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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-09 · 117 added, 258 removed, 51 unchanged (88% of the section changed)

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You should read the following discussion and analysis in conjunction with the unaudited, condensed, consolidated financial statements and the related footnotes thereto appearing elsewhere in this report, and in conjunction with management’s discussion and analysis and the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.

We are a biopharmaceutical company dedicated to developing and delivering medicines for patients with B-cell mediated diseases, including chronic lymphocytic leukemia (CLL), non-Hodgkin lymphoma (NHL) and multiple sclerosis (MS).

We have developed a robust B-cell directed research and development (R&D) platform for identification of key B-cell pathways of interest and rapid clinical testing.

Currently, we have five B-cell targeted drug candidates in clinical development, with the two lead therapies, ublituximab (TG-1101) and umbralisib (TGR-1202), in pivotal trials for CLL and NHL, with ublituximab also in pivotal trials for MS.

Ublituximab is a novel anti-CD20 monoclonal antibody (mAb) that has been glycoengineered for enhanced potency.

Umbralisib is an oral, once daily, dual inhibitor of PI3K-delta and CK1-epsilon.

When used together in combination therapy, ublituximab and umbralisib are referred to as “U2”.

Additionally, in early clinical development we have an anti-PD-L1 monoclonal antibody cosibelimab (TG-1501), an oral Bruton’s Tyrosine Kinase (BTK) inhibitor referred to as TG-1701, and an anti-CD47/CD19 bispecific antibody referred to as TG-1801.

TG Therapeutics is a fully integrated, commercial stage biopharmaceutical company focused on the acquisition, development and commercialization of novel treatments for B-cell malignancies and autoimmune diseases.

In addition to an active research pipeline including five investigational medicines across these therapeutic areas, UKONIQ received accelerated approval from the FDA for the treatment of adult patients with relapsed or refractory MZL who have received at least one prior anti-CD20-based regimen and relapsed or refractory FL who have received at least three prior lines of systemic therapies.

Currently, we have two programs in Phase 3 development for the treatment of patients with RMS and patients with CLL and several investigational medicines in Phase 1 clinical development.

We also actively evaluate complementary products, technologies and companies for in-licensing, partnership, acquisition and/or investment opportunities.

To date, we have not received approval for the sale of any of our drug candidates in any market and, therefore, have not generated any product sales from our drug candidates.

FDA Accelerated Approval of UKONIQ and Commercial Launch

On February 5, 2021, we announced that the FDA granted accelerated approval of UKONIQ for the treatment of adult patients with relapsed or refractory MZL who have received at least one prior anti-CD20 based regimen and for the treatment of adult patients with relapsed or refractory FL who have received at least three prior lines of systemic therapy.

UKONIQ is the first and only, oral, once-daily, inhibitor of phosphoinositide 3 kinase (PI3K) delta and casein kinase 1 (CK1) epsilon.

Accelerated approval was granted for these indications based on overall response rate (ORR) data from the Phase 2b UNITY-NHL Trial (NCT02793583).

Continued approval for these indications is contingent upon verification and description of clinical benefit in a confirmatory trial.

This application was granted Priority Review for the MZL indication.

In addition, UKONIQ was granted Breakthrough Therapy Designation (BTD) for the treatment of MZL and orphan drug designation (ODD) for the treatment of MZL and FL.

Following the FDA approval, we launched UKONIQ, making it available to patients through a distribution network that includes a specialty pharmacy and specialty distributors.

In the U.S., the annual incidence of newly diagnosed MZL is approximately 8,200 and FL is approximately 13,200.

Our commercialization efforts have focused on approximately 3,000 physicians at academic centers and large community practices who treat approximately 80% of MZL

and FL patients.

We developed a commercialization plan that accounted for the COVID-19 pandemic, with a focus on enabling virtual interactions to provide healthcare provider education.

As anticipated, our interactions with healthcare providers during the first quarter were primarily virtual due to the pandemic, with limited opportunities for our commercial and medical field teams to have live engagements.

Payor coverage of UKONIQ and inclusion in the NCCN guidelines have been consistent with the FDA-approved indications.

We are committed to helping patients access their prescription for UKONIQ through the TG Patient Support Program, which we launched following the approval of UKONIQ.

Our Products Under Development

We have leveraged our B-cell platform to develop a robust drug pipeline of targeted orally available, potent and selective small molecule kinase inhibitors and intravenously delivered immunotherapies that leverage the patients’ own immune system to fight cancer.

We currently own worldwide development and commercial rights, subject to certain limited geographical restrictions, to all of our preclinical and clinical programs.

