nordisk A/S following the closing of the acquisition of Forma in October 2022.

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.

In accordance with the guidance, in a transaction accounted for as an asset acquisition, any acquired 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.

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

We 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, are recorded as intangible asset when the event requiring payment of the milestones occurs.

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

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

During the fourth quarter of 2022 prior to the approval of FDA on December 1, 2022, a near-term regulatory milestone was met which entitled 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 recorded such amount as research and development expense in the fourth quarter of 2022.

On December 1, 2022, the FDA approved REZLIDHIA capsules for the treatment of adult patients with R/R AML with susceptible IDH1 mutations as detected by an FDA-approved test.

Following the FDA approval, we launched REZLIDHIA and made first shipments of the product to our customers in December 2022.

With this FDA approval and first commercial sale of the product, Forma were entitled to receive a total of $ 15.0 million milestone payments.

Since such milestone payment obligations were incurred upon and after regulatory approval of the product, we recorded such amount as intangible asset on our condensed balance sheet in the fourth quarter of 2022.

The $ 15.0 million milestone payment obligation was outstanding as of December 31, 2022 and included within accounts payable in our condensed balance sheet.

Such amount was paid in the first quarter of 2023 .

During the three months ended March 31, 2023, we recognized $ 0.3 million of amortization of intangible asset and $ 0.2 million of royalty expense related to Forma as discussed above.

Such costs were included within cost of sales in our condensed statements of operations.

No such expenses were recognized during the three months ended March 31, 2022.

Stock-Based Compensation

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Selling, general and administrative

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Total stock-based compensation expense

In March 2022, our Board of Directors approved to extend the exercise period of the stock option grants made to our two former Board of Directors whose terms expired in May 2022.

As a result of this modification, we recorded an incremental stock-based compensation expense of approximately $ 0.8 million in the first quarter of 2022.

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

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.

Stock-based compensation expense included within research and development in the three months ended March 31, 2023 include an incremental charge of approximately $ 0.5 million from stock option modifications related to the acceleration of vesting and extension of exercise period of vested stock option grants made to a former officer whose employment ended in March 2023.

Stock-based compensation expense included within selling, general and administrative in the three months ended March 31, 2022 include an incremental charge of approximately $ 0.8 million from stock option modifications to extend the exercise period of the stock option grants made to our two former Board of Directors whose terms expired in May 2022.

During the three months ended March 31, 2023, we granted stock options to purchase 2,620,000 shares of common stock with weighted-average grant-date fair value of $ 1.42 per share, and 952 stock options were exercised.

As of March 31, 2023, there were 35,909,499 stock options outstanding, of which, 2,870,000 are outstanding performance-based stock options wherein the achievement of the corresponding corporate-based milestones were not considered probable as of March 31, 2023.

Accordingly, none of the $ 5.3 million grant date fair value for these awards has been recognized as stock-based compensation expense as of March 31, 2023.

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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Risk-free interest rate

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Expected volatility

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.

During the three months ended March 31, 2023, we granted 1,207,600 RSUs with a grant-date weighted-average fair value of $ 1.87 per share, and 266,256 RSUs were released.

The RSUs granted generally vest over 4 years .

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, 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.

As of March 31, 2023, there were 1,988,498 RSUs outstanding.

As of March 31, 2023, there was approximately $ 16.5 million of unrecognized stock-based compensation cost which is expected to be recognized over a remaining weighted-average period of 2.65 years, related to time-based stock options, performance-based stock options wherein achievement of the corresponding corporate-based milestones was considered as probable, and RSUs.

As of March 31, 2023, there were 7,646,459 shares of common stock available for future grant under our Equity Incentive Plans.

Employee Stock Purchase Plan

Our Purchase Plan permits our eligible employees to purchase common stock at a discount through payroll deductions during the offering period.

Our Purchase Plan provides for a twenty-four -month offering period comprised of four six-month purchase periods with a look-back option.

Our Purchase Plan provides for a 24 -month offering period comprises four six-month purchase periods with a look-back option.

A look-back option is a provision in our Purchase Plan under which eligible employees can purchase shares of our common stock at a price per share equal to the lesser of 85 % of the fair market value on the first day of the offering period or 85 % of the fair market value on the purchase date.

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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.

As of March 31, 2023, unrecognized stock-based compensation cost related to our Purchase Plan amounted to $ 0.7 million, which is expected to be recognized over the remaining weighted average period of 0.74 years.

As of March 31, 2023, there were 3,437,633 shares reserved for future issuance under the Purchase Plan.

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

September 30,

March 31, 2023

December 31, 2022

Raw materials

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Finished goods

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.

Inventories as of March 31, 2023 and December 31, 2022 include inventories acquired from Forma pursuant to the license and transition agreement.