The following table summarizes our most advanced drug candidates:

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Ublituximab (anti-CD20 mAb)

Chronic Lymphocytic Leukemia

Chronic Lymphocytic Leukemia (CLL)

Phase 3 trial (UNITY-CLL)

Phase 3 trial (ULTRA-V)

Relapsing Multiple Sclerosis

Relapsing Multiple Sclerosis (RMS)

Phase 3 trials (ULTIMATE I and II)

Umbralisib (PI3K-delta inhibitor)

Chronic Lymphocytic Leukemia

UKONIQ (PI3K-delta inhibitor)

Phase 3 trial (UNITY-CLL)

Phase 3 trial (ULTRA-V)

Marginal Zone Lymphoma

Marginal Zone Lymphoma (MZL)

Phase 2b trial (UNITY-NHL)

Follicular Lymphoma/Small Lymphocytic Lymphoma

Follicular Lymphoma (FL)

Phase 2b trial (UNITY-NHL)

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Phase 1 trial

TG-1801 (anti-CD47/CD19 bispecific Ab)

TG-1801 (anti-CD47/CD19 bispecific mAb)

B-cell cancers

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Phase 3 and Registration-Directed Clinical Trial Highlights

We have several Phase 3 and registration-directed Phase 2b clinical trials ongoing that may support marketing applications for approval.

Our most advanced trials, UNITY-NHL MZL & FL single agent cohorts, UNITY-CLL, and the ULTIMATE I & II trials, have all completed enrollment and have either completed their primary analysis or are nearing completion.

Accordingly, we would expect to see minimal impact on the conduct and our proposed timelines for these three trials related to the COVID-19 pandemic.

However, as the pandemic evolves, we will continue to evaluate each trial, monitor potential implications, and work closely with our investigational sites, CROs, and vendors to develop continuity plans.

The following are highlights from our current Phase 3 trials and registration-directed Phase 2b clinical trials:

UNITY-NHL Phase 2b Trial:

UNITY-NHL is a global Phase 2b registration-directed clinical trial designed to evaluate the efficacy and safety of single-agent umbralisib and U2 combinations in patients with previously treated NHL.

The marginal zone lymphoma (MZL), follicular lymphoma (FL), and small lymphocytic lymphoma (SLL) single agent umbralisib cohorts of this trial are fully enrolled.

The primary objective of these cohorts is to assess the efficacy of single agent umbralisib as measured by Overall Response Rate (ORR).

● UNITY-NHL MZL and FL Single Agent Umbralisib Cohorts:

UNITY-NHL is a broad, multicenter, open-label, Phase 2b registration-directed clinical trial designed to evaluate the efficacy and safety of UKONIQ monotherapy and UKONIQ plus ublituximab (U2) combinations in patients with previously treated NHL.

There are several exploratory cohorts of the UNITY-NHL trial which are enrolled to and evaluated independently from the others, including cohorts for MZL, FL/SLL, DLBCL, and MCL.

● UNITY-NHL MZL/FL Single Agent UKONIQ:

The MZL cohort enrolled adult patients who had at least one prior line of therapy that included an anti-CD20 monoclonal antibody.

In February 2019, we announced that the MZL cohort met the primary endpoint of ORR as determined by an Independent Review Committee (IRC) for all treated patients (n=69).

The results met our target guidance of 40-50% ORR.

Previously, in January 2019, the U.S.

Food and Drug Administration (FDA) granted Breakthrough Therapy Designation (BTD) to umbralisib for the treatment of adult patients with MZL who have received at least one prior anti-CD20 regimen.

In April 2019, the FDA granted orphan drug designation to umbralisib for the treatment of patients with any of the three types of marginal zone lymphoma:

nodal, extranodal, and splenic MZL.

The FL/SLL cohort enrolled adult patients who had two or more prior lines of therapy that included an anti-CD20 monoclonal antibody and an alkylating agent.

In October 2019, we announced that the FL patients within this cohort met the primary endpoint of ORR as determined by IRC for all treated FL patients (n=118).

The results met our target guidance of 40-50% ORR.

In January of 2020, we received guidance from the FDA allowing submission of a single New Drug Application (NDA) for MZL and FL indications, and we initiated a rolling submission of an NDA to the FDA for umbralisib in MZL and FL.

In March 2020, we announced that the FDA granted orphan drug designation to umbralisib for the treatment of FL.

In June 2020, we announced the completion of the rolling NDA submission for MZL and FL, and in August 2020 we announced the FDA accepted the NDA.

The MZL indication, under BTD, has been accepted for Priority Review and has a Prescription Drug User Fee Act (PDUFA) goal date of February 15, 2021.

The FL indication has been accepted for standard review with a PDUFA goal date of June 15, 2021.

On November 4, 2020, accepted abstracts for the 2020 American Society of Hematology Virtual Conference were released with the final data from the UNITY-NHL, MZL and FL cohorts, which we previously announced top-line results for in February and October 2019, respectively.

Highlights from the abstract are as follows:

● A total of 208 patients with iNHL received at least 1 dose of umbralisib, including 69 marginal zone lymphoma (MZL), 117 follicular lymphoma (FL), and 22 small lymphocytic lymphoma (SLL) patients

● MZL patients were relapsed/refractory to ≥1 prior lines of treatment, including an anti-CD20.

At a median follow up of 27.8 months, the following was observed:

o 49.3% ORR with 15.9% Complete response (CR) rate

o Median PFS was not reached, with an estimated 12-month PFS rate of 64.2%;

no patients who achieved a CR have experienced disease progression to date

● FL patients were relapsed or refractory to ≥2 prior lines, including an anti-CD20 and an alkylating agent.

At a median follow up of 27.5 months the following was observed:

o 45.3% ORR with 5.1% achieving a CR

o Median PFS was 10.6 months, with an estimated 12-month PFS rate of 45.9%

● The most common AEs of > Grade 3 were neutropenia (11.5%), diarrhea (10.1%) and increased ALT/AST (7.2%).

Other AEs of interest included pneumonitis (all Grades 1.4%, > Grade 3 1.0%) and colitis (all Grades 1.4%, >Grade 3 0.5%)

● Conclusion:

Umbralisib achieved meaningful clinical activity in a heavily pretreated iNHL population.

The safety profile was manageable, with a relatively low incidence of immune-mediated toxicities and AE-related discontinuations.

● UNITY-NHL Additional Cohorts :

There are additional exploratory disease cohorts of the UNITY-NHL trial focused on diffuse large B cell lymphoma (DLBCL) and mantle cell lymphoma (MCL).

In total, there are currently four cohorts in the UNITY-NHL trial, including MZL, FL/SLL, DLBCL, and MCL.

Each cohort is evaluated separately from the others.

The MZL, MCL and FL cohorts are currently enrolling additional patients exploring the combination of U2.

● UNITY-CLL Phase 3 Trial Evaluating Umbralisib plus Ublituximab (U2):

UNITY-CLL is a global Phase 3 randomized controlled clinical trial comparing the U2 combination to an active control arm of obinutuzumab plus chlorambucil in patients with both treatment-naïve and relapsed or refractory CLL.

Two additional arms evaluating single agent ublituximab and single agent umbralisib were also enrolled for purposes of evaluating the contribution of each in the U2 combination regimen.

The primary endpoint for this study is progression free survival (PFS) which we intend to use to support a Biologics License Application (BLA) submission for approval of the U2 combination in CLL.

The FL cohort enrolled adult patients who had two or more prior lines of therapy that included an anti-CD20 monoclonal antibody and an alkylating agent.

Both cohorts met the primary endpoint of ORR as determined by Independent Review Committee (IRC) assessment.

Results from these cohorts were presented in December 2020 at the American Society of Hematology Annual meeting.

On February 5, 2021, we announced that the FDA granted accelerated approval of UKONIQ, for the treatment of adult patients with relapsed or refractory MZL who have received at least one prior anti-CD20 based regimen and adult patients with relapsed or refractory FL who have received at least three prior lines of systemic therapy.

UNITY-CLL Phase 3 Trial Evaluating UKONIQ plus Ublituximab (U2):

UNITY-CLL is a global, multi-center, Phase 3, randomized, controlled clinical trial comparing the U2 combination to an active control arm of obinutuzumab plus chlorambucil in patients with both treatment-naïve and relapsed or refractory CLL.

Two additional arms evaluating single-agent ublituximab and single-agent UKONIQ were also enrolled for purposes of evaluating the contribution of each in the U2 combination regimen.

The primary endpoint for this study is progression-free survival (PFS).

The study completed enrollment in October 2017 with over 600 patients across the four treatment arms, with approximately 420 patients in the U2 and the active control arms combined.

This trial is conducted under a Special Protocol Assessment (SPA) with the FDA.

On May 5, 2020, we announced the UNITY-CLL trial met its primary endpoint at a prespecified interim analysis demonstrating a statistically significant improvement in PFS (p<0.0001) and will be stopped early for superior efficacy.

In October 2020, we announced that the FDA granted Fast Track Designation to U2 for CLL.

On November 4, 2020, accepted abstracts for the 2020 ASH Virtual Conference were released with the final data from the UNITY-CLL study, which we previously announced top-line results for in May of 2020.

Highlights from this abstract are as follows:

● 421 patients were randomized to the U2 (n=210) or O+Chl (n=211) arms;

57% of patients were treatment-naïve and 43% had R/R CLL

● At a median follow-up of 36.2 months, U2 significantly prolonged progression-free survival (PFS) vs O+Chl (median 31.9 months vs 17.9 months;

hazard ratio 0.546 (p<0.0001))

● PFS improvement with U2 vs O+Chl was consistent across all subgroups examined including treatment naïve patients (median 38.5 months vs 26.1 months, hazard ratio 0.482) and relapsed/refractory patients (median 19.5 months vs 12.9 months, hazard ratio 0.601)

● Overall response rate (ORR) was significantly higher with U2 compared to O+Chl (83.3% vs 68.7%;

● Grade 3/4 Adverse Events (AE) of interest regardless of causality (U2 vs O+Chl) included neutropenia (30.6% vs 34.7%), thrombocytopenia (3.4% vs 13.1%), diarrhea (12.1% vs 2.5%), infusion related reaction (1.9% vs 3.5%), elevated AST/ALTs (8.3% vs 2%), colitis (3.4% vs 0%) and pneumonitis (2.9% vs 0%)

● Conclusion:

U2 exhibited a well-tolerated safety profile, and significantly improved PFS vs.

standard of care chemoimmunotherapy in patients with treatment naïve and relapsed/refractory CLL

The UNITY-CLL trial is being led by John Gribben, MD, professor of Medical Oncology, Barts Cancer Institute, United Kingdom.