As of March 31, 2023 and December 31, 2022, we have $ 0.7 million and $ 0.8 million, respectively, 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,

March 31, 2023

December 31, 2022

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):

September 30, 2022

US treasury bills

As of March 31, 2023

Government-sponsored enterprise securities

Corporate bonds and commercial paper

December 31, 2021

As of December 31, 2022

US treasury bills

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Corporate bonds and commercial paper

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.

We maintain a depository relationship with Silicon Valley Bank (SVB).

On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.

On March 12, 2023, federal regulators announced that the FDIC would complete its resolution of SVB in a manner that fully protects all depositors.

On March 27, 2023, First Citizens BancShares, Inc.

(FCB) announced that it entered into an agreement with FDIC to purchase all of the asset and liabilities of SVB.

Customers of SVB automatically become customers of FCB following the acquisition.

To date and as of March 31, 2023, the amount of our cash held on deposit with SVB/FCB was not material with respect our total cash, cash equivalents and short-term investments.

All of our cash deposits with SVB/FCB are accessible to us, and we do not anticipate any losses with respect to such funds.

As of March 31, 2023 and December 31, 2022, our cash equivalents and short-term investments had a weighted-average time to maturity of approximately 58 days and 89 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 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.

As of March 31, 2023, we had no investments that had been in a continuous unrealized loss position for more than 12 months.

As of March 31, 2023, a total of 16 individual securities had been in an unrealized loss position for 12 months or less, and the losses were determined to be temporary.

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 September 30, 2022.

Based on our review of these securities, including the assessment of the duration and severity of the unrealized losses, we have no t recognized any credit losses on these securities as of March 31, 2023 and December 31, 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):

September 30, 2022

As of March 31, 2023

Unrealized Losses

US treasury bills

Government-sponsored enterprise securities

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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 September 30, 2022

Assets at Fair Value as of March 31, 2023

Money market funds

US treasury bills

Government-sponsored enterprise securities

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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), 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).

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), at the Third Amendment, an additional $ 10.0 million was funded (Tranche 4), and on March 28, 2023, an additional $ 20.0 million was funded (Tranche 5).

As of March 31, 2023, the outstanding principal balance of the loan was $ 60.0 million, and no remaining funds are available for draw under the term loan credit facility.

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 % .

Following the Third Amendment, the maturity date for the term loans is on September 1, 2026, and the interest-only period is through October 1, 2024.

The interest rate applicable to the term loans under the amended Credit Agreement is the sum of one-month Secured Overnight Financing Rate (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.

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, plus applicable margin of 5.65 % , subject to a LIBOR floor of 1.50 % and is payable monthly in arrears.

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

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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):

As of March 31, 2023 and December 31, 2022, the unamortized issuance costs and debt discounts amounted to $ 0.5 million and $ 0.6 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 March 31, 2023 and 2022 was $ 1.2 million and $ 0.5 million, respectively.

Accrued interest of $ 0.9 million was included within other accrued liabilities in the condensed balance sheet as of March 31, 2023.

The following table presents the future minimum principal payments of the outstanding loan as of March 31, 2023 (in thousands):

Remainder of 2023

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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.

(formerly known as HCP BTC, LLC), which originally set to expire in 2018, and was extended in July 2017 for another five years through January 2023.

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 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 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.

We recorded rent expense on a straight-line basis for our lease, net of sublease income.

For our sublease arrangement which we classified as an operating lease, our loss on the sublease was comprised of the present value of our future payments to our landlord less the present value of our future rent payments expected from our subtenant over the term of the sublease.

As of March 31, 2023, we were not in violation of any covenants.

We have a sublease agreement with Atara Biotherapeutics, Inc.

(Atara) entered in October 2022 to sublease an office space located in South San Francisco, California.

Subject to the terms of the sublease agreement, the lease term commenced in November 2022 and shall expire in May 2025.

This leased facility is currently held as our new headquarters following the expiration of our previously leased facility in January 2023.

At lease measurement date in the fourth quarter of 2022, we recognized the operating lease right-of-use asset and lease liability of approximately $ 1.3 million.

As of March 31, 2023, we recorded $ 0.2 million of lease incentives from our sublease with Atara, which we recorded as a reduction to operating lease right-of-use asset and lease liability until the lease ends and the asset is transferred.

The weighted average remaining term of our leases as of March 31, 2023 was 2.17 years.

We had a lease agreement with Healthpeak Properties, Inc.

(formerly known as HCP BTC, LLC), to occupy research and office space located in South San Francisco, California and a sublease agreement with an unrelated third-party to sublet a portion of the leased facility.

Both leases expired in January 2023.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Fixed operating lease expense

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Fixed sublease expense

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Sublease income

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

Operating Lease

Sublease Receipts

The following table presents the future lease payments as of March 31, 2023 (in thousands):

Remainder of 2023

Total minimum payments required

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.

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.

Subsequent Events

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