● On December 7, 2020, we presented safety and efficacy results from the UNITY- CLL trial at the ASH annual meeting demonstrating that U2 significantly improved PFS over obinutuzumab plus chlorambucil (HR=0.54, p<0.0001) as well as ORR (p<0.001) in patients with CLL, with consistent PFS improvement across treatment naïve CLL (HR=0.48) and relapsed or refractory CLL (HR=0.60).

Grade 3/4 adverse events (AEs) of clinical interest (U2 vs Obin+Chl) included elevated ALT (8.3% vs 1.0%), elevated AST (5.3% vs 2.0%), non-infectious colitis (1.9% vs 0%), infectious colitis (0.5% vs 0.5%), pneumonitis (0.5% vs 0%), rash (2.4% vs 0.5%), and opportunistic infections (5.8% vs.

These data supported a rolling Biologics License Application (BLA) submission to the US FDA requesting approval of ublituximab, in combination with UKONIQ, as a treatment for patients with CLL.

The rolling BLA submission was completed in March 2021.

ULTIMATE I & II Trials Evaluating Single-Agent Ublituximab in RMS:

ULTIMATE I and ULTIMATE II are two independent Phase 3 trials.

Each trial is a global, randomized, multi-center, double-blinded, double-dummy, active-controlled study comparing ublituximab to teriflunomide in subjects with relapsing forms of Multiple Sclerosis (RMS).

The primary endpoint for each study is Annualized Relapse Rate (ARR) following 96 weeks of treatment, which we intend to use to support a submission for approval of ublituximab in RMS.

These trials are both being conducted under a SPA with the FDA.

Each trial is a global, randomized, multi-center, double-blinded, double-dummy, active-controlled study comparing ublituximab to teriflunomide in subjects with RMS.

The primary endpoint for each study is annualized relapse rate (ARR) following 96 weeks of treatment, which we intend to use to support a BLA submission for approval of ublituximab in the treatment of RMS.

These trials were both conducted under a SPA with the FDA.

Full enrollment was completed in October 2018, with approximately 1,100 subjects enrolled in both studies combined.

● ULTRA-V Phase 2 Trial Evaluating U2 Plus Venetoclax in CLL:

ULTRA-V is a Phase 2 open-label, multicenter, registration-directed clinical trial designed to investigate the efficacy and safety of U2 in combination with venetoclax in subjects with treatment-naïve and relapsed or refractory CLL.

The primary endpoints for this study are ORR and Complete Response (CR) rate.

This trial is currently enrolling.

GENERAL CORPORATE

Our license revenues currently consist of license fees arising from our agreement with Ildong.

We recognize upfront license fee revenues ratably over the estimated period in which we will have certain significant ongoing responsibilities under the sublicense agreement, with unamortized amounts recorded as deferred revenue.

We have not earned any revenues from the commercial sale of any of our drug candidates.

Our research and development expenses consist primarily of expenses related to in-licensing of new product candidates, fees paid to consultants and outside service providers for clinical and laboratory development, facilities-related and other expenses relating to the design, development, manufacture, testing and enhancement of our drug candidates and technologies including clinical trial related expenses.

We expense our research and development costs as they are incurred.

Our general and administrative expenses consist primarily of salaries and related expenses for executive, finance;

commercial, medical, and other administrative personnel, recruitment expenses, expenses for pre-commercialization activities (including the build out of our medical affairs and commercial organizations and infrastructure), professional fees and other corporate expenses, including investor relations, legal activities and facilities-related expenses.

Our results of operations include noncash compensation expenses as a result of the grants of restricted stock.

Compensation expense for awards of restricted stock granted to employees and directors represents the fair value of the award recorded over the respective vesting periods of the individual awards.

The expense is included in the respective categories of expense in the condensed consolidated statements of operations.

We expect to continue to incur significant non-cash compensation expenses.

We recognize all stock-based payments to employees and non-employee directors (as compensation for service) as noncash compensation expense in the consolidated financial statements based on the fair values of such payments.

Stock-based compensation expense recognized each period is based on the value of the portion of stock-based payment awards that is ultimately expected to vest during the period.

Forfeitures are recognized as they occur.

In addition, because some of the options, restricted stock and warrants issued to employees, consultants and other third parties vest upon achievement of certain milestones, the total expense is uncertain.

Compensation expense for such awards that vest upon the achievement of milestones is recognized when the achievement of such milestones becomes probable.

Our clinical trials will be lengthy and expensive.

Even if these trials show that our drug candidates are effective in treating certain diseases, there is no guarantee that we will be able to record commercial sales of any of our drug candidates in the near future, or at all.

In addition, we expect losses to continue as we fund in-licensing and development of new drug candidates.

As we further our development efforts, we may enter into additional third-party collaborative agreements and incur additional expenses, such as licensing fees and milestone payments.

In addition, we are establishing a commercial infrastructure to market, distribute, and sell our medicines following approval, if any, by the FDA or a foreign health authority, which has resulted in, and will continue to result in, additional expenses.

As a result, our quarterly results may fluctuate and a quarter-by-quarter comparison of our operating results may not be a meaningful indication of our future performance.

● In April 2021, data from the ULTIMATE I & II trials were presented at the American Academy of Neurology Annual meeting.

Both studies met their primary endpoint with ublituximab treatment demonstrating a statistically significant reduction in ARR over a 96-week period (p<0.005 in each trial).

Key secondary MRI endpoints were also met.

ULTRA-V Phase 2 and Phase 3 Trials Evaluating U2 Plus Venetoclax in CLL:

The ULTRA-V Phase 2 and Phase 3 trials are designed to investigate the efficacy and safety of U2 in combination with venetoclax in subjects with treatment-naïve CLL and relapsed or refractory CLL.

● The ULTRA-V Phase 2 trial is an open-label, multi-center, clinical trial and the primary endpoints for this study are ORR and Complete Response (CR) rate.

This trial completed enrollment in April 2021 with approximately 165 patients.

● The ULTRA-V Phase 3 trial is an open-label, multi-center, randomized, controlled clinical trial comparing the time-limited triple combination U2) plus venetoclax to an active control arm of continuous U2.

The Phase 3 trial includes two independent randomized cohorts of CLL subjects:

a treatment-naïve cohort and a previously treated cohort, with each cohort being enrolled and evaluated independently of each other.

The primary endpoint for the trial is PFS.

This trial is being led by Richard R.

Furman, MD, Director of CLL Research Center at Weill Cornell Medicine.

RESULTS OF OPERATIONS

Three months ended September 30, 2020 and 2019

Three months ended March 31, 2021 and 2020

Product Revenues (Net).

Net product revenues represent U.S.

sales from our sole commercial product, UKONIQ, which was approved by the FDA on February 5, 2021.

During the three months ended March 31, 2021, net product revenues were $0.8 million.

Sales allowances and accruals consisted of government rebates, patient financial assistance, distribution fees, discounts, and chargebacks.

We did not have product revenues in 2020.

Cost of Product Revenue.

Cost of product revenue for the three months ended March 31, 2021 was $0.1 million.

Cost of product revenue primarily relates to freight and royalties owed to our licensing partner for UKONIQ sales.

Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval, the manufacturing costs of UKONIQ units recognized as revenue during the three months ended March 31, 2021 were expensed prior to the February 5, 2021 FDA approval, and therefore are not included in costs of product revenue during the current period.

We expect the cost of product revenue to increase in relation to product revenues as we deplete these inventories and we expect to use the remaining pre-commercialization inventory for product sales through the second quarter of 2022.

License Revenue.

License revenue was approximately $38,000 for each of the three months ended September 30, 2020 and 2019.

License revenue is related to the amortization of an upfront payment of $2.0 million received in 2012 associated with our license agreement with Ildong.

Our license revenues currently consist of license fees arising from our agreement with Ildong.

License revenue was approximately $38,000 for each of the three months ended March 31, 2021 and 2020 related to the amortization of an upfront payment of $2.0 million received in 2012 associated with our license agreement with Ildong.

The upfront payment from Ildong will be recognized as license revenue on a straight-line basis through December 2025, which represents the estimated period over which the Company will have certain ongoing responsibilities under the sublicense agreement.

Noncash Compensation Expense (Research and Development).

Noncash compensation expense (research and development) related to equity incentive grants totaled $4.6 million for the three months ended September 30, 2020, as compared to $1.5 million during the comparable period in 2019.

The increase in noncash compensation expense was primarily due to greater compensation expense related to more research and development personnel during the period ended September 30, 2020.

Other Research and Development Expenses.

Other research and development expenses decreased by $10.7 million to $45.8 million for the three months ended September 30, 2020, as compared to $56.5 million for the three months ended September 30, 2019.

The decrease in R&D expense is primarily attributable to a decrease in manufacturing costs for ublituximab and umbralisib, offset by an increase in milestone payments made during the three months ended September 30, 2020.

Noncash Compensation Expense (General and Administrative).

Noncash compensation expense (general and administrative) related to equity incentive grants increased by $23.1 million to $23.7 million for the three months ended September 30, 2020, as compared to $0.6 million for the three months ended September 30, 2019.

The increase in noncash compensation expense was primarily related to greater compensation expense during the three months ended September 30, 2020 related to restricted stock and stock options granted to executive personnel.

Other General and Administrative Expenses .

Other general and administrative expenses was $11.6 million for the three months ended September 30, 2020, as compared to $2.3 million for the three months ended September 30, 2019.

The increase was due primarily to increased personnel and other general and administrative costs, associated with preparations for a potential commercial launch.

We expect our other general and administrative expenses to increase modestly during 2020 in preparation for potential launch.

Interest Expense .

Interest expense increased by $0.1 million to $1.6 million for the three months ended September 30, 2020, as compared to $1.5 million for the three months ended September 30, 2019.

Other Income .

Other income was $0.2 million for the three months ended September 30, 2020, as compared to $0.5 million for the three months ended September 30, 2019.

We expect our other income to remain at a comparable level for the remainder of 2020.

Nine months ended September 30, 2020 and 2019

License Revenue.

License revenue was approximately $114,000 for each of the nine months ended September 30, 2020 and 2019.

License revenue is related to the amortization of an upfront payment of $2.0 million received in 2012 associated with our license agreement with Ildong.

Noncash Compensation Expense (Research and Development).

Noncash compensation expense (research and development) related to equity incentive grants totaled $8.1 million for the nine months ended September 30, 2020, as compared to $4.3 million during the comparable period in 2019.

The increase in noncash compensation expense was primarily due to greater compensation expense related to more research and development personnel during the period ended September 30, 2020.

Noncash compensation expense (research and development) related to equity incentive grants totaled $7.5 million for the three months ended March 31, 2021, as compared to $2.0 million during the comparable period in 2020.

The increase in noncash compensation expense was primarily due to an increase in research and development personnel and a higher stock price during the period ended March 31, 2021.

Other Research and Development Expenses.

Other research and development expenses decreased by $4.0 million to $114.8 million for the nine months ended September 30, 2020, as compared to $118.8 million for the nine months ended September 30, 2019.

Noncash Compensation Expense (General and Administrative).

Noncash compensation expense (general and administrative) related to equity incentive grants increased by $37.2 million to $38.6 million for the nine months ended September 30, 2020, as compared to $1.4 million for the nine months ended September 30, 2019.

The increase in noncash compensation expense was primarily related to greater compensation expense during the nine months ended September 30, 2020 related to restricted stock and stock options granted to executive personnel.

Other General and Administrative Expenses .

Other general and administrative expenses was $25.4 million for the nine months ended September 30, 2020, as compared to $6.6 million for the nine months ended September 30, 2019.

The increase was due primarily to increased personnel and other general and administrative costs, associated with preparations for a potential commercial launch.

We expect our other general and administrative expenses to increase modestly during 2020 in preparation for potential launch.

Our other research and development expenses consist primarily of expenses related to in-licensing of new product candidates, fees paid to consultants and outside service providers for clinical and laboratory development, facilities-related and other expenses relating to the design, development, manufacture, testing and enhancement of our drug candidates and technologies including clinical trial related expenses.

We expense our research and development costs as they are incurred.

Other research and development expenses increased by $21.6 million to $55.6 million for the three months ended March 31, 2021, as compared to $34.0 million for the three months ended March 31, 2020.

The increase in R&D expense is primarily attributable to the achievement of various milestones as well as manufacturing costs for ublituximab during the three months ended March 31, 2021.

Noncash Compensation Expense (Selling, General and Administrative).

Noncash compensation expense (selling, general and administrative) related to equity incentive grants was $9.1 million for each of the three months ended March 31, 2021 and 2020.

Other Selling, General and Administrative Expenses .

Our selling, general and administrative expenses consist primarily of salaries and related expenses for executive, finance;

commercial, medical, and other administrative personnel, recruitment expenses, expenses for commercialization activities (including the build out of our medical affairs and commercial organizations and infrastructure), professional fees and other corporate expenses, including investor relations, legal activities and facilities-related expenses.

Other selling, general and administrative expenses was $17.7 million for the three months ended March 31, 2021, as compared to $5.2 million for the three months ended March 31, 2020.

The increase was due primarily to increased personnel and other selling, general and administrative costs, associated with the commercial launch of UKONIQ.

We expect our other selling, general and administrative expenses to increase during 2021 coinciding with the launch.

Interest Expense .

Interest expense increased by $1.6 million to $5.0 million for the nine months ended September 30, 2020, as compared to $3.4 million for the nine months ended September 30, 2019.

The increase is mainly due to interest expense related to administrative fees in connection with contract manufacturing costs during the nine months ended September 30, 2020.

Interest expense increased by $0.7 million to $1.9 million for the three months ended March 31, 2021, as compared to $1.2 million for the three months ended March 31, 2020.

The increase is mainly due to interest expense related to administrative fees in connection with contract manufacturing costs during the period ended March 31, 2021.

Other Income .

Other income was $0.7 million for the nine months ended September 30, 2020, as compared to $1.2 million for the nine months ended September 30, 2019.

Other income was $0.5 million for the three months ended March 31, 2021, as compared to $0.3 million for the three months ended March 31, 2020.

We expect our other income to remain at a comparable level for the remainder of 2021.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of cash have been from the sale of equity securities, debt financings, the upfront payment from our Sublicense Agreement with Ildong, and warrant and option exercises.

We have not yet commercialized any of our drug candidates and cannot be sure if we will ever be able to do so.

Even if we commercialize one or more of our drug candidates, we may not become profitable.

Our ability to achieve profitability depends on a number of factors, including our ability to obtain regulatory approval for our drug candidates, successfully complete any post-approval regulatory obligations and successfully commercialize our drug candidates alone or in partnership.

We may continue to incur substantial operating losses even if we begin to generate revenues from our drug candidates.

As of September 30, 2020, we had approximately $254.2 million in cash and cash equivalents.

We anticipate that our cash and cash equivalents on hand as of September 30, 2020, along with the additional capital raised in the fourth quarter of 2020 (see Note 5), will provide sufficient liquidity for more than a twelve-month period from the date of filing this Quarterly Report on Form 10-Q.

The actual amount of cash that we will need to operate is subject to many factors, including, but not limited to, the timing, design and conduct of clinical trials for our drug candidates.

We are dependent upon significant financing to provide the cash necessary to execute our current operations, including the commercialization of any of our drug candidates.

Cash used in operating activities for the nine months ended September 30, 2020 was $162.5 million as compared to $102.4 million for the nine months ended September 30, 2019.

Our major sources of cash have been proceeds from the private placement and public offering of equity securities.

During the first quarter of 2021, umbralisib, now referred to as UKONIQ, was granted accelerated approval in the United States for the treatment of adult patients with relapsed or refractory MZL who have received at least one prior anti-CD20 based regimen and adult patients with relapsed or refractory FL who have received at least three prior lines of systemic therapy.

Commercial sales of UKONIQ commenced in the first quarter of 2021.

We have generated limited revenues to date from product sales.

Even with the commercialization of UKONIQ and the potential future commercialization of our other drug candidates, we may not become profitable.

Our ability to achieve profitability depends on many factors, including our ability to generate revenue, our ability to obtain regulatory approvals for our drug candidates, our ability to successfully complete any post-approval regulatory obligations and our ability to successfully commercialize our drug candidates.

We may continue to incur substantial operating losses even as we begin to generate revenues from product sales.

As of March 31, 2021, we had $523.8 million in cash and cash equivalents, and investment securities.

We anticipate that our cash and cash equivalents, and investment securities as of March 31, 2021 will provide sufficient liquidity for more than a twelve-month period from the date of filing this Quarterly Report on Form 10-Q.

The actual amount of cash that we will need to operate is subject to many factors, including, but not limited to, our UKONIQ commercialization efforts, preparations for the commercialization of our other drug candidates, and the timing, design and conduct of clinical trials for our drug candidates.

We are dependent upon significant future financing to provide the cash necessary to execute our ongoing and future operations, including the commercialization of any additional drug candidates.

Discussion of Cash Flows

Cash used in operating activities for the three months ended March 31, 2021 was $81.4 million as compared to $62.1 million for the three months ended March 31, 2020.

The increase in cash used in operating activities was due primarily to increased expenditures associated with our scale-up for manufacturing as well as ongoing clinical development programs and paydown of accounts payable and accrued expenses.

For the nine months ended September 30, 2020, net cash provided by investing activities was $27.6 million as compared to cash used in investing activities of $0.7 million for the nine months ended September 30, 2019.

The increase in net cash provided by investing activities was primarily due to greater proceeds from the maturity of short-term investment in treasury securities during the nine months ended September 30, 2020.

For the nine months ended September 30, 2020, net cash provided by financing activities of $276.4 million related to proceeds from the issuance of common stock as part of our underwritten public offering in May 2020 and our ATM program.

Net cash used in investing activities for the three months ended March 31, 2021, was $0.5 million as compared to cash provided by investing activities of $1.5 million for the three months ended March 31, 2020.

The increase in net cash used in investing activities was primarily due to greater investment in short-term securities during the three months ended March 31, 2021.

Net cash used in financing activities for the three months ended March 31, 2021, was $0.1 million which related to offering costs paid offset by proceeds from the exercise of options.

OFF-BALANCE SHEET ARRANGEMENTS

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

As of September 30, 2020, we have known contractual obligations, commitments and contingencies of $67.9 million related to our long-term debt, contract manufacturer and operating lease obligations.

Payment due by period (in thousands)

Less than 1 year

More than 5 years

Contractual obligations

Operating leases

Long-term debt

Contract manufacturer

The terms of certain of our licenses, royalties, development and collaboration agreements, as well as other research and development activities, require us to pay potential future milestone payments based on product development success.

The above table excludes such obligations as the amount and timing of such obligations are unknown or uncertain.

CRITICAL ACCOUNTING POLICIES

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

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the applicable period.

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

We define critical accounting policies as those that are reflective of significant judgments and uncertainties and which may potentially result in materially different results under different assumptions and conditions.

In applying these critical accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates.

These estimates are subject to an inherent degree of uncertainty.

Our critical accounting policies include the following:

Revenue Recognition.

The Company recognizes revenue under ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”).

The core principle of this revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

The following five steps are applied to achieve that core principle:

Identify the contract with the customer

Identify the performance obligations in the contract

Determine the transaction price

Allocate the transaction price to the performance obligations in the contract

Recognize revenue when the Company satisfies a performance obligation

In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct.

A performance obligation meets ASC 606s definition of a distinct good or service (or bundle of goods or services) if both of the following criteria are met:

● The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct);

● The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).

If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes).

The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

The transaction price is allocated to each performance obligation on a relative standalone selling price basis.

The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.

Stock Compensation.

We have granted stock options and restricted stock to employees, directors and consultants, as well as warrants to other third parties.

For employee, director and consultant grants the value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model.

The Black-Scholes model takes into account volatility in the price of our stock, the risk-free interest rate, the estimated life of the option, the closing market price of our stock and the exercise price.

We base our estimates of our stock price volatility on the historical volatility of our common stock and our assessment of future volatility;

however, these estimates are neither predictive nor indicative of the future performance of our stock.

For purposes of the calculation, we assumed that no dividends would be paid during the life of the options and warrants.

The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of management judgment.

In addition, because some of the options, restricted stock and warrants issued to employees, consultants and other third parties vest upon the achievement of certain milestones, the total expense is uncertain.

Compensation expense for such awards that vest upon the achievement of milestones is recognized when the achievement of such milestone becomes probable.

Accruals for Clinical Research Organization and Clinical Site Costs .

We make estimates of costs incurred in relation to external clinical research organizations, or CROs, and clinical site costs.

We analyze the progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability.

Significant judgments and estimates must be made and used in determining the accrued balance and expense in any accounting period.

We review and accrue CRO expenses

and clinical trial study expenses based on work performed and rely upon estimates of those costs applicable to the stage of completion of a study.

Accrued CRO costs are subject to revisions as such trials progress to completion.

Revisions are charged to expense in the period in which the facts that give rise to the revision become known.

With respect to clinical site costs, the financial terms of these agreements are subject to negotiation and vary from contract to contract.

Payments under these contracts may be uneven, and depend on factors such as the achievement of certain events, the successful recruitment of patients, the completion of portions of the clinical trial or similar conditions.

The objective of our policy is to match the recording of expenses in our financial statements to the actual services received and efforts expended.

As such, expense accruals related to clinical site costs are recognized based on our estimate of the degree of completion of the event or events specified in the specific clinical study or trial contract.

Accounting for Income Taxes .

In preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.

This process involves management estimation of our actual current tax exposure and assessment of temporary differences resulting from differing treatment of items for tax and accounting purposes.

These differences result in deferred tax assets and liabilities.

We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance.

To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the consolidated statements of operations.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.

We have fully offset our deferred tax assets with a valuation allowance.

Our lack of earnings history and the uncertainty surrounding our ability to generate taxable income prior to the reversal or expiration of such deferred tax assets were the primary factors considered by management in maintaining the valuation allowance.

continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.

CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

For a description of our significant accounting policies, refer to "Part II, Item 8.

Financial Statements and Supplementary Data, Note 1 – Organization and Summary of Significant Accounting Policies"

in our 2020 Annual Report on Form 10-K, and refer to Note 1 in this Quarterly Report on Form 10-Q for significant accounting policies due to commercialization for revenue recognition, gross-to-net sales adjustments, accounts receivable, inventory, and cost of product revenue.

Of these policies, the following are considered critical to an understanding of our Unaudited Condensed Consolidated Financial Statements as they require the application of the most difficult, subjective and complex judgments:

stock-based compensation expenses, and fair value measurement of financial liabilities.

Refer to "Note 5 – Stockholders’ Equity"

and "Note 4 - Fair Value Measurements,"

respectively, for more information.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2018-11, Leases - Targeted Improvements (ASU 2018-11) as an update to ASU 2016-02, Leases (ASU 2016-02 or Topic 842) issued on February 25, 2016.

ASU 2016-02 was effective for public business entities for fiscal years beginning January 1, 2019.

ASU 2016-02 required companies to adopt the new leases standard at the beginning of the earliest period presented in the financial statements, which is January 1, 2017, using a modified retrospective transition method where lessees must recognize lease assets and liabilities for all leases even though those leases may have expired before the effective date of January 1, 2017.

Lessees must also provide the new and enhanced disclosures for each period presented, including the comparative periods.

ASU 2018-11 provides an entity with an additional (and optional) transition method to adopt the new leases standard.

Under this new transition method, an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new lease standard will continue to be in accordance with ASC 840, Leases (ASC 840).

An entity that elects this additional (and optional) transition method must provide the required ASC 840 disclosures for all periods that continue to be in accordance with ASC 840.

The amendments do not change the existing disclosure requirements in ASC 840.

ASU 2018-11 was effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlier adoption permitted.

The Company adopted ASU 2018-11 on January 1, 2019 using a modified retrospective method and did not restate comparative periods.

We elected the package of practical expedients permitted under the transition guidance, which allows us to carryforward our historical lease classification and our assessment on whether a contract is or contains a lease.

The adoption of this guidance resulted in the addition of material balances of right of use assets and lease liability to our consolidated balance sheets at January 1, 2019, primarily relating to our lease of office space (see Note 8).

The impact to our consolidated statements of operations was not material as a result of this standard.

In June 2018, the FASB issued ASU No.

2018-07, Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07).

ASU 2018-07 expands the scope of FASB Topic 718, Compensation Stock Compensation (Topic 718) to include share-based payment transactions for acquiring goods and services from nonemployees.

An entity should only remeasure equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

Upon transition, the

entity is required to measure these nonemployee awards at fair value as of the adoption date.

The entity must not remeasure assets that are completed.

Disclosures required at transition include the nature of and reason for the change in accounting principle and, if applicable, quantitative information about the cumulative effect of the change on retained earnings or other components of equity.

ASU 2018-07 was effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.

The Company adopted ASU 2018-07 on January 1, 2019.

The adoption of ASU 2018-07 did not have a material effect on our consolidated financial statements as of January 1, 2019.

The adoption of ASU 2018-07 had no impact on nonemployee performance awards as they are measured based on the outcome that is probable.

Other pronouncements issued by the FASB or other authoritative accounting standards group with future effective dates are either not applicable or not significant to our consolidated financial statements.

Refer to "Note 1 - Organization and Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recently issued accounting pronouncements, and their expected impact on our financial position and results of operations.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